Federal Budget 2018-19
The Federal budget for fiscal 2018-19 is the swan song of a government on its way out. Overloaded with promises and empty programmes, it tries to please everyone ahead of the coming elections. The Rs5,932.5bn budget represents a ten percent increase in spending from last year. The emphasis has shifted from development to expenditure, specially current spending as provisions for expenditures, salaries, pensions have been increased generously where they matter most for the government. Given that this is PML-N's election year budget, with constituents and power players to appease, nearly all heads under current expenditures register marked increases from last year's budgeted amounts.
After an increase last year, the federal Public Sector Development Programme (PSDP) has been slashed by 20pc compared to last year's amount, falling to Rs800bn this year. Although the government mentions the total federal PSDP will be equal to Rs1,030bn, the additional Rs230bn will not come out of the federal government's pockets, instead being provided by "self financing by corporations and authorities". The provinces' share of PSDP has also been slashed by around 24pc to Rs850bn, bringing both the federal and provincial PSDP closer to revised spending in the current year of Rs750bn and Rs800bn, respectively.
The federal health budget, on the other hand, has been jacked up by only 8.2pc to Rs13.89bn, of which hospital services will eat up Rs11.66bn. The federal education budget has been enhanced by Rs6.9bn (7.1pc) to Rs97.4bn, with the increases mainly provisioned for provision of services from pre-primary through tertiary education. The tertiary education budget on its own has been increased by only 5.23pc. Pension payments register a whopping 37.9pc increase to Rs342bn, of which military pensions will account for Rs259.8bn (up 44.2pc from Rs180bn budgeted last year) while civil pensions will account for Rs82.2bn (up 21.2pc from Rs67.8bn last year).
On the revenue side, the government opted to reduce the tax burden on the common man - reducing income taxes significantly - while adopting a carrot and stick approach towards non filers and tax evaders. However, some tax heads have been revised upwards and people should expect to pay significantly more on imported items and petroleum next year. The Federal Board of Revenue's tax target has been increased by 10.5pc (Rs422 billion) to a total of Rs4,435 trillion. Rs140bn of the increase will come from direct taxes, while indirect taxes will account for the remaining Rs282bn.
In addition to increasing petroleum levy rates, the government also took some inflationary tax measures. The most regressive measure is the FBR's decision to increase 1% additional custom duty on almost all imported items except those that come on concessionary rates under the bilateral free trade agreements. The 1% additional duty will be applicable on 7,200 imported tariff lines. The other regressive taxation measure is the increase in further sales tax rate from 2% to 3%, which will generate Rs12 billion in additional revenues. The further tax is charged from those who are not registered sales tax persons and there are less than 150,000 registered sales tax persons. The decision will effectively increase the standard 17% General Sales Tax Rate to 20%, which is inflationary.
Under the direct taxes head, the government expects its lowered income tax rates to result in a substantial broadening of the tax base and add another Rs132bn to income tax collection. In percentage terms, this reflects a 8.36pc increase from the income tax target for last year. Under the indirect taxes head, customs duties will be Rs154bn higher than the previous year, reflecting a 26.5pc increase. This will likely reflect in higher prices on imported items. The remaining increase in indirect taxes will come from a Rs95bn (5.9pc) increase in sales taxes and a Rs35bn (15.1) increase in federal excise duties over last year's budgeted figures. All said, the new budget faces an uncertain future since nobody knows which party will win the next elections.