Daily Times

Imran Khan is not an exception; whoever comes to power, after every few years, lays out his dream or at least makes it a campaign slogan to make Pakistan a welfare state,but soon tumbles when reality strikes.

A welfare state is narrowly defined as a state that makes spending arrangement to provide cash benefits to the poor households and provide essential services like child care, health, and education to the general public free of cost. Proponents of a welfare state in Pakistan idealise welfare states in the western part of the world such asCanada, Netherlands, Sweden, and, most importantly,Norway. A typical welfare state in the west spends between one third and one-fifth of its GDP on social spending. In 2018, according to OCED, France spent about 32 percent on social programmes while Norway spent 25 percent.

Not all the states spend equally, and it depends on the universality of and range of services provided in the welfare states. Therefore, the states can be ranked on a scale of welfarism, but that is not our primary focus of debate here. Our primary focus is on howrealistic it is for Pakistan to aspire to be a welfare state.Should Pakistan strive to emulate a welfare state like Norway or a non-welfare modern country like Singapore?

In my view,Pakistan does not have financial resources to become a welfare state, which can provide quality essential services like income security, health, and education free of cost. Pakistan cannot spend one-fourth of its GDP on welfare projects. Pakistan’s total annual GDP is roughly about 300 billion dollars, and 25 percent of that would amount to 75 billion dollars, which is unimaginable in the current circumstances. Pakistan’s entire expenditure budget for 2019-2020 is way less than 75 billion dollars, and a significant chunk of that budget goes to non-social expenditure like defence, infrastructure development, and debt payment.

A report from UNESCAP titled “Social Outlook for Asia and the Pacific 2018: Poorly Protected” ranks Pakistan at the bottom in terms of social spending. According to the report,Pakistan’s social spending is only 2 percent of the GDP, while the global average is 11.2 percent. It is as clear the sun shining on a bright morning that Pakistan still struggles to fund thismeager amount and has to repeatedly go to multilateral donors like IMF, World Bank and ADB, and to friendly countries to bridge the funding gaps. Getting money externally has its cost interms of foreign and domestic policy compromises.

An actual welfare state is possible only when a country is rich with a small population overall and even smaller facing poverty. For example, Norway is a wealthy country with a tiny population of 5.5 million as compared to Pakistan that has 220 million. Norway is extraordinarily efficient in exploiting her natural resources while the story for Pakistan is the otherway round. Norway, with such a small population, has a GDP of 400 billion dollars, which is 100 billion dollars more than that of Pakistan. Therefore,Norway can set aside 100 billion dollars for the social sector, the amount almost twice that of Pakistan’s total expenditure budget of 2019-2020, and that is on just 5.2 million people.

Norway is one of the least corrupt countries in the world, while Pakistan is one of the most. In 2019 Norway’s sovereign wealth fund, which invests in the stocks of more than 9,000 companies worldwide, made a profit of 180 billion dollars more than threetimesPakistan’s total annual expenditure budget. Despite having such an enormous income, Norway taxes its citizens upward of 35 percent on their yearly income. In Pakistan, which has struggled to widen its tax base, people do not want to pay tax at even at the rate of 10 percent and make every effort to evade it.

All the welfare programmes like BISP/Ehsaas , shelter homes, Sehat Card are running on borrowed money. And their unchecked expansion will only result in further debt burden

Therefore, it is nothing but a fool’s errand to imagine that Pakistan can or will be able to become a welfare state any time soon. Providing universal health, education, and other essential services to 220 million people in addition to providing income safety to those living at or below the poverty line is an impossible task for a cash-starved country like Pakistan. The sooner the Pakistan government realises this, the better the future will be.

All the welfare programmes like BISP/Ehsaas ,shelter homes, Sehat Cardare running on borrowed money. And their unchecked expansion will only result in further debt burden, putting pressure on an already fragile economy by driving the currency down and inflation up. Programmes like these can be somewhat effective in the short term but cannot be adopted as a long-term strategy to lift masses out of poverty as well as stabilise the country’s economy at the same time.

So what should be Pakistan’s strategy in the longterm? For the answer, Pakistan needs to look to Singapore. Financial sustainability is the foundation stone of every government initiative there. Singapore is also a wealthy country, but the richness did not come from natural resources but from the right public policies.

In Singapore, people have to pay for everything like health, education, and child care, but not on the spot or over the counter as this can plunge many people into poverty. Instead, Singapore has designed innovative financial instruments like insurance schemes and retirement plans in which both citizens and employers must contribute. People can draw from these pooled funds for their health expenses and other contingencies as they require. And if they do not withdraw money, they can get all the amount on retirement. This provides them an incentive to remain healthy. All other services, like water, electricity, and public transportation, are financially sustainable and meet all the costs from the revenue they generate.

On the other hand, income tax in Singapore in one of the lowest in the developed world. The maximum individual income tax for the rich is 22 percent per annum. The low tax rate, coupled with innovative financial instruments, give people a lot of incentive to remain healthy and productive.

Pakistan, with low tax income and persistent failure to generate revenue by other means, should also start working on innovative financial instruments that people can use to meet their health and educational expenses. This will not only save people from paying high over-the-counter costs for essential public services but will also raise the quality of these services to acceptable global standards. Countries like Pakistan cannot become prosperous by becoming welfare states but by pushing people to take responsibility for their health and other necessities. Pakistan’s path to development and prosperity lies in institutional reforms that can guarantee the rule of law, contract and property rights, control of corruption, and ease of business, to name a few. And sadly, it seems that PTI govt has not realised this yet.

The writer is currently pursuing a Ph.D. at LKY School of Public Policy, National University of Singapore