Next budget may blend support measures with fiscal tightening

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LAHORE: The Pakistani government is expected to adopt a mixture of public satisfaction measures and revenue reforms-especially under pressure from the International Monetary Fund (IMF). Since these two purposes are often contradictory, its effects on ordinary citizens will depend on how effectively the government balances them.

If the government aggressively tries to persuade people with the increase in taxes to meet the situation of the IMF, it is likely that the election relief schemes as well as indirect taxes will be resorted to. This approach is considered to be regressive: It only shields the poor by putting a heavy load on the rest of the population.

Possibly public satisfaction measures may increase the increasing cost of social protection, such as extension or coverage of scholarship under the Benazir Income Support Program (BISP). Cash payment can also be introduced to the poorest families announced in 2020 and 2023. Their purpose is to soften the political effects of simplicity. Other possible measures include subsidized utility support programs for low -income households. Although it will provide some relief, the benefits will be limited – especially if inflation increases and real income decreases.

Public sector employees may increase salaries and pensions by 10-15 %. This will help the middle class employed in the government, but it can also increase inflation pressure – especially if it does not reduce new revenue sources or anywhere else. It will also increase the fiscal deficit unless the additional tax is imposed.

The next budget is expected to continue to continue or increase the utility subsidy. The Lifeline Power Unit (50-100 units every month) is likely to provide subsidy, and a new gas subsidy for tandors and low-use households can be introduced. These measures can reduce the energy burden on low -income groups, but can deepen the fiscal deficit, or can require cross subsidization, pushing more expenses on industry and middle -income users.

Development costs in politically important constituencies can also be used as a electoral advantage tool. Targeting schemes like roads, water supply and school infrastructure in Punjab, Sindh, or Khyber Pakhtunkhwa can be announced. Although these projects can create short -term jobs and minor local improvements, their long -term impact on poverty will be limited as long as it is not supported with the help of rehabilitation projects and local shopping strategies.

To meet the goals of IMF’s revenue-which requires an additional 1.5-2 % of GDP-the government can overtake tax exemption. Zero ratings or low GST can be reduced in sectors such as fertilizer, pharmaceutical, textile, or eating items. Exemption can also be withdrawn for retailers and specific sectors. These measures will potentially increase prices, which will hurt both the middle class and the poor unless compensation is paid through targeted subsidy.

Efforts to expand the tax net may include severe implementation against retailers, real estate dealers and agricultural income people. Better compliance is expected through track and trace systems, digital invoices, and Point of Cell (POS) integration. If implemented fairly, these reforms can reduce the tax burden on salaried workers in a long time. However, in a short period of time, they can incite pushbacks from their own interests and contribute to prices.

There are also speculations that the government can increase the general sales tax (GST) or petroleum levy. GST can be harmonized at an 18 % rate, while petroleum levies can be increased. These measures will be extremely inflation, will affect the cost of transportation and food costs.

Fuel prices have already been hinted at adjusting and rising electricity prices and will further tighten the domestic budget by reducing disposable income.

The overall impact of the budget on ordinary citizens will be different in the socio -economic groups. The poorest can receive target relief through 20 % of BISP and energy subsidies, but these benefits end due to inflation due to indirect taxes and high costs.

The lower middle class suffers the most troubles, as they are generally not eligible for direct subsidy, but still facing inflation and tax increases. Salary can benefit from the increase in mid -income earning salaries, but more indirect taxes will lead to a net loss in the purchase of electricity.

Small businesses will face increasing tax scrutiny, increasing input costs, and consumers’ demand for inflation. Meanwhile, agricultural and informal sectors can be drawn into the tax net – a politically sensitive but economically essential step – which will also increase their input costs.