Editorial: The News - 21 June 2013

Banking on change

The message was clear and unambiguous – there is no such thing as a free lunch. It comes from the visiting International Monetary Fund team led by Jeffery Franks who has said that there can be no ‘soft terms’ in the upcoming bailout package unless there are wide-ranging structural reforms that would stabilise the macro-economic indicators, which are currently well into the red. Unless those reforms are in place, the IMF is going to attach the most stringent of conditions to whatever it eventually decides for Pakistan. There have been too many broken promises in the past, and there exists a significant trust deficit between Pakistan and the global lending fraternity.
In a new development, representatives of the four provincial governments have been asked to join the talks. The provinces now handle huge devolved budgets with varying degrees of skill and transparency, and have hitherto had no ‘ownership’ of the national economic problems. They are major shareholders in revenue resources and under the NFC Award are going to get Rs1.5 trillion from the Divisible Pool. There is no reason why provincial governments should not be a part of the fiscal disciplinary regime as is the federal government. The target is to reach a budget deficit of 6.3 percent in 2013-14 by reducing expenditure by 30 percent and increasing revenue generation to Rs2,475 billion – both targets being extremely ambitious. This is where voodoo economics hits the icy fiscal realism of the IMF. It has questioned the rationale of a 50 percent increase in the federal share of the development budget up to Rs540 billion given that the country has zero fiscal space. Likewise, the IMF wants to know how the government is going to fund the fiscal deficit of 6.3 percent when it has just hiked salaries by 10 percent. There is no escape now. Pakistan needs the bailout of $4.5 billion to pay off the installments of the last loan it defaulted on, and that is before it asks for a further loan to prop up an economy that floats on a raft of remittances and the monetary equivalent of Dark Matter. The IMF team is here to assess Pakistan’s ability to pay back any loan it may be given. There is no guarantee the country will get what it asks for unless it demonstrates both the will and the capacity in the next two years to evolve a culture of accountability, fiscal parsimony and above all a tax regime that is inclusive of the richest in the land no matter who they are. The utter failure to create and sustain an equitable and collectible system of taxation lies at the very core of virtually every trouble Pakistan has.

Who makes law?

Once again the apex court is applying a little judicial course correction for the sitting government, this time in respect of the increase in the General Sales Tax (GST) by one percent in the recent budget. On Wednesday Chief Justice Iftikhar Chaudhry said that only parliament could impose taxes. He also said that taxes, while they are proposed by the government, have to be ratified via parliament before they become part of the common law. The CJ was hearing a suo motu case regarding the recent increase in GST, and was seemingly unimpressed by the argument of the attorney general that the government was entitled to unilaterally impose taxes under the Provisional Collection of Taxes Act 1931 (PCTA). That the government takes refuge behind colonial-era legislation bodes ill for the next five years.
The CJ was informed that food items and medicines were exempt from GST as they always have been, and that the increase in GST in no way affected the prices of exempt items. The court was further informed that the Federal Board of Revenue has been tasked to inform the general public ‘through all available means’ of which items were exempt and which were not. The argument went back and forth with the AG and the counsel for the Oil and Gas Regulatory Authority (Ogra) both arguing that the government could use the PCTA to unilaterally increase, or otherwise vary, any tax it chose. The CJ holds the moral high ground in noting that the GST increase has quickly fed into a sharp inflationary spiral on all kitchen items, a rise also pushed by an increase in fuel prices. Thus direct taxation in one area impinges upon the prices of untaxed goods – hardly an unexpected consequence. In the PCTA the government has a loophole in parliamentary decision-making, allowing it to bypass parliament and effectively rule by decree in this matter – not an ideal state of affairs. And though the CJ is morally correct, as long as the PCTA is still on the statute books, it is as much open to use or abuse as is any other piece of legislation. Further, the government is unlikely to repeal or strike down the PCTA simply because of its convenience-value. Ideally, the PCTA should have long ago been amended to be used only in extreme emergencies, if at all. Now it seems that parliament was rendered a virtual irrelevance in the matter of the raising of GST. It is going to be up to the opposition parties to organise, if they can, parliamentary protest. Is it the shape of things to come? Maybe – or maybe not as the court is to announce its verdict today.