Let’s first agree, as the government never tires of telling us, that Pakistan today has macroeconomic stability. But let us also consider the stark economic reality faced by our citizens.
In the last three years, the average income of Pakistanis has decreased every year so that today we are poorer than we were three years ago, unemployment and hopelessness continue to rise as does the number of people living in poverty.
The situation is even worse when we consider that the additional taxes the government has imposed on our shrinking incomes mean that our average after-tax disposable incomes have fallen even faster than our average incomes over the last three years. In short, people are being rendered poorer and being forced to pay more in taxes.
The government, which controls electricity production and distribution, sells us expensive electricity but still loses a tremendous amount of money doing so, losses that the taxpayers and consumers are financing. Whether the high prices and losses are due to excess capacity, expensive power plants having been installed without competitive bidding, rapidly evolving technology, excessive technical or commercial losses, including through theft or inefficiency or even cross subsidy, is debatable. What is not debatable is that Pakistan has the most expensive electricity of any regional or peer country.
Because our government sells us exorbitantly priced electricity and gas, these bills end up being an enormous burden on the people. Thus the after-tax and after-utility-bills disposable income of Pakistanis has drastically shrunk over the last three years. And this devastating reduction in disposable income or purchasing power has caused severe stress to family budgets and has in turn further retarded economic growth.
Unfortunately, government-administered prices for power and gas, as well as petrol and diesel keep increasing for our homes, farms, shops and industry even though international natural gas and crude oil prices are at a record low. (For instance in April, 2022, the month PDM came to power, Brent oil was $110 and today it is $65 per barrel and imported LNG was for $15 and today it is $8 per mmbtu).
It is curious that, while the government celebrates collecting taxes at a faster pace than economic growth – hence rendering people with even less disposable incomes – it doesn’t wonder why its tax and energy policies are making Pakistanis poorer and our industry uncompetitive? Does it ask itself why our merchandise exports have decreased or why our unemployment has increased? Does it ask itself why multinationals are leaving, why hardly any foreign investment is coming and why even local investors have become wary of investing here? These are questions the government needs to ask itself and answer.
What the citizens and companies are asking is: what do we get by paying income and sales taxes at some of the highest rates in the world? Are our taxes being spent on population control? (We have the highest population growth in Asia, other than Afghanistan). Do our tax rupees go towards providing our poorest citizens decent healthcare? (Are government-run hospitals clean, with equipment and staff working and providing medicines?) Is our tax money educating our children? (Over 27 million or 40% of kids are out of school and half of the fifth graders in school are unable to do second grade math).
Are the police, paid for by our taxes, protecting us from crime? Do we have piped potable water in our homes? Do we have any garbage removal system in our neighbourhoods? Do our taxes entitle us to decent public transport or roads? What are we actually paying these taxes for?
When business persons talk to the government about injecting life into the economy by reducing tax, power and gas rates, the government’s one-word negative response is ‘IMF’. And it is true to some extent. But more than that it is this government’s unwillingness to carry out necessary reforms that renders it a bystander as the downward trajectory of the economy continues.
When the IMF says control the budget deficit, it is not giving wrong advice. But our government can control the deficit not just by raising taxes on the existing taxpayers. It can widen the tax net. Even more crucially it can reduce its expenditures. No donor agency has asked it to keep increasing the size and expense of the government. Or forced it to not reduce theft and inefficiency in the power and gas sectors. Or stopped it from privatising inefficient state-owned enterprises.
It is fairly obvious to most Pakistanis that our system of governance, with four large provinces awash in cash but without empowered local governments and a federal government always on the brink of financial ruin is not working. It hasn’t for almost two decades and it is why Pakistan is slipping in economic, health and education indices globally. In the most recent Human Development Index prepared by the UN, Pakistan has slipped nine places to come at 168 out of 193 nations. For context, Bangladesh is at 130 and Sri Lanka is at 82.
But our large and entrenched political parties are unwilling to undertake any reforms because they benefit politically from this extractive governance. And without meaningful and fundamental reforms, we will continue to bemoan our youth trying to go abroad for low-wage jobs, our rich getting a second passport in Europe, and Chinese and Middle Eastern investors, despite the most favourable conditions internationally in decades, giving Pakistan a pass.
When the government wants it can make policies quickly and against the IMF’s wishes. When the sugar mill owners demanded a handout for instance, the government changed policy and ensured that consumers paid Rs60 per kg more for sugar or Rs30 billion a month extra to the sugar mill owners. When it came to charging consumers Rs3.23 per unit more for electricity to pay for the theft, mismanagement and inefficiencies of the power companies, the government did act and increased your bills. When it needed to put a supertax on top of an income tax rate of 35% on salaried individuals making a few lakhs a month, the government found the will and political space to do so.
But when the IMF asks it to bring agriculture into the tax net so that people with hundreds of acres of irrigated land come into the tax net or stop giving huge subsidies to large fertiliser companies, the government finds itself unable to do so.
The Planning Commission estimated some years ago that Pakistan needs a minimum of 5% growth each year to absorb all the young men and women joining the labour force. Which means each year when our growth is less than 5%, we are adding to unemployment and hence poverty.
We know that growth will not come unless tax and utility rates are decreased and they in turn cause investment to increase. Therefore if you want to reduce poverty and unemployment, you have to reduce tax and utility rates. But this government has failed to do so.
When it comes to reforming the NFC Award (to reduce provincial share and thus our income and sales taxes) the government always has an excuse. When it comes to mandating effective and meaningful local governments or, failing which, create smaller provinces, our government always has an excuse. (Remember services like health, education, policing, water, roads, sewerage and garbage removal are local responsibilities and absent empowered local governments, we only pay for these services through our taxes and get nothing back).
The fact is that an IMF programme doesn’t stop this government from undertaking reforms. It doesn’t carry out reforms because it doesn’t find it politically expedient.
The writer is a former finance minister and secretary of Awaam Pakistan.
Disclaimer: The viewpoints expressed in this piece are the writer's own and don't necessarily reflect Geo.tv's editorial policy.