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Lessons from Biden's address for Imran Khan
Set your priorities, be futuristic & clear-headed. Doing nothing is not an option.
IMRAN KHAN has begun it’s second innings, as we speak. The tone has changed since Hafeez Shaikh was replaced by Shaukat Tareen. Be it pro-growth policies, “opposition doesn’t matter”, electoral reforms, “relief for masses”, “success of PTI is reducing poverty” & renegotiating IMF’s demand for electricity & tariffs hike. In all the endeavors, efforts are abound to re-enter politics of populism. Reforms would be undertaken - but at a gradual pace. In other words, after re-election.
Here’s what Imran Khan can learn from 78 years old Joe Biden’s first address to Congress:
Race to Vaccination: Come what may, vaccinate as many people as quickly as possible. Delay - deliberate & not - is having an economic cost. Ignore the short term benefits of Balance of Payments in the form of formalized remittances, lower travel, lesser outward travel & slowing of painful reforms under the guise of Covid-19. Imagine the agony when countries don’t invest in Pakistan, reduce travel in the country & remain a laggard in vaccination. Countries would impose travel restrictions from Pakistan & single out Pakistan’s delayed vaccine.
Universal rescue cheques: In the US, 85% household received $1400 government support. Adjusted for Pakistan’s economic reality, at least 30% of the households should receive $100-150 one-offs monetary support. For many it means a lot. And rest assured, with higher consumption propensity, 80-90% of that would be channeled back into the economy.
Increase Minimum Wage: Arguably, the easiest way to reduce inequality. The bipolar society needs to fatten the income pyramid. A lot of companies earn exorbitant profits - even government guaranteed RoEs - pay Rs 20,000 to their low skilled employees. What dent would it be to raise that to Rs 25,000. Don’t buy into the argument that it would reduce cost competitiveness. Let go of those industries that exploit labour & nudge capital to more inclusive business operations. Crucially, enforcement of the minimum wage would should be stern. Let the employees feel protected.
Lead in Healthcare: US plans to fight off Alzheimer’s, Diabetes & Cancer. The least Pakistan can do is to a) check counterfeit drugs b) control expensive prescriptions lured by Pharmaceutical companies c) encourage more local production d) set up policies to grow Pharma exports.
Pakistan Families Plan: So Biden’s interaction with President Xi tells him that Xi believes democracy can’t compete in 21st century as it takes longer to form consensus. First, invest in good education to incentivize 16 years of schooling. Make it mandatory for 3 & 4 years old to school as it adds significant chances of them complete their college degrees. Secondly, set up government subsidized child care to enable women work force to contribute to the economy.
Jobs of Tomorrow - plant today
Pakistan Jobs Plans: Biden’s realization that public funding is necessary for technological advancement & breakthrough scientific achievements. Public funds to be utilized for infrastructure jobs (roads, bridges, railways, airports), replace lead pipes with for cleaner water, 100% internet connectivity, build modern electricity grids, biotechnology, cybersecurity, metallurgy, computer chips, lay transmission lines, more care-givers etc
“Buy Pakistani” products of Future Industries: Installing Electric Charging stations, dominate Solar & Wind technology, champion Electric Vehicles & Batteries. These are blue collar jobs needed for Pakistan’s middle class also. What Pakistan really needs is to first incentivize technology transfer with tax incentives as an export hub & after 5 years, localise the skill-set with reduced protection. These products would last next 50 years - it’s already to start 5 years later than never.
Research & Development: If you have heard about Tesla & Elon Must, you should also be reminded that his revolutionary plan was funded by the government that has now created a trillion dollar empire & given US formidable foreign policy edge with self-reliant energy needs. US plans to spend 2% of GDP on R & D, Pakistan’s budget blue print MUST enhance that also. There is no way we can compete globally without funding ideas & innovation.
How to fund the development expenditure?
Increase Corporate Taxes: Progressive corporate taxes should be increased. Companies earnings more should pay more. SMEs should be incentivized with lower corporate taxes & incentives must be given to companies listing on the stock exchange.
Let the richest 1% pay their fair share: Biden isn’t going to increase taxes for someone earning upto $400,000 per year. Pakistan shouldn’t increase taxes for someone earning upto $25,000 - $30,000 per year either. Let the middle class breath. Don’t fall under IMF’s easy prescription. Let FBR do their job - go for the untaxed & less taxed.
Tax the untaxed: Decades ago it was easier to remain off the radar. With the help of digitization & centralized data base, it’s easier to trap the untaxed. Amnesty schemes are not the solution. Black economy must be reduced with the help of cashless society. Tax rate for non filer should be significantly higher progressively. Some non filer buying a a $100,000 vehicle should pay 3 times more tax then the honest tax payer. Staying out of net should remain costly.
Reduce Tax Credits: People earnings millions of rupees a month through salaries, business income, dividends, rents, capital gains must be a higher percentage in taxes than people earnings thousands of rupees a month. For example, someone earning Rs 10m a month is entitled to similar lower tax credits as someone earnings Rs 50,000 per month is. There needs to be fairer collection of taxes that doesn’t burden the middle class.
Global Competition - keep eyes on competitors
In Pakistan, we only compare ourselves with India militarily. That skewed comparison needs to end & economic competition needs to kick-in. Cabinet members, provinces echelons, top business magnates, intelligentsia, tax collectors & bureaucracy need to be given monthly briefings on what measures China, US, India, Bangladesh, Philippines, Vietnam, Cambodia, Singapore, Taiwan, Indonesia, South Korea, UK, Germany, Israel & Japan are doing. Hire thinktank to merely analyze what innovative ideas are adopted globally & mandate task-force to evaluate applicability with a strict deadline. Many a times, we wake up after a generation.
It’s time for Pakistan to reverse its course towards sustainable, education-led, technology-fed, R&D-based, cleaner, job-creating, export-oriented & innovation-based growth. In the last two years of the government, PTI needs to ensure more & more jobs are created. Not for two years, but for 20. My fear is ultra-expansionary policies might spur inflation & Balance of Payment crises in the absence of Exports of Goods & Services in 2023/24. A near 45% currency deprecation hasn’t materially improved prospects of exports. Hoping, this time it should be different.