The good news is the new budgetary proposals attempt to detach the national economy from the regressive conditionalities of the three-year, $6 billion IMF programme. Experience with such past programmes invariably had led to stagflation which in turn had drowned the economy in an extended bout of recession, forcing ultimately the recipient back to the doorsteps of the lender of the last resort.
But the bad news is, these very proposals are so designed as to let the economy to backslide into macroeconomic instability as its commanding heights are being handed over to the private sector which has invariably failed to deliver, not because it could not but because of its inherent desire for unlimited profits, driving it on the path to negligible value addition, no innovation, massive tax evasion and heavy pilferage of utilities like water, electricity, gas and petroleum.
Finance Minister Shaukat Tarin has by seeking from the International Monetary Fund a six-month extension of the amnesty scheme launched under the prime minister’s package for construction industry is trying to make such a backslide carry the Fund’s stamp.
Prime Minister Imran Khan had announced the amnesty package in April 2019.
The government has already extended the last date of the scheme until June 30 from Dec 31 last year. The builders and developers are required to get registered on computer-based IRIS software of the Federal Board of Revenue (FBR) on or before June 30 this year and the projects should be completed before Sept 30, 2023.
Official statistics show that 1,083 projects worth Rs340 billion have been registered with the FBR along with another 292 tentative projects with an indicative investment of Rs43bn under the prime minister’s package for the construction industry till May 2021.
About 3,851 buyers had shown interest in purchasing properties by availing tax incentives for the construction sector till May 6.
The finance minister during his post-budget press conference said that the government wanted to facilitate those intending to invest their untaxed money in the construction projects. The facility of non-disclosure of sources of income has been extended till June 2021 and the amnesty scheme till Dec 2021 to avail the fixed tax regimes for the construction sector.
This scheme clearly incentivizes the tax cheaters and utility stealers and promotes what is known the world over as dead investment because investment in Bahria and DHA-type of housing schemes which is what most of our housing scheme sponsors emulate while consuming a lot of cement, steel and valuable other fixtures do not yield any profits and many of these 3-5 bedroom houses and villas remain vacant most of the time because the owners of most of these adobes live abroad.
Tarin pointing to the lack of revenue as a major impediment to economic growth said the government wanted to “accelerate” revenue collection to 20 percent of tax to GDP ratio in seven to eight years, projecting the FBR target for the next year at Rs5.8 trillion.
But such wishful official desires are nothing new. Such desires have been expressed by every government, no matter of what kind and no matter led by which political party but all in vain.
In the first place, the existing institution of FBR is inherently an anti-tax body. Its very operational existence promotes tax evasion and utility pilferage as it has become mutually beneficial to both the collector and the payer, thus expanding the sea of informal economy made up of most of the money due to the treasury.
Next, the government urgently needs, if it is sincere in its desire to create an economically sovereign country, to jettison all the responsibilities that the 18th amendment has passed on to the provinces and the provinces under the same amendment have to pass on to local bodies.
The resources that the federal government can legitimately claim after the 7th National Finance Commission Award as its own can only finance only four functions: Finance, Foreign, Defence and Communication.
And in order to escape the disastrous impact on the economy of the private sector’s motive ‘greed is good’ and the misleading propaganda of ‘small government is good government’ the official economic managers would do well to opt for mixed economy rather than an economy standing on the weak and corrupt shoulders of the private sector.
So, as a first step, the government should withdraw the amnesty scheme offered to private construction industry immediately and instead a more elaborate and generous infrastructure construction scheme should be announced in the public sector urgently.
Here one is not talking about the government’s housing scheme for the working classes. This scheme should continue, again not in private sector but in the public domain.
Even in the capital of the capitalist world a new Washington Consensus is being talked about. US President Joe Biden seems to have turned the US roughly 180 degrees from the Reagan-era “Washington consensus” of small government and low taxes.
According to Michael Hirsh of Foreign Policy magazine (The Bidenomics Revolution published on June 9, 2021) what has replaced Reaganomics is an admixture of Keynesian spending—Biden has pushed a multi-trillion-dollar agenda for infrastructure and the social safety net—as he seems to embrace the idea of economic competition between countries, a departure from Washington’s free-trade ideology of presidencies past.
Biden has also proposed a revolutionary new global corporate income tax, and trotted out his third $2 trillion plan in a hundred days and boasted that his infrastructure spending scheme would be “the largest jobs plan since World War II.” His budget plan is heavily on infrastructure spending and assistance to lower-income Americans. That includes massive subsidies for free community college and health and child care, as well as additional federal funding programs for schools with large concentrations of less advantaged students.
Biden’s ambitious plans for reorienting the US economy away from the billionaires and back toward the middle class could also shift the ideological axis globally. For decades, the rest of the planet has had to endure stern lectures from the leader of the free world about the virtues of letting markets rip and shoving government out of the way.
Washington’s tireless advice was simple: Privatization, free trade, and market discipline will lead to a more prosperous, globalized world. America’s counsel was so cut and dried it even assumed a stuffy name: the Washington Consensus.
In only a few short months, the Democratic Party has learned to stop worrying and love big government again, enthusiastically endorsing Biden’s new budget.
So far Bidenomics is working: In early June, the World Bank nearly doubled its January projections of U.S. GDP growth from 3.5 percent to 6.8 percent, the fastest pace since 1984.
Biden’s embrace of government intervention entered high gear as the Great Recession exposed the harsh inequalities in the US society. Until the crash of 2008, the reality of stagnating middle-class income had been obscured by the false dawn of the mid-2000s mortgage mania, when the poor felt rich but in truth were only more indebted. When that all came to an end abruptly, Biden saw that his country had come out the other side of the Great Recession a very different economy altogether, with most of the recovered wealth flowing to richer Americans while ordinary people were drowning in mortgage debt.
The coup de grâce to small-government ideology finally came a year ago in the form of the Covid-19 pandemic, which shut down the private economy. So the path was wide open to a new need for government intervention—and a new way of thinking. Even in Pakistan it was the public sector (NCOC) and not the private sector that shouldered the responsibility of fighting the Covid-19 with great success.
Biden seems intent on raising up the underclass at the expense of the richest 1 percent, calling his American Jobs Plan a “blue-collar blueprint to build America” and noting that nearly 90 percent of the infrastructure jobs he’s proposing do not require a college degree.
Biden wants to demonstrate that “markets and governments are complements, not substitutes—that each works better when the other pulls its weight.”
That means that the government will have to work together with markets and private businesses, as well as other stakeholders such as unions and community groups.
Curbing corporate tax havens abroad, Biden hopes, will help him raise the corporate rate at home. An explosive new report by ProPublica reveals that some of America’s wealthiest billionaires paid a scant 3.4 percent in taxes in recent years.
Biden himself insists that he doesn’t intend to displace the global market system—only to moderate it. “I’m a capitalist,” the president said in May. “I’m not looking to punish anyone or to say business shouldn’t be able to make a significant profit. … I just think, after decades of workers getting a raw deal, it’s time they be given a fair shake.”M Ziauddin, "‘New’ Washington Consensus," Business Recorder. 2021-06-16.
Keywords: Economics , Economic growth , National economy , Federal Board , Amnesty package , FBR target , Foreign policy , US economy , Washington , NCOC , GDP