By Anzal Amin
ISLAMABAD: The federal government on Monday shared roughly Rs17.5 trillion worth of new budget framework with its key ally the Pakistan Peoples Party which endorsed an 18% increase in defence spending due to tensions with India but termed the development allocation insufficient.
Like this year, the government is planning to unveil a fiscally-tight stabilisation budget, which is being constructed around a very high primary surplus target, according to a briefing given to the PPP delegation, led by Bilawal Bhutto Zardari.
The PPP, which is providing crucial support to the government in the National Assembly, met with Prime Minister Shehbaz Sharif and his economic team to discuss the budget matters.
The size of the budget is lower than Rs18 trillion, which is less than this year’s budget due to steep reduction in the interest expense on the back of an 11% cut in policy rate by the central bank.
However, there was a consensus between the PML-N and the PPP to increase the defense budget due to the recent wave of tensions with India, said the sources. They said that the PPP backed the proposal to increase the defense budget by 18% to over Rs2.5 trillion in the light of the prevailing security threats.
Both parties were having divergent views on the next fiscal year’s Public Sector Development Programme. The government has proposed Rs1 trillion PSDP; however, the PPP asked for a larger allocation.
For this fiscal year, Rs1.1 trillion had been allocated but spending fell far behind the allocation. One of the participants suggested setting the PSDP at this year’s actual spending level, which will be significantly lower than the Rs1 trillion proposed allocation. Planning Minister Ahsan Iqbal declined to comment on the PPP’s reservation about low development budget allocation. The government is planning to maintain fiscal discipline and create a primary budget surplus double than this fiscal year as part of its understanding with the IMF to lower debt burden.
Prime Minister Shehbaz Sharif constituted a committee under the chairmanship of Deputy Prime Minister Ishaq Dar to build a consensus between the PPP and the PML-N on the next budget. The budget will be presented in the National Assembly before Eid holidays.
Pensions might be increased by 7% and salaries at this stage are proposed to be raised only 6% aimed at meeting the IMF demand of keeping the employees-related expenditures frozen at this year’s level in terms of the size of the economy.
However, both the proposed increases may go up from the 6% and 7% levels, said the sources. The average inflation is expected to remain around 5% and the government has linked the increase in salaries with inflation rate. Some members of the PPP delegation also termed the next fiscal year’s proposed Rs14.3 trillion tax target unrealistic due to a slowing economy, squeeze being faced by the businesses and negative growth in the large scale manufacturing, said the sources.
The PPP also asked the government to prioritise sectors that need to be protected and promoted to get economic growth. It advised the government not to take any adverse measures that can hurt the agriculture sector, said the sources.
The PPP also sought tax relief for the salaried class, which was adversely affected by the heavy taxation in the last budget.
The sources told The Express Tribune that the government may impose income tax on high-end pensioners but is considering providing some relief to the marginalized salaried persons by enhancing their tax exemption threshold and also lowering rates against various slabs.
There are proposals to introduce income tax on pensioners and at the same time reduce the rates for the salaried class, subject to the clearance by the IMF later this month, according to a top official of the Federal Board of Revenue.
