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December 16, 2018

Equanomics

Opinion

December 16, 2018

The PTI has landed itself into this dysfunctional economic mess which is surviving only on borrowed money. The indigenous economy around basic production is merely a means of keeping the system going. There is a pervasive tax regime which levies everything.

The entire facade is meant to keep the governing structure in place. Here is a synopsis of Pakistan’s economy from November 2018, hundred days into PTI at the helm: “Pakistan’s exports declined by six percent, and imports by three percent. Trade , during the first five months of the current fiscal year FY19, declined by 1.29 percent as the country suffered a 2.03 percent trade deficit”. Add to it the depreciation of the rupee by record amounts in a short period, the tanking of the Stock Exchange, an unprecedented rapid increase in the discount rate, as indeed the inflation. It all makes for a harrowing economy with little signs of stabilising. Unemployment has increased from the numbers this economy was somehow sustaining in formal and informal jobs.

Translated, this means that there are fewer dollars to pay for what is essential from abroad. The economy is shrinking – something officially recognised. Production has dropped as has the per capita income of each Pakistani. We have descended down the wealth order. There is no growth and less exportable surplus, and exports have shrunk. Money has become expensive, making newer ventures difficult. Private consumption has suffered since most private money is now spent on bare survival. When imports are down, it means economic activity is significantly slowing down. Pakistan’s contacts with other nations of the region or the world are becoming lesser and lesser because the country is not trading enough. People are poorer because they have lost huge amounts to taxation and the evaporating billions from stocks and deposits. In short, the economy is dying. The finance minister may have lower current account deficit to show at the end of the fiscal year but he may have only half an economy to minister.

How we got here is known. The money that the state and its people contributed towards the running of the state was whisked away by the ruling elites and placed all over the world in safe havens and where estates can be formed and created, no questions asked. There are two sources which contribute to state holdings – money borrowed from abroad at a cost, of all kinds; and that collected from the people through taxation. Sadly for Pakistan part of it is stolen away as personal wealth while part is flagrantly abused by those holding positions of power; some of it is used up to keep the structure barely standing.

There are exceptions. The military is kept well supplied to keep it locked into its zone of comfort, blinding it to the ongoing morass; and cities such as Lahore are adequately decked to simulate progress and exhibit development through external trappings as the facade. Between these two lies that perpetual hole through which all the rest of the fiscal resource is flushed out into personal and fake accounts. All in the name of development.

What is the PTI’s strategy to navigate this mess? Devoid of imagination, it is more of the same – and probably for good reason. Its first responsibility is to keep the state buoyant. Hence the hustle to various capitals asking for brotherly help. And, when that has run out, resorting to that ultimate lender of sorts, the IMF. More of the same. The rupee nosedives and trillions are added to the debt pile. Friends add to the debt even more and then ask for unsavoury favours.

In the meanwhile, the PTI will tax, tax and tax, roping those in who can barely make ends meet already. That’s the impact of indirect taxation; direct tax is not even a dream. It is an impossibility to keep havens ripe for those who either pay no tax or little tax, and remain hidden behind the high walls of their mansions spread. No questions asked. Plunder, theft and misappropriation is never taxed in this country, only honest income is.

Right under the nose of the federal government is the exclusive club of Chak Shahzad residents in their sprawling farm-houses. How do they afford such lifestyles. Do they pay any tax, or how much? Get them to pay 50 percent in Tax of their wealth and holdings. Rope in a hundred thousand of tax fugitives and see the system getting respect and revenue both. Taxing cell-phones of the remaining majority which barely has risen to the point of plugging into some make-believe modernity with their hard-earned money and meagre sources only means that they must pay the penalty of having risen to such capability from the doldrums. It’s not with cell-phones that money will be received but with the duties levied on the multi-cylinder (four-marla popularly) SUVs to return true revenue. This government has literally chosen the penny-wise pound-foolish approach.

The model that this government is pursuing is inefficient. Increased taxation will only slow down economic activity, and encourage smuggling. The economy was in the first place opened to outsiders and tariffs were restructured to enable free trade to mitigate smuggling which depressed local production. By enhanced taxation smuggling will mark its return, neutralizing local industrial production and depressing growth. This is the antithesis of what the PTI has desired in its manifesto of increased jobs and greater prosperity. Increased dependence on IFIs will only mean a prescription economy which seeks to merely relieve pain. The return of the money from the richest will add to the coffers but this government wouldn’t go there. That is its political compulsion because it too must also provide a haven for its own.

This is the tragicomedy of this nation. Those seeking power in the name of the poor continue to only squeeze the poor. An honest, self-made, middle-class person in this society and nation has no future. This model too will fail. It is bound to. This is just pushing people to the wall from which they will soon rebound as they have across the Middle East and in Europe now.

A chimera of progress may work a while but cannot be the system to sustain an economic order. Till that happens, it may be curtains soon. Without a fresh approach it will only lead the PTI to sit over a rapidly failing order which remains opportunistically rapacious and callously disrespectful. Unless rectified at the earliest, it will lead to a certain demise of the current system and society. Growth is the key to a surviving economy; rampant taxation surely is not the way to get it.

Concluded

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