The government’s hesitation regarding the new mini-budget is perfectly understandable, given that it would lead to a massive spike in prices of even essential commodities in the short and medium terms. Alongside this, it is clear that the opposition is preparing itself to sternly take the government to task over changes to the State Bank of Pakistan law and the mini budget both. This will entail a clash in both parliament and beyond, although it is clear that the parties will wait until at least March until they really switch gears and take the fight to the ruling party.
The current situation has us caught between a rock and a hard place. The government needs the IMF bailout but to get it would mean drastically cutting down on the purchasing power of households alongside completely clamping down on growth in the economy.
The ‘rationalisation’ of the sales tax mechanism is one of the most regressive policy decisions we have seen in recent years. Everything from baby milk formula, to other dairy products, essential technology, seeds for agriculture, and imports related to disaster management were initially reported to see a sudden increase in price. The effects of this—both in terms of state revenue and prices—cannot yet be calculated, simply because many of these sectors have never been brought under the taxation mechanism before.
With 144 items reportedly targeted, experts predict that Pakistan could see a host of problems arise out of this, even if taxation revenue would increase drastically. However there is confusion abound even within the government’s Finance Ministry and Federal Board of Revenue. There are glaring anomalies within the new mini-budget. In what looks to be an attempt to stave off criticism, the government might have actually deleted lines in the fifth schedule of Sales Tax, which made locally produced infant formula milks and cereals liable to 17 percent in tax.
Malnutrition, an unceremonious end to the tech revolution, increasing digital divide, agricultural and export slowdown and a more expensive disaster management strategy are only some of the more obvious ramifications.
On the macro level, this means that all the growth targets the government has tried to achieve in its term will be rendered irrelevant. It is unclear how the government will manage to hold on to its core voter base after this—as evidenced in KP, the government’s economic policies seem to be catching up, leading to a decrease in its support. With two years left in its tenure, the government will have to bear the ignominy of being unable to follow through on its economic promises.
