Fiscal Policy and its effects on Economy of Pakistan.

1. 1

2. Acknowledgement
No doubt that Allah is the main
source of knowledge and wisdom. He
is omnipotent as well as omniscient. It
is a great blessing of Allah, that He
enabled us because of His Holy
Prophet (PBUH) that we are presenting
our humble contribution for the
distribution of knowledge.
Economy
of Pakistan
Fiscal
Policy
2

3. MAM. SADIA AHMAD
3
Economy
of Pakistan
Fiscal
Policy

4. PRESENTED
BY:
ABID HUSSAIN
M14BBA036
WAQAS
AHSAN
M14BBA041
SHER AFZAL
M14BBA072
ABDUL
REHMAN
M14BBA083
FARAZ RAFIQ
M14BBA043
Economy
of Pakistan
Fiscal
Policy
4

5. Presented on the Topic of:
Fiscal Policy & Its
Effects on Economy
of Pakistan
Economy
of Pakistan
Fiscal
Policy
5

6. There are two parts of our presentation
1. Fiscal
Policy
2. Its Effects
on Economy
of Pakistan
Economy
of Pakistan
Fiscal
Policy
6

7. Introduction
Fiscal Policy is consists of following points:
 One major function of the
Government is to stabilize the economy
(prevent unemployment or inflation)
 Stabilization can be achieved in part
by manipulating the public budget-
government spending and tax collection
–to increase output and employment or
to reduce inflation.
Economy
of Pakistan
Fiscal
Policy
7

8. History
 Keynes advocated about the use of Fiscal Policy
as a way to stimulate economies during the great
depression.
 Fiscal policy was particularly used in the 50’s
and 60’s to stabilize economic cycles. These polices
was broadly preferred to as Keynesian.
 In the 1970’s and 80’s governments tended to
preferred monitory policy for influence the economy.
Economy
of Pakistan
Fiscal
Policy
8

9. FISCAL
POLICY
Fiscal Policy involves the
decisions that a government
makes regarding collection of
revenue through taxation and
about spending the revenue.
Economy
of Pakistan
Fiscal
Policy
9

10. Objectives of Fiscal
Policy
Development by
effective
Mobilization of
Resources.
Efficient
allocation of
Financial
Resources.
Reduction in
inequalities of
Income and
wealth.
Price stability
and control of
inflation.
Capital
Formation.
Development
of
Infrastructure.
Economy
of Pakistan
Fiscal
Policy
10

11.  It can have a significant impact on the Economy
 It can be discriminating which allows different
regions or consumption habits to prosper.
 It makes the distribution of income fairer through
progressive taxes & benefits.
Advantages of Fiscal
Policy
Economy
of Pakistan
Fiscal
Policy
11

12. Types of Fiscal Policy
1. Expansionary Fiscal Policy
When government spending are increased in the
economy, it is termed as Expansionary Fiscal policy.
Economy
of Pakistan
Fiscal
Policy
12

13. Types of Fiscal Policy
When government spending are reduced in
economy, it is known as contractionary.
2. Contractionary Fiscal Policy:
Economy
of Pakistan
Fiscal
Policy
13

14. Faraz Rafiq
M14BBA043
14

15. 15
Tools of
Fiscal Policy
Govt.
Earnings
Govt.
Spending
Revenue
Receipt
Capital
Receipt
Revenue
Expenditure
Capital
Expenditure
Tax Non-Tax
Direct
Tax
Indirect
Tax
1. Internal Resources
2. External Resources

16. 1. Internal Resources
2. External Resources
Revenue Receipts
Capital Receipts
Budget 15-16. Pakistan’s Internal Resources
collection::: Rs. 3366827 million.
Budget 15-16, Pakistan’s External Resources
collection::: Rs. 751,511 million.
Source: Ministry of Finance, Government of Pakistan. Budget 15-16.
Tools of
Fiscal Policy
Govt.
Earnings
Government
Earnings
TOTAL Amount Of BUDGET 15-16 is
4.3 Trillion.
16

17.  REVENUE RECEIPTS
 Taxation
1. Direct Taxes
The Tax that is directly paid to the Government by
the individual or business firm.
Budget 15-16, Pakistan’s collection of Tax
Revenue through FBR was::: Rs. 3,418,221
million.
1. INTERNAL
RESOURCES
Govt.
Earnings
Tools of
Fiscal Policy
17

18. Sources of Direct
Tax:
 Income Tax
 Payroll Tax
 Per unit tax
 Property Tax
Budget 15-16. Pakistan’s collection of
Direct Tax::: Rs. 1,347,872 million.
Tools of
Fiscal Policy
Govt.
Earnings
18

19. INDIRECT TAXES
There are many types of taxes which are
imposed on property and even on trade etc.
Tools of
Fiscal Policy
Govt.
Earnings
19

20. Sources of Indirect
Taxes
 Capital Gains Tax
 Estate Tax
 Excise Tax
 Consumption Tax
 With Holding Tax
Budget 15-16, Pakistan’s
collection of indirect
resources:::: Rs. 1,755,834
million.
Tools of
Fiscal Policy
Govt.
Earnings
20

21. NON TAX REVENUE
• Property and Enterprise
• Civil Administration And Other Functions
• Fee
• Royalty
• Tariffs
Budget 15-16. Pakistan’s Non Tax
collections::: Rs. 894,524 million.
 Total Net Revenue Receipts are in budget 15-
16. Rs. 2,463,351 million.
Source: Ministry of Finance, Government of Pakistan. Budget 15-16.
Tools of
Fiscal Policy
Govt.
Earnings
21

22. NET CAPITAL
RECEIPTS
1. CAPITAL RECEIPTS
Recovery of Loans & Advances
Public Debt Net
2. DISBURSEMENT
Tools of
Fiscal Policy
Govt.
Earnings
22

23. 2. EXTERNAL
RESOURCES
1. EXTERNAL LOANS
Project loans
Programmed loans
Other Aid
2. EXTERNAL GRANTS
Project Aid Grand
TOTAL EXTERNAL LOANS & GRANTS
in Budget 15-16::: Rs. 751,511 Million.
Tools of
Fiscal Policy
Govt.
Earnings
23

24. Government
Expenditures
1. Revenue Expenditures
Govt. expenditures means the expenditures on
public to increase their welfare in the Economy.
Current Expenditure means Non Development expenditures
e.g. social security and maintenance expenditures.
Total Current Expenditures in Budget 15-16::: Rs. 3, 482,239 million.
Tools of
Fiscal Policy
Govt.
Spending
24

25. REVENUE
EXPENDITURES
1. Mark-up Payment 1279895
Million
Mark-up on domestic debt. 1168676
Mark up on foreign debt. 111219
2. Pension 231000
Million
Military 174271
Civil 56729
Tools of
Fiscal Policy
Govt.
Spending
3. Subsidies 137603
Million
25

26. 4. Running of Civil government 3,26,331 Million
5. Provision for Pay and Pens 250000 Million
Tools of
Fiscal Policy
Govt.
Spending
Source: Ministry of Finance, Government of Pakistan. Budget 15-16.
REVENUE
EXPENDITURES
26

27. 6. Medical Products, Appliances and Equipment Rs. 27 M
7. Hospital Services Rs. 9,133 M
8. Public Health Services Rs. 423 M
9. Health Administration Rs. 1,426 M
10. Education Affairs and services Rs. 75580 M
Source: Ministry of Finance, Government of Pakistan. Budget 15-16.
Tools of
Fiscal Policy
Govt.
Spending REVENUE
EXPENDITURES
27

28. Tools of
Fiscal Policy
Govt.
Spending
2. Defense Affairs and Services 781162
Million
1. Foreign Loans Repayment 3482239 Million
CAPITAL
EXPENDITURES
3. Grants and Transfers
Grants to provinces 38300 Million
Grants to others 371575 Million
28

29. Abid Husain
M14BBA036
29

30. EFFECTS OF FISCAL POLICY ON ECONOMY
OF PAKISTAN
30

31. Introduction
 Government use fiscal policy
as……………
 A fiscal deficit………
 Keynesian Economist suggest
…..
31

32. Effects by Govt.
Earnings
 Taxation
When Government imposed TAX in the economy then these
major effects occurs in the economy.
 Productivity declines
 GDP declines
 Inflation
 Inadequate Incomes
 Low wages
 High Prices
 Shoddy Products
 Products Unavailability & Discontinuation
 Unemployment
 Poverty
 High rate of crimes
 Blacking
 Low Real Revenue
Effects on
Economy
Govt.
Earnings
32

33. Productivity Declines
The
Tax
Rate
increases
People
choose to
work less
Less time
they spend
on earning
more
income
All these
aspects
occurs in
the case of
INCOME
TAX & taxes
on
Manufacturing
Companies.
When this situation occurs in the economy then:….
Production at overall DECREASE & GDP
decline rather increase. Supply of
goods/output also reduced.
Effects on
Economy
Govt.
Earnings
33

34. GDP Declines
When TAXES are increased by 1% then
Real GDP reduced by 2% to 3%.
TAXES companies according to their
PROFIT & income TAX .
Then result on economy is:….
People’s savings
are reduced
because of…
INVESTMENT is
reduce &
PRODUCTION is
also decrease
then GDP???
Effects on
Economy
Govt.
Earnings
34

35. Inflation
Taxes on
Commodities
General
Sales TAX
causes
inflation
Effects on
Economy
Govt.
Earnings
35

36. Inadequate Incomes
Taxes increased by Govt. every year
Income of Employees & wages of
workers.
Causes inadequate Incomes
in the Economy.
That is gap between prices &
income.
Effects on
Economy
Govt.
Earnings
36

37. Low wages
 GOVTS. Impose heavy taxes
 These Taxes take away
 So, Can’t pay good wages to workers.
 Low Production
Effects on
Economy
Govt.
Earnings
37

38. High Prices
Raise taxes took away most of the income of
company.
They raise prices to get money
To bear cost of production & profit.
So prices.???
Effects on
Economy
Govt.
Earnings
38

39. Shoddy Products
Raise TAXES,
resulted into Low
Quality of
Products.
The prices of
goods remain the
same.
It is also a
type of
inflation.
Effects on
Economy
Govt.
Earnings
39

40. Abdul Rehman
Sukhera
M14BBA083
40

41. Unemployment
Raise in taxation
also cause
expensive raw
material for
industries.
Then
companies
raise prices due
to cost of
production is
high.
Government
bound the
prices on his
own will.
They can't bear
even their
expenses then
some companies
starts to shut
down.
Unemployment
occurs.
Effects on
Economy
Govt.
Earnings
41

42. Poverty
The Government of
Pakistan gives more
benefits to more
income people & less
benefits to low
income people, while
imposing taxes. e.g.
Income tax.
This lead
to unequal
distribution
of wealth.
Unequal
distribution
of wealth
cause
poverty.
Effects on
Economy
Govt.
Earnings
42

43. High rate of crimes
Due to
high
taxation,
income
of
people
is low.
Low
income
or
wages
leads
to
Poverty.
Poverty
leads to
crime.
People
choose
wrong
ways for
increase
their
income.
Also
when
Income
of
People is
low and
prices of
useful
goods
are high.
It is
due to
income
tax &
GST
normally.
Effects on
Economy
Govt.
Earnings
43

44. Blacking
When
heavy
taxes are
imposed
on foreign
trade.
Taxes on
imports
leads to
blacking
in the
economy
Tax
Due to
blacking
in the
economy
leads
to
decrease
in GDP.
Effects on
Economy
Govt.
Earnings
44

45. Low Real Revenue
 High Taxation on factors of production &
income leads to unemployment.
 Productivity also reduced
 & by this way, increase in Taxes 1 percent
leads to reduce 2 to 3 percent GDP.
Effects on
Economy
Govt.
Earnings
45

46. Effects by Govt.
Earnings
 Foreign Aid
 Have no significant impact on economic
growth & development.
 It leave some positive effects on economy.
 On other hand, Foreign Capital inflows
have a negative impact on Economy.
Effects on
Economy
Govt.
Earnings
46

47. Effects by Govt.
Earnings
 Loans & Debts
 Loans & Debts Considered as Future
spending
 It must be repaid through future
exceeding taxation
 It reduce resource allocation
 It is unproductive use of govt. funds
 Its repayment every year leads to low
productivity.
Effects on
Economy
Govt.
Earnings
47

48.  On bank transaction which is 50000 or more.
 Help the Government to raise 35 Billion from this.
 This is a eigime. It was said by PPP Leader Ayesha
Glalai.
 Government imposed tax on banking transactions.
This Directly effects the Business Sector & Also
Decrease the Productivity.
 By this way Government Direct influence the Business,
it reduce Dailey transactions.
48
Effects on
Economy
Govt.
Earnings

49.  This is a opposition point of PPP Leader Ayesha
Glalai
 This budget is High Inflationary Budget.
 In Budget 13-14, GST was 16%. Government
Raise to 17% in Budget 14-15.
 This is inflationary trend in the Economy.
49
Effects on
Economy
Govt.
Earnings

50. Sher Afzal
M14BBA072
50

51. Effects by Govt.
Spendings
Spending of Government have direct impact
on aggregate demand. Government may increase
or decrease aggregate demand.
There are two ways by which Govt. spend his income:…
1. Productive Use of Funds
2. Unproductive Use of Funds
Effects on
Economy
Govt.
Spending
51

52. Productive Use of
Funds
Productive use of funds by Government pay
good impact and positive impact on Economy.
 Expenditures by govt. on Agriculture, industries, education,
services etc.
 These expenditures increase the productivity of economy.
 Due to these expenditures living standard of people
increase.
 A country becomes from developing to developed.
 Its impact on economy is positive in all the cases.
Effects on
Economy
Govt.
Spending
52

53. Productive Use of
Funds
Effects on
Economy
Govt.
Spending
Government of Pakistan announce a subsidiary package for
Agriculture sector.
 Government of Pakistan bear the loss of reduce
GST on seeds from 10% to 5%.
 Rs. 5000 should be given to every Farmer per
Acre.
 341 Billion are allocated to Agriculture sector in
this Fiscal Year to raise the share of Agriculture in
GDP to the extend of 21% of total GDP.
53

54. Govt.
Spending
Effects on
Economy
Productive Use of
Funds
 Create 5 Million Jobs, our Economy needs 36
Million Jobs.
 Government of Pakistan allocated 248 Million to
Energy Sector, due to this 7000 MW added to total
supply.
 Government of Pakistan make free from Taxation
to Industrial Units in KPK.
 Government of Pakistan gives 10 years Tax
holiday to Investors.
54

55. 55
Objection point by opposition that this Budget is Anti Poor Budget.
 Because in this budget GST raise from 16% (Budget
13-14) to 17% (Budget 14-15).
 Prices of Petroleum products raise to 5% GST by the
government in this period.
 Government imposed Tax on CNG by 17
percent (Budget 14-15).
Effects on
Economy
Govt.
Spending
• All these Taxes have Directly Burdon on Poor.
• Due to GST, prices of house holds increase.
• Due to CNG tax, fair and carriage raise.
• Petroleum prices also imposed effect on many products.

56. Unproductive Use of
Funds
Unproductive use of funds by Government pay
bad and Negative impact on Economy.
 Use of funds on construction of roads, military
expenses, protocols etc.
 We can’t say that these expenses have no any
benefits for economy.
 These expenditures have less benefits for economy
as compare to productive expenditures.
 In one side, our economy requires high investment,
but other side, we use our funds unproductive.
Effects on
Economy
Govt.
Spending
Unproductive Use of
Funds
56

57. Unproductive Use of
Funds
Opposition Parties made objection on Metro Bus
Projects in different cities of Punjab. & Orange Train
Project in Lahore.
 Because these expenses are unproductive. So,
there are other many better ways for using funds.
 These are not a waste of funds rather we can
say that Government should spend funds on better
place rather Metro Buses & Orange Train.
Effects on
Economy
Govt.
Spending
57

58. Unproductive Use of
Funds
Effects on
Economy
Govt.
Spending
 Government Of Pakistan raise military Budget 11
Percent. It become more than 780 billion.
 185 billion allocated to the Construction of Roads,
Bridges and other Development expenditures.
 Development Expenditure raise by Government to 65
Percent from Last Fiscal Year.
 Repayment of Loans is also unproductive use of
funds.
58

59. Current Challenges
o Unemployment
o Deficit Balance of Payment
o In efficient use of Natural Resources
o Population Expulsion
o Political Instability
o Each political party has its own Policy.
o There is no coordination between Political Parties.
o Each Party leader has different background.
Economy
of Pakistan
Current
Challenges
59
o Burden of Internal and External Debts.

60. Solutions
 Pakistan needs to Redirect its Priorities.
 Invest in Basic Human Needs
 Maximum utilization of Natural Resources.
 Government must ensure equity and social Justice.
 Provide a major stimulus to Economic Growth.

 Politicians must be Graduate, with one subject of
Economics.
 Political Parties must be agreed on a point which is in
favor of Economy.
Economy
of Pakistan Solutions
60

61. Conclusion
Economy
of Pakistan
Fiscal
Policy
 After all this we conclude by saying that We
are Backward Economically in the World as far
as in South Asia.
61
4.3%4.3%
Pakistan
6.2%
Bangladesh
5.5%
Maldives
9.3%
Bhutan
6.5%
Sri Lanka
7.8%
India

62. Any Question ??????
62

63. 63