Ask MP I Episode 02 I Inflation, CPI, Tax Reforms

Описание: #AskMP: Ask us your questions!
In this episode, we answer questions on:
⚫ Inflation. Is it worse in Pakistan than other countries?
⚫ Is this the fault of the current government or previous government?
⚫ What is your outlook on tax reform and fiscal deficit?

1) Inflation. Is it worse in Pakistan than other countries?
It has increased, and Pakistan has the worst inflation rates in the region. and is unfortunately going to increase more in the coming months, with prices of utilities and other essentials going up.
To compare across countries, use CPI (Consumer Price Index), which tells you the price of the consumption basket of an average urban household. Not an exact 100% comparison because of differences in reference year etc, not gonna get into. However, it can give you an approximate idea.
According to World Bank data from 2020, Pakistan has the highest inflation rates in the region. Bangladesh: 5.7%. Sri Lanka: 6.2%. India: 6.6%. Pakistan: 9.7%.

2) Is this the fault of the current government or previous government?
Look at this graph here, and you can see that inflation in Pakistan took off as soon as the current government came to power? So, is this all PTI’s fault? Not quite.
Previous govt had artificially propped up currency, our reserves were finishing, so the policy had to be ended. That meant currency depreciated, 90% of our imports are essential (according to recent World Bank report), and that meant prices going up – inflation.
Also, because of low reserves, the new govt had no choice but to turn to an IMF loan, and IMF always forces you to end food and power subsidies which provide a lot of relief to the people. So, does this mean that PTI is blameless? Not exactly, as we will see in the next question.


3) What is your outlook on tax reform and fiscal deficit?
Not great. Taking IMF loan at the beginning, I understand. But three years in, they have shown little to no progress on tax reform. Look at FBR’s figures
2017-18 (last year of previous govt): 3.8 trillion rupees collected
2018-19: 3.8 trillion rupees again.
2019-20: 4 trillion
2020-21: 4.7 trillion
We need to more than double these amounts, according to Tarin himself. But the government is trying to take the easy way out by raising more money through indirect taxes like sales tax, petroleum levy and customs tax, which we need less of because they are indirect taxes that affect poor more. Instead, we need more direct taxes but that number has stayed stagnant around 1.5 trillion rupees-breakdown of 2020/21 not available yet.

The governments failure to grow the tax base means that fiscal deficits keep growing, currency keeps depreciating leading to more mehngai, and IMF loans are needed which lead to higher prices for basics for ghareeb tabkaat. But this time the govt has itself to blame, because if it managed to get more rich people to pay its taxes then it wouldn’t have to resort to this.
Last thing I will say is that these are difficult problems to address, and no previous government has been able to properly address them. But that doesn’t mean this government is off the hook for failing to address them as well.

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