Making Tough Political Decisions Easy

RGST tax

There are few issues that illustrate the current political stalemate better than taxes. Pakistan has one of the lowest tax-to-GDP ratios in the world, and it’s expected to stay in single digits until at least 2014. The answer to this problem is apparent – “broaden the tax base by netting potential taxpayers and withdrawing exemptions”. So why doesn’t the government just do what is necessary to get the national finances in order?

The answer of course is politics. President Zardari has extended an olive branch to Nawaz Sharif in an effort to get opposition parties to back tax reforms, only to have PML-N spokesman Ahsan Iqbal reply that his party could not support the measure.

Mr Iqbal said the PML-N would not support the RGST bill because it considered it against the people. “Instead of extending a hand of friendship towards Mian Nawaz Sharif, the government should utilise its energies for the elimination of corruption,” he added.

Ayesha Tammy Haq expresses the frustration common among our educated middle class – that parliamentarians are putting their own political futures ahead of the national interest.

They agree that reform is required, that it is inevitable, but in the time-honoured tradition of Pakistani politics they seek to delay the inevitable. At the very least, until after the next election. This logic resonates with the political side of government, which knows that unpopular measures, no matter how critical, do not win you elections. And it is all about staying in office. No one agrees that the need for reform is dire enough to merit losing an election.

Tammy Haq is correct in her observation, but I fear that she misses an important part of the equation. What good is passing a reform that is politically unpopular? The next elections will simply replace the ‘courageous’ politicians willing to make unpopular decisions with those who promise to undo them. Then the country is left where it was before.

That doesn’t mean we should give up on seeing these reforms take place. Rather, I think the answer is in another part of Tammy Haq’s piece.

We know what is needed to develop the rural economy, we know that we need to generate more power, we need to cut our fuel bills, we need to manufacture, produce and export more and import less. We need to build competitive capacity and to do that we need access to capital. We know what it is we need; the number crunchers tell us it is doable. Our issues aren’t commercial, they’re political; to survive we need to start making tough political choices.

Notice that she uses the term ‘We know’. Here is something to think about – who is ‘We’? Actually ‘We’ in this case tends to be the educated middle-class who understand the economics behind the proposed reforms and how changes to the tax laws will benefit rather than hurt the economy. But this is but a small part of society. When media describes tax reforms as threatening the masses through increasing price of essentials and balancing the budget on the backs of the awam, it creates a political environment where reforms will not happen precisely because the people do not want them to happen.

The first step to reforms is explaining to the masses why they’re important to make. Until the masses understand the need for specific reforms, we will be building on a foundation of sand destined to shift under the weight of the next political storm. All politicians are going to take the path of electoral self-preservation. If we want politicians to make tough decisions, we need to help them by transforming those decisions from ‘tough’ to ‘easy’. When the people demand reform, reforms will take place.

Maleeha Lodhi’s Economy

Dr Maleeha LodhiWatching the way some of our more prominent thinkers have treated the RGST in their columns has been an eye opening experience. For several, the tax bill was a PPP plot to punish the poor while protecting the rich…until it was set aside. Then not passing the bill was a PPP plot to punish the poor while protecting the rich! While these were quite obviously promoting a political agenda, I was more disappointed in the more subtle ways that some people put criticising the government ahead of moving the nation forward.

A perfect example of this is Maleeha Lodhi’s article from last week that accuses the PPP of sacrificing the economy to save the government, a most cynical suggestion that frankly defies all reason.

Please, let’s not forget so quickly what was happening only a few weeks ago: MQM quit the coalition in protest of the economic reforms and threatened to sit on opposition benches. Anti-government voices in the media were falling over themselves in hopes that a no-confidence vote would finally grant their wishes and unseat the PPP government. So, even if the PPP wanted to push through these economic reforms, which by all accounts they did (in fact, they seemed to be the only ones), they didn’t have the votes to do so.

But for the sake of argument, let’s consider the alternative. What if the PPP had thrown caution to the wind and stood firm. Any reforms would have been put off while a new government was formed. If the opposition parties managed to cobble together a coalition, it would have most certainly been led by the PML-N…who opposed the economic reforms.

So tell us, please, Dr Lodhi, in what alternate universe was it possible for Zardari to pass the economic reforms that he asked for? Also, if these reforms are as important as you now claim, why did you not use your status and influence to help the government when it was trying to bring other parties on board with the package?

This is what really frustrates me: When Dr Lodhi had the opportunity to pressurize the opposition parties that were standing in the way of the reform package, she chose rather to attack the government, even though it was the only group that was trying to get the reforms through.

If Dr Lodhi was really so concerned, why didn’t she use her very public voice to chastise Chaudhry Parvez Elahi when he said PML-Q would force a showdown rather than allow RGST to pass? No, rather she attacked the PPP who was supporting the measure.

What’s worst, this theme of Dr Lodhi’s has been picked up by the international media, most specifically in The Economist. Dr Lodhi’s spin on the topic could very well result in economists unnecessarily doubting the government’s commitment and further jeopardizing the nation’s economy even though the government has been very clear of its support for the reforms and is only trying to convince the opposition parties of its necessity.

Maleeha Lodhi concludes her latest column with the following paragraph:

In today’s strained political environment evolving consensus on a minimum reform agenda may seem a vain hope but the alternative – a descent into economic chaos – should serve as a reminder of what might happen if no policy correctives are implemented. This ought to urge different stakeholders to review their stance of putting short-term expediency before the country’s economic security. After all without such stability their political gamesmanship will be in vain.

I agree 100 percent. It remains to be seen, however, if Dr Lodhi will follow her own advice and work with President Zardari and PM Gilani to bring Chaudhry Shujaat Hussain, Altaf Hussain, and Nawaz Sharif to understand the importance of the government’s reform package. I understand that she has taken a job with Jang/Geo, but I would hate to think that someone of her stature would be “putting short-term expediency before the country’s economic security”.

Silent Successes

After doomsday predictions ranging from a war between the judiciary and the executive to the downfall of the republic itself, Daily Times reminds us that as usual the complaints of the chattering class about the section of the 18th Amendment that established the process for appointing of superior judges was much ado about nothing.

Contrary to perceptions of a confrontation between parliament and the judiciary created during the court hearings on the 18th Amendment, the new system has started off smoothly, with the unanimous election of Senator Syed Nayyar Hussain Bokhari as chairman of the parliamentary committee and establishment of its rules of business. One can be sanguine that the procedure of broader consultation and more transparent mode of appointment of judges can work with necessary improvements.

Perhaps this is something that we should keep in mind as the same voices are raising the same dire pronouncements for the passage of RGST. Perhaps we should also ask ourselves why it is that we are so quick to loudly pronounce new laws a failure before they’re even implemented, and so silent when we discover that they are actually a success.

Pakistan’s Tea Party

Syed Yahya HussainyAs much as we are different, in many ways Pakistanis and Americans are actually quite similar. Events this past week have revealed some of these similarities as officials in both countries unveiled new tax proposals.

In the US, the chairmen of the bipartisan National Commission on Fiscal Responsibility and Reform released their preliminary recommendations for addressing the American budget crisis. The package of spending cuts and tax increases represented a shared sacrifice to get the nation’s books back in order. It was met with shared howls of horror. I suppose one should be impressed with any legislation that unites the AFL-CIO and Americans for Tax Reform. But these groups agreed not only in their opposition, but their alternative solution as well — let someone else pay for it!

In addition to the debt commission’s package of reforms, the debate about whether to extend the tax cuts passed by President George W. Bush continues. Democrats insist that they should be extended only for “the middle class”, who they define as earning under $250,000 — a generous definition of middle class for a nation with a median income of $50,000, one would think. But the Republicans insist that it is most important to cut taxes for the wealthiest Americans.

Republican Congressman Darrell Issa said on Good Morning America last week that,”Tax certainty is important and it’s important for the investing class probably more than anybody else.” Tea Party hero Rand Paul explained further: “We all either work for rich people or we sell stuff to rich people.” I chuckled when I heard these quotes. In Pakistan we often talk about how we are still suffering under the yoke of feudal lords. Perhaps there is more similarity between our two nations than we think.

In Pakistan, as you well know, we recently suffered devastating floods of historic proportions. A fifth of our country was submerged and millions of people were displaced. The damages have been estimated at $9.7 billion. While the America was at the front of relief efforts, supplying vital economic, rescue and relief assistance, the fact of the matter is that the global response has been nowhere near what will be needed to rebuild after such massive destruction. That our national resources are largely occupied fighting a jihadi menace that carries out regular and deadly attacks against our schools, mosques, and government means that we do not have the luxury of extra resources with which to adequately address the needs of those affected by the floods.

In order to address this need, President Zardari and the Pakistan People’s Party (PPP) asked the wealthiest citizens to pitch in to shore up the nation’s bottom line. Government officials introduced a proposal for a Reformed General Sales Tax (RGST). The proposal includes a 1 percent tax increase on non-essential luxury items, and a temporary 10 percent surcharge on income over Rs.300,000. To protect the poor, items such as wheat flour, vegetables, fruits, meat, mutton, poultry, health services, institutions providing educational services as charity and non-profit organisations are all exempt from the tax.

Nevermind that the median income in Pakistan is around Rs.80,000 or that, with a 14 percent unemployment rate and a 25 percent of the population living below the poverty threshold, even Rs.80,000 is likely an inflated middle income — the government’s tax proposal was met with similar outcry to protect “the middle class.”

Pakistan’s wealthy conservatives, much like their counterparts in the US, claimed that any tax on the wealthy would simply be passed down to the poor in the form of price increases, despite the exemption of essential items. Some conservatives have warned that the price of sugar could skyrocket under this new tax plan. I suppose they would know, as their families own some of the nation’s largest sugar mills.

So perhaps there is another similarity between America and Pakistan. While our infrastructure crumbles, our economies decline, and our people are left without jobs and homes, at least we will both continue to have our tea parties.

Published by Huffington Post on 15 November 2010.

Kashkol and RGST

kashkolI have said before that people need to stop calling my country a beggar nation and stop saying that our government is some street urchin traveling the world with a begging bowl in hand. Apparently Mian Nawaz is not listening because he’s still using this old insult to criticise the government.

The first reaction I had when I read this was, why are people accusing Mosharraf Zaidi of degrading the mother land when Nawaz Sharif is going around telling the old ‘beggar country’ insult again. More irritating, though, is that Nawaz is saying that not only is the present government holding a begging bowl, but he will do nothing to help change things.

“The incumbent government cannot control the crises in the country, while we don’t even accept a government, which has extended a begging hand. The government did not take the opposition on board while signing an agreement with the International Monetary Fund (IMF). Therefore, the prime minister should not expect any support from the opposition,” Nawaz said while addressing a public gathering. He asked the government to depart from anti-public policies. “We will oppose all such policies,” he announced.

Great. Nawaz Sharif promises to oppose everything, but he cannot provide any ideas of his own. Brilliant.

What really made me laugh, though, was when Nawaz Sharif accused the government of ‘deliberately’ creating the sugar crisis. First, this simply makes no sense. Say what you want about the competence of some government officials, but what government offical would deliberately create a sugar crisis that they knew would cause them problems? In short – what do they stand to gain from a sugar crisis?

The only people who would gain from sugar hoarding and a high sugar price are the owners of sugar mills. Waaaaaiiiit just one minute…I think I am remembering something…what was it now? Some story from one year ago about sugar… Ah yes!

The government disclosed on Friday the names of three big sugar mills and said they were responsible for the current crisis and hoarding of the commodity.

The mills are Tandliawala Sugar Mills, Brother Sugar Mills and Kashmir Sugar Mills. According to the statement, the mills have held back 240,000 tons of the government-purchased sugar, creating an artificial shortage in the market.

Isn’t that Brother Sugar Mills owned by Sharif brothers? Now, I am not going to accuse Sharif brothers of deliberately creating the present sugar crisis, but Mian Nawaz would be well advised to get his own house in order before he goes around making such accusations at others with no proofs at all.

But let’s get back to the thing that really bothers me. While Nawaz is running around accusing the government of carrying a begging bowl, his leader in the National Assembly Chaudhry Nisar is calling support for reformed general sales tax (RGST) as a crime.

Why is this such a crime? Altaf Hussain says that RGST will put a burden on the poor, it only proves how completely out of touch he is in his expensive London home. The RGST is actually only a temporary tax for 6 months and only affects people with annual income over Rs.300,000.

Per capita income in this country is only Rs.89,000 and even that number is inflated by the mammoth wealth of people like Nawaz Sharif and Altaf Hussain. Why are these uber-wealthy people complaining about paying a little bit more tax for 6 months only to help the flood affectees? How can we complain about the world not doing enough for flood affectees, when we are not willing do any small thing ourselves?

This is ridiculous. All of these politicians complain about IMF loans, they complain about US aid like Kerry-Lugar, they complain about RGST, they complain about foreign investment like Reko Diq. It’s always a complaint and never any productive suggestions.

Oh, yes, Mian Nawaz has called for his ‘green revolution’ and his ’25 year plan’; Imran Khan talks about ‘revolution’ just like Altaf bhai wants a ‘French Revolution’ (he has been in Europe way too long) – but these are only labels, they are not actual policies. Instead of complaining about policies and saying that that they want some other plan, all these politicans need to come up with some alternative proposal that can be discussed. If they have a better idea, let us all hear it! If they cannot be part of the solution, they are being part of the problem. And we don’t need any more of that, please.