Prestige and poverty
By Dr Muhammad Yaqub
there is no harm in having the mindset of a 16th century
Moghul emperor in a personal capacity even in today’s world.
The spending priorities of
a democratically-elected government in a developing country
ought to be conditioned by the availability of budgetary
resources, urgent needs of the people and limits of the
Our prime minister’s
perception of economic progress seems to involve building
megaprojects like multi-lane motorways, modern airports and
a network of ring roads and inter-city bullet trains.
By focusing on high- profile
and expensive projects, the prime minister seems to
disregard the fact that the majority of the people live in
mud houses built around dusty and unpaved roads travelled on
foot or on donkeys and bullock carts.
This majority is having a
hard time properly feeding and clothing their families due
to sharply rising prices with shrinking employment
opportunities and falling real incomes.
These people are at a loss to understand the utility of
megaprojects financed by taxing them in one way or the
But it is not for the first
time that the PML-N government led by Prime Minister Nawaz
Sharif has been engaged in such ventures.
In his second term as prime minister, Nawaz Sharif was keen
to build the Islamabad-Lahore motorway even by resorting to
borrowing. He was told that the huge expenditure on its
construction could be better utilised to build a network of
farm-to-market rural roads that would promote agricultural
and industrial development.
Alternatively, the budget
deficit could be kept low by avoiding such extravagant
expenditure in order to ensure relative price stability. In
response, Nawaz Sharif is reported to have stated that Sher
Shah Suri is remembered for the Grand Trunk Road he built
and nobody cares to remember what his budget deficit was.
Moreover, Nawaz Sharif was able to get a large amount of
grant from the government of Saudi Arabia in the form of
free oil after the nuclear tests in 1998. He instructed the
Ministry of Finance to keep the sale proceeds of that ‘gift’
of oil in a special account in the National Bank of Pakistan
for him to use on megaprojects of his choice on the plea
that it was a donation given by the Saudi Arabian government
because of his good
personal relations with them.
Implementation of his instructions would have violated the
constitutional requirement of placing all government
receipts in the Consolidated Fund. Moreover, development
projects involving large expenditure should constitute a
part of the budget approved by the National Assembly rather
than being approved by the prime minister at his discretion.
For these reasons his instructions were not followed.
The prime minister’s recent decision to place the rupee
counterpart of a large Saudi grant/loan in a separate
development fund to be used to finance mega projects
demonstrates that rather than learning from history he is
about to repeat it.
Setting up such a fund
outside of the Consolidated Fund, and without the approval
of the National Assembly, would violate constitutional
provisions. Such spending would also collide with the
fundamental rights of the people of Pakistan who are
entitled to live free from hunger and disease through
efficient use of resources at the disposal of the
It seems that the PML-N government has forgotten its
election promises to break the begging bowl. Building
megaprojects as a symbol of national prestige by begging and
borrowing is disgraceful for us as a nation.
Moreover, it compromises
foreign policy and defence. Most importantly, it shows a
regrettable lack of sensitivity about the grinding poverty
of the majority of the people.
The country needs to chart a new course in economic
management. It should let go of the habit of carrying a
begging bowl to foreign countries and agencies. It is all
the more important not to do so to finance high-profile
The government should also
abandon the habit of printing rupees and spending them
We need a government that goes beyond gimmickry and grandeur
on the expenditure side and does not tax the poor by heavily
relying on indirect taxes and inflation.
Undaunted by the pressures of
vested interest groups, and leaving aside their own business
interests, the federal and provincial governments should
undertake tax reforms and establish expenditure priorities
that meet certain well-established criteria.
First, all tax loopholes created to cater to the interests
of the rich and the powerful must be plugged. All assets
beyond a certain threshold must be subjected to wealth tax.
All inheritances beyond a certain amount should be made
subject to inheritance tax. All wealth taken out and held
abroad must be brought back and subjected to income tax.
Second, all incomes at a given level must be taxed equally
regardless of the source of income. From income taxation
point of view, a given level of income of a folk singer
should be subjected to the same tax rate as that of an
‘imam’ of a mosque.
An absentee landlord earning
rental income equivalent to the salary of a worker must be
made to pay an equivalent amount of taxes. An underground
operator who amasses richness must be brought under the tax
Third, the income tax system must be progressive in effect.
Such a tax would require that the marginal tax rate must
rise with the increase in income and the tax base is not
punctured by concessions, exclusions and exemptions to the
rich and powerful.
Fourth, the present reliance on indirect taxes and printing
of excessive currency notes should be reduced by creating an
appropriate balance between direct and indirect taxes. Right
now the major sources of tax revenue are petroleum levy,
sales tax, import and excise duties and withholding taxes.
Their incidence falls heavily
on the poor in addition to the incidence of invisible tax
through inflation generated by excessive printing of
Fifth, there is a need to bring about a balance between
spending and taxing by the federal government and the
provincial governments. At present, the provinces engage in
spending without taxing and the federal government cannot
spend what it collects through taxation.
Sixth, corruption in tax administration should be
effectively eradicated and economic activities documented.
Tax reforms would generate enough revenue resources to be
able to break the begging bowl and move towards
Tax reforms are an essential,
but not sufficient condition for improving economic
governance. Equal importance needs to be given to
establishing proper expenditure priorities.
First, it should be recognised that the country’s defence is
not guaranteed by excessive spending on military manpower
A defence establishment
financed by begging and borrowing and printing of currency
notes cannot stand the test of time. A strong economy is the
essential first step for a deterrent defence.
Second, spending on the luxurious lifestyles of politicians
and bureaucrats and import of bullet proof cars for the use
of VIPs and similar other wasteful expenditure must be
The most productive
expenditure is educating and imparting skills to the youth.
A healthy people will prove to be very productive. Our
expenditure priorities must, therefore, be changed to
increase allocation to education and health.
Third, quick-yielding development projects that facilitate
investment, production and trade should be preferred over
‘prestige’ projects that are usually money guzzlers.
Expenditure on building
farm–to-market roads, provision of better seeds and cheap
agricultural inputs and ensuring regular flow of water,
electricity, gas and other inputs would promote economic
development and build up our national image better than
high-speed trains, multi-lane highways and glittering
In short, mega projects should be left to the next
generation which should be better educated, better trained
and better fed by diverting expenditure to people and their
skill development and creating economic infrastructure that
facilitates agricultural and industrial development.