Every year budget season comes and turns into a national spectacle, returning with the same fanfare and the same disappointment. We categorise it as a national vision of economic growth when in truth it is merely a plan showing how well the government manages its finances. Dr. Ali Salman, Founder and CEO of PRIME Institute, argues that Pakistan has turned the budget presentation into a fanfare, and that this itself has become the problem. We are featuring this piece as the opening read for an upcoming RDS discussion on fiscal policy, public finance, and whether Pakistan's budget culture is structurally broken.
Every year, federal and provincial governments in Pakistan engage in the budget exercise. They organize briefings, conduct consultations, seek representations. They prepare proposals. They create hope. They list dreams. They also encourage groups, think tanks, political parties and business associations to present 'shadow' budgets. Every year, we see a humdrum around budget with new tax ideas, new ways to manage public finance, new methods to collect and spend revenue. This is a fundamentally flawed, misleading and futile exercise. Budget should be a boring event.
First things first. Budget is a government finance document, in which the administration tells us how it plans to collect revenue and spend it. Period. It is not a national vision of economic growth and must never be seen in this light. Budget is not an industrial policy either. Budget is certainly not a trade policy.
If we keep budget to what it is — a plan, where the Finance Minister announces how good or bad a government is in managing its finances — it will be much simpler.
Of course the Finance Minister goes much beyond. The budget seeks to distribute and allocate resources. It promises relief. It prefaces growth. It takes money from my pocket and puts this money in another's pocket — of course without my consent. It's a theft. I have a very simple idea of taxation: I part a portion of my income so that the government can run its affairs — because it has to deliver certain public goods, which cannot be efficiently run in a private market. I am not for redistribution to be done by the state. Even if it is done for the poor. I believe that society — through its voluntary mechanisms — has a remarkable capability to take care of weaker members.
No serious policy change can be designed and implemented in one budget cycle.
We have made budget an exercise where we invite all stakeholders to make representations to seek special treatments, through exemptions, reductions, and additions. Depending on how power is constituted during the budget season, specific proposals find their way into the budget — only to be sent to the exit door in the next year. Since budget is essentially a one-year exercise, it creates huge uncertainty. Not just in the private sector, but also in the government itself.
Typically all such changes are brought out in an opaque manner — without any public discourse, or published papers. There might be some brilliant ideas — or corrections — however they remain valid for one year only. Next year, they are again brought to the chopping block.
Taxes — and tariffs for that matter — should not be the building block of a business plan. They should of course be considered. Businesses should be driven by profit opportunities and not directed by tax exemptions, preferential treatment or tax holidays. By making budget a fanfare, the government creates opportunities for all to seek all possible benefits. It creates a rent-seeking culture.
A budget — an annual exercise — should not be seen from the lens of transformation, relief, or growth. These are all wrong questions — and misleading expectations.
Budget should be seen as an annual plan to achieve a long-term growth strategy. That means, first of all, that taxes, and their rates, must remain stable for a long time — at least for five years. The collection will either grow or will decline — and that should guide government to adjust its size, functions, and services in either direction.
As economists, we should begin to pay less attention to the budget. We should discuss broader ideas, politics and society using the tools we have acquired. Economics is a fascinating discipline. Let it not be drowned in fiscal rituals.