That’s something unprecedented. Probably never ever any head of the IMF came forward to publicly propose what the government of Pakistan needed to do. But such is the plight of a perennial borrower. Yes, a borrower, and not a beggar, as the taunt always goes. Obvious that beggars are not required to return the alms they are given, though they may not be welcome next time. Loans must be returned, and with interest and sometimes compound interest. Otherwise, bankruptcy or the forfeiture is the fate. Or the default and the international isolation and economic and political consequences concomitant with it.
The other day Managing Director of the IMF Kristalina Georgieva urged the Pakistani government to tax the rich and after withdrawing the subsidies from the rich divert them towards the people who really need it. [See Dawn, February 19, 2023]
Her words are: “Number 1 – tax revenues. Those who can, those that are making good money, public sector, private sector, they need to contribute to the economy. And secondly, to have a fairer distribution of the pressure by moving subsidies only towards the people who really need it. It should not be like the wealthy benefit from subsidies. It should be the poor who benefit from them.”
Surprising that Ms. Georgieva while talking of the economic measures Pakistan government should pursue revealed her political inclinations. She talks of progressive taxation and distribution (and redistribution). She believes in a Landlady State. A landlady whenever saw her tenants dressed good, eat well and enjoy themselves, to her it meant they were getting wealthy and prosperous. She raised the rent. That is, charge more taxes from those who make more money.
She also believes in distribution and redistribution by way of more and more taxes and then distributing them in the form of ‘subsidies’ to ‘who really need.’ Who is there who needs nothing at this or that moment? Who is there who is going to decide who needs what? More than that who is there to decide from whom to take and how much to take and to whom to give and how much to give?
It is the answers to these questions which untangle the political and economic reality and hijacking of the state by the Riyasati Ashrafiya of Pakistan!
It seems Ms. Georgieva’s economics stands on the notion of taxes alone. From A to Z, it runs on the tax revenue. That means punishing those who create more wealth. Is there an end to it? When to stop taxing those who make more and more money? Or keep on taxing them more and more and more? And, where should all that money go to? Into the coffers of the government and from there into the pockets of the classes of Ashrafiya that happen to control the state and its institutions in Pakistan? What are the principles of such a policy of taxation?
Why any taxes at all? Are they due to the government being based on an ancient Diktat? Or a racial or some other privilege? Or sort of a “tribute” to be paid by the people (“the subjects”) to the government (“the victor”)?
Or they are paid for certain services rendered by the state? And in this case, the taxes must be low and few and must never be calculated and levied in a progressive manner depending on the money a person makes, i.e., the wealth (the goods) an entrepreneur produces. That is, the more money one makes, the more he be taxed. No, not at all. Do not punish the ones who create wealth! That has constantly been done in Pakistan.
Thus, all those who are appreciating Ms. Georgieva’s ‘retorts’ (I have no qualms against her or the IMF, and mind that she in between the lines has told the government of Pakistan there are no chances of debt restructuring. ‘She said that the IMF had asked Pakistan to take steps to function as a country and not to get into a “dangerous place” where the country’s debt needed to be restructured.’), because “her heart goes out to the people of Pakistan,” are in fact endorsing the policies she delineated. Like her, they believe in the same political and economic philosophy. They too on the one hand want to slaughter the golden goose and on the other want the subsidies move towards the poor or who really need it.
Presently that second thing of stopping the subsidies for the rich and moving them towards the poor may appear a very good step, but that is a short-term measure only. And, also, that should always be a short-term measure only. Since the subsidies regardless of the fact in which direction they go or doled out, they are the revenue collected by way of taxes.
So, Kristalina Georgieva, MD IMF is proposing nothing new. It is the same “recipe” that the so-called welfarists, distributionists, redistributionists and statists and Leftists have long been reiterating and somehow implementing too.
And, no doubt, doling out any subsidy to this or that section of Ashrafiya or Riyasati Ashrafiya was, and is, in the first place, not only an anti-people politics but anti-people economics also.
The long-term solution lies in a government focused basically on its protective duties and equally in cutting the size of the government and spending by it by the same token. (In one of its studies, Pakistan Institute of Development Economics (PIDE) has calculated the government footprint in Pakistan as near about 70%. There lies the root-cause.) That is, let more and more wealth be created first, no doubt, that won’t rot in the lockers. That would bring and spread more and more wealth in the society by being invested again and by creating more and more enterprises and thus more and more jobs, and thus prosperity.
So far as the crisis around the looming default is concerned, at least a 50% cut in the size of the government and its spending may help the government of Pakistan to come out of its present economic crisis, and then it may plan for the future by discarding the legacy of slaughtering the goose.