Budget 2010-11: a difficult budget in difficult times

ZAHEER ABBASI

ISLAMABAD (updated on: June 06, 2010, 06:46 PST): The government on Saturday announced
a consolidated budget outlay of Rs 3.259 trillion for next fiscal year, with 4 percent budget
deficit, and what the Federal Finance Minister was careful to refer to as deferring the reforms of
GST, understood by the galleries as reluctant to use the three-letter word 'VAT', till October 1,
2010 instead of July 1, 2010, but increased the GST from existing 16 to 17 percent.

VAT MADE TO WAIT TILL OCTOBER 1 The total revenue is projected at Rs 2,574 billion while
gross federal tax and non-tax revenue are projected at Rs 2,411 billion. The Federal Board of
Revenue collection is estimated at Rs 1,667 billion or 9.8 percent of the GDP. The provinces
would be transferred Rs 1,033 billion in the next fiscal year under 7th NFC Award as compared
to Rs 655 billion estimated for the on-going fiscal year. The federal budgetary outlay is
proposed at Rs 2.229 trillion or 13.9 percent of the GDP.

Dr Abdul Hafeez Sheikh who took oath just a few hours before the budget as Finance Minister
to present his first and the third budget of the incumbent government, announced that the
federal government employees would be allowed an ad hoc monthly allowance equal to 50
percent of one month's basic pay and announced to freeze all the current expenditure of the
government, except salaries under austerity measures.

However, the benefit of ad hoc increase would not be available to the federal government
employees who are already recipient of a monthly allowance equal to one month's basic pay.
The minister said the budget is one important instrument of economic management however,
the importance of this one-year ritual should not be over exaggerated.

The government also announced to double the medical allowance for employees working in BS-
1 to 16 and increased the medical allowance by 15 percent of those above Grade 16. The
pension of those who had retired after 2001 was increased by 15 percent and those who had
retired before 2001 by 20 percent. The minimum monthly pension was proposed to be
increased from Rs 2000 to Rs 3000 while the rate of family pension was enhanced from 50 to
75 percent. The government also announced a scheme for providing employment to the
200,000 unskilled in rural areas with an amount of Rs 5 billion.

Federal Excise Duty (FED) has been increased by Rs 1 on per filter rod of cigarettes and FED on
natural gas to Rs 10 per mmbtu besides levying FED @ 10 percent ad valorem on air
conditioners and deep freezers. Hafeez said no custom duty on any product would be increased
rather duty on 29 categories of products has been reduced to lower the burden of dearness on
the people.

He said continuous changes in the GST have distorted the tax and the government wanted to
reform it to make it uniform rather than multiple tax rates between 16 to 25 percent. The
education, food and health would be exempted under reform mode of GST, government
intends to implement from October 1, 2010 by taking on board all the provinces. The proposed
GST reform would not apply to turnover less than Rs 7.5 million per year whereas the current
threshold is Rs 5 million per year. This would help broaden the tax net instead of burdening the
existing taxpayer.

Outlining the ultimate objectives of the budget, the Finance Minister said priorities would be to
protect the growth by enforcing fiscal austerity, eliminating waste and tightly controlling
expenditure, curtailing inflation, which is primarily a monetary phenomenon, reducing
borrowing from the State Bank of Pakistan and achieving a measure of self reliance through
better domestic resource mobilisation.

We are playing with fire by borrowing excessively and have to move towards self-reliance. The
government would provide targeted subsidy to the poor, reduce burden of public sector
enterprises and would ensure that the economic recovery is employment oriented. The ongoing
energy shortage and law and order situation are major hindrances in the way of economic
growth, the minister added.

The minister said the first differentiation is that this budget is based on transparency in the
budgetary process involving widespread consultation while the second differentiating feature is
that the budget is realistic while third feature of the budget is that this is the first post-NFC
budget.

He said that the co-operation, partnership and enhanced role for the provinces is an integral
part of the budget and provinces would be transferred additional resources to spend on law
and order, education, health drinking water and municipal and ultimately reduce fiscal space of
federal government.

Another feature of this budget is that the government is operating in the framework of
international commitments. "It is important that we as a sovereign nation keep our
commitments and do not erode our international credibility," he said, adding that while
maintaining international obligations we must ensure that we become self-reliant and less
dependant on foreign borrowing and assistance.

Copyright Business Recorder, 2010

Measures taken in budget to reduce inflation, improve

economy: Hafeez

ISLAMABAD (updated on: June 06, 2010, 15:40 PST): Federal Minister for Finance Dr. Hafeez
Shaikh said on Sunday that several measures had been taken in the federal budget 2010-11
which would certainly help reduce inflation, budget deficit and improve the national economy.

He stated this while addressing a crowded post-budget press conference here at Pak
Secretariat.

The Minister was flanked by Deputy Chairman of Planning Commission Dr. Nadeem ul Haq ,
Secretary Finance Salman Saddique, Chairman of Federal Board of Revenue and Special
Secretary to Finance Ministry Asif Bajwa and Principal Information Officer (PIO) Rashid
Chaudhry. Senior officials of the Ministry of Finance and Economic Affairs and Planning
Commission were also present on the occasion.

The Minister said the current expenditures of the government had been cut down and freezed
to help reduce inflation.

"Cut in the government's current expenditures would have positive impact on the inflation," he
remarked.

Besides, he said, the government did not increase the customs duty, rather it had been
reduced on 29 items which would also contribute positively in reducing the inflation across the
country.

The Finance Minister said the government under income tax measures has enhanced
exemption limit for the salaried taxpayers from Rs. 200,000 to Rs. 300,000.

In addition, he said, exemption limit for non-salary income has also been raised from Rs.
100,000 to Rs. 300,000.
Highlighting the General Sales Tax (GST), the Finance Minister said that the government was
committed to reform the existing system of General Sales Tax (GST) and introduce a uniform
taxation system in the country.

He said the GST reforms would eliminate multiple tax rates and replace it with a single lower
rate of 15 per cent adding that 1 percent raise in GST was only for three months. It would be
reversed to 15 percent after three months, he added.

He clarified that 1 per cent increase in the GST would not cause inflation rather after three
months the uniform GST system would help reduce the inflation for the relief of the people.

The Federal Minister said that earlier discussions held on the issue of GST were not based on
facts adding that the government wanted to introduce uniform rate by reforming the existing
GST in consultation with the provinces.

Replying to a question, Finance Minister said 50 per cent ad hoc relief announced for the
government servants would not be applicable to the cabinet members rather their existing
wages would be cut by 10 per cent as an austerity measure and to reduce inflation.

He said the current 50 per cent ad hoc relief would also not be applicable to the police, armed
forces and judiciary as their salaries had already been increased to 100 percent.

He said that the 50 per cent ad hoc increase for the government employees would be
implemented on their running basic salaries.

Dr. Shaikh said that all the corporations following the government pay structure would also be
provided resources to transfer the ad hoc relief to their employees.

The Minister said that Pay and Pension Committee had submitted its report on the salaries and
wages of the government employees and the government was focusing to implement it in
letter and spirit in next three years.

The committee, he said, had pointed out some inequities in different rental ceilings and
allowances of the government employees like housing, medical and others.

The government would rationalize them offering relief to the government employees across the
board, he added.

Dr. Shaikh said that in the current budget provinces were provided more shares, upto 57 per
cent from the federal divisible pool for social safety net.

Now, he said that it was the responsibility of the provinces to bring the vulnerable segments of
the society under social safety net more efficiently and honestly. In the light of this fact the
federal budget has rightly become less important, he added. Dr. Abdul Hafeez Shaikh said 52
per cent increase in Public Service Development Projects (PSDP) of all provinces was a historic
achievement of the government.

He said now the federal budget was less important after transferring of resources to the
provinces and now the provincial share from the federal devisable pool had been increased
from 50 to 57 per cent.

"Provinces development programmes are our programmes", he said.

The minister said in the past there was confusion over spending but now there was
administrative arrangement between the federal government and the provinces.

He also said the health sector was no more the domain of the federal government after
administrative arrangements. Now the provinces have bigger place in economy in terms of
health, education and infrastructure sectors, he added.

Copyright APP (Associated Press of Pakistan), 2010

Salient features of the National Budget for 2010-11

ISLAMABAD (updated on: June 05, 2010, 20:23 PST): Total outlay of the national
budget for new fiscal year 2010-11, presented at the National Assembly here Saturday
is to the tune of Rs 2764 billion, 12.3 percent higher than the size of the budget
estimates for outgoing fiscal 2009-10.

Following are cardinal features of the national budget for FY 2010-11: -

The total outlay of budget 2010-11 is Rs 2764 billion. The size is 12.3 per higher than
the size of budget estimates 2009-10. -

The resource availability during 2010-11 has been estimated at Rs 2598 billion against
Rs 2299 billion in the budget estimates of the outgoing fiscal year. -

Net revenue receipts for 2010-11 have been estimated at Rs 1377 billion indicating an
increase of 1.9 percent over the budget estimates for current fiscal year 2009-10. -

The provincial share in federal revenue receipts is estimated at Rs 1034 billion during
2010-11 which is 57.9 per cent higher than the budget estimates for 2009-10. -

The capital receipts (net) for 2010-11 have been estimated at Rs 325 billion against the
budget estimates of Rs 191 billion in 2009-10 indicating an increase of 70.2 per cent. -

The external receipts in 2010-11 are estimated at Rs 387 billion. This shows a decrease
of 24 per cent over the budget estimates for 2009-10. -

The overall expenditure during 2010-11 has been estimated at Rs 2764 billion of which
the current expenditure is Rs 1998 billion and development expenditure at Rs 787
billion. Current expenditure shows decline of less than one per cent over the revised
estimates of 2009-10, while development expenditure will increase by 25.3 per cent in
2010-11 over the revised estimates of 2009-10. -

The share of current expenditure in total budgetary outlay for 2010-11 is 72 per cent as
compared to 78 per cent in revised estimates for 2009-10. -

The expenditure on General Public Services (inclusive of debt servicing transfer

payments and superannuation allowance) is estimated at Rs 1388 billion which is 69.5
per cent of the current expenditure. -

The size of Public Sector Development Programme (PSDP) for 2010-11 is Rs 663 billion.
While for Other Development Expenditure an amount of Rs 124 billion has been
allocated. The PSDP shows an increase of 30 per cent over the revised estimates. -

The provinces have been allocated an amount of Rs 373 billion for budget estimates
2010-11 in their PSDP as against Rs 300 billion in 2009-10. -
An amount of Rs 10 billion has been allocation to Earthquake Reconstruction and
Rehabilitation Authority (ERA) in the PSDP 2010-11.

Budget 2010 – Reviews and

Summary
Name: Iraj Sohail
Roll Number: 102505
Teacher: Shafiq-Ur-Rehman
Course: Business Economics
Program: MBA-Exe

Teacher’s Comments: