It’s a winter of discontent all over! (The News)

 

It’s a winter of discontent almost everywhere – even in the rich G8 countries. As a citizen of limping and crawling Pakistan where almost all seasons are seasons of discontent, sometime a global perspective is reassuring, if not sadistically satisfying. The issue everywhere is the economy — a subject casually attended in our country by almost all the governments.

In USA, more recently the Democrat Party lost badly to the Republicans in the mid-term elections. The congress would be now dominated by the Republicans making President Obama’s reform agenda implementation difficult. Even the Democrat’s majority in Senate has thinned out. Reason: Obama also accepted is jobs and economy. US unemployment rate is over 9.6% and many have lost their homes in the last financial meltdown.

In France the people are protesting a’ la Pakistan style burning cars, breaking into the stores and throwing bottles at the police. Reason: the government wants to raise the retirement age to 62 from the present 60 years and the unemployment is at an all time high of about 10%. As the life span of people in the developed countries has increased and birth rate has dropped the dependency ratio is very high, which the economy cannot bear anymore. President Sarkozy, who was pretty popular when he came, is now disliked by 70% of the French people.

In Britain people were protesting in a more civilized British style. All the major trade unions, Labour Party, left parties and NGOs were out protesting against the cut in welfare programmes. Reason: the Conservative and Liberal Party alliance wants to cut the deficit by £81 billion by year 2014. To achieve this objective 490,000 public sector employees will lose their jobs. Many will have to be chucked out from the council financed housing, per child annual allowance will be trimmed and health support programme will also be slashed. All the so-called reforms in European countries, most commentators agreed, will hurt mostly the poor.

In USA though the Obama government managed to get its Health bill which is going to help the poor who were not covered, passed after hard labour, the business and the rich were not happy with that. Obama’s policies to help the less privileged will be obstructed in the Congress by the Republicans who support the tax cuts as the panacea for all ills – a pro-middle class and rich policy.

Now the commonality in these rich developed countries and Pakistan is that all the sitting governments are going to pay for the economic mismanagement of their predecessors. Interestingly, in a country like USA, in spite of a high literacy rate, which many pseudo intellectuals in Pakistan say is the pre-requisite of having a democratic system, people have voted for the Republican party in mid-term elections that created grounds for the eventual economic crisis.

Though in Pakistan we cannot absolve the present government from economic mismanagement and taking it casually, its predicament is the same – they inherited an economy when the chips were down. The Musharraf government, which managed the economy quite reasonably in the initial few days, deferred all tough decisions in the hope to win the elections. The benefit of the fiscal space provided by the restructuring of Pakistan’s foreign debt and inflow of financial assistance inflow for rendering our designated strategic service were squandered in the last two years by Musharraf’s government. The uncertainty created after the summary dismissal of the Chief Justice of Pakistan and assassination of Benazir Bhutto further dampened the growth. As if that was not enough the recent unprecedented floods drowned all hopes of economic stabilisation.

Now the big question for this government is how to kick-start the economy? One tested way in most countries is pumping in money in the big public sector programmes and bringing the interest rate down to encourage investment and consumption. But this prescription is forbidden for Pakistan by the economists and real managers of the economy – IMF and World Bank. All the countries which followed this path had higher budget deficits than Pakistan.

The pressure to increase electricity rates and cut circular debt is not unjustified. The government should seriously first try to cut on the huge T&D loses that are caused because of theft, non-payment of bills and delayed payments of bills and then go to the people for any increase in the electricity. But without putting the electricity sector in order, the burden passed on to the low-end users is absolutely unreasonable.

But for Pakistan all IMF conditions, barring one, are making life worse for the low income people in particular. The only just demand is that Pakistan should improve its tax to GDP ratio, which is pathetic at present. There is no doubt that it can increase many times if the government instead of milking the present tax cows to death, widens the tax net. This is not something new and has been repeated ad nauseam by all and sundry. We have now come to a stage that even Hillary Clinton and Holbrooke have chided us for not taxing the rich and expecting the world to bail us out.

But there seems to be reluctance in this regard. At present as Pakistan Business Council has pointed out in its Pakistan Business Agenda the major burden of taxes is on the organised manufacturing sector. Since Zia’s time when Dr. Mahbubul Haq was the finance minister for a short while, all efforts to broaden the tax base have been sabotaged. The tax evaders generally hide behind the plea that VAT or ‘reformed GST’ would increase the prices and affect the poor man.

The government on the other hand had never realised that it can only bring in new taxes or expand its base if they have a proper communication strategy to educate the people on how the system would work and what would be the impact of these taxes on them. The emphasis here is on ‘REAL’ and not the one which the bazaar and service sector will try to pass on to the consumers to make more profit.

The government’s helplessness can be gauged from the fact that President Zardari’s advice that one-time flood tax should be put on the rich for generating funds for the rehabilitation of flood affected people has no takers in his own government. (ayazbabar@gmail.com)

 

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