Relief for the poor

Business Recorder reports1:

Punjab Finance, Planning and Development Minister Tanvir Ashraf Kaira has said poor, salaried class and farmers will get relief in the coming budget for the fiscal year 2008-09, saying, “Our main focus would be to give target subsidy to the poor in the budget.”

The relief would come primarily in the form of price controls. Abid Hasan, a former operations adviser for the World Bank, agrees with the goal, if not the means, in his take on the situation published in The News today2. His plan revolves around the introduction of a “poverty reduction surcharge” (his fancy name for “tax”) on what he considers superfluous luxuries like cars, cell phones, stock trading, and high utility bills.

Actually, at first I was encouraged because he takes the view that government subsidies and price controls have contributed to Pakistan’s economic woes. He argues, for instance, that by letting farmers sell at market prices, smuggling and black market loss would be reduced and farmers would have the resources to increase food production for next year. However, look at what Hasan proposes when it comes to cars:

More generally, tax policy should be used to switch consumption patterns appropriate to the country’s poverty status. As an example, in Pakistan for every one car sold, four motorbikes and four cycles are sold. The ratio for India is six motorbikes and 10 cycles, and in Vietnam it is 25 motorbikes and 10 cycles, for every one car sold. These two countries are almost the same or higher per capita income, and similar poverty profile, as Pakistan. And yet their population uses, relatively, more motorbikes and bicycles. Progressive tax policy – for example, zero rating bicycles, motor bikes and public transportation and high taxes on cars – and correct pricing of fuel would encourage this “pro-poor” switch.

He offers no justification for the implication that India and Vietnam have a healthier ratio of cars to motorbikes and bicycles. Why not tax cars so much that the ratio falls to 1:100? How is the proper ratio determined? Why isn’t it good that more Pakistanis can afford cars? Without the hard numbers, it’s hard to even say that Pakistanis can afford more cars, since it could just as easily be that fewer Pakistanis can afford motorbikes and bicycles, or that bicycles and motorbikes aren’t as useful to Pakistanis.

In the end, I’m just annoyed that Hasan takes the time to rail against socialist economic policies like price controls only to suggest that we solve the problem by introducing new socialist economic policies like high taxes on certain items to get various ratios into what the government determines is most healthy.


1 Budget will be poor-friendly: minister. Business Recorder. May 24, 2008.
2 Hasan, Abid. Spend on the poor to save Pakistan. The News. May 24, 2008.

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