Unless you make less than Rs 33,333 per month or are a government employee, you probably despise the characterisation of the Federal Budget 2012-13 as populist. In the former case, your celebration about tax-exempt income is eclipsed by the more sobering fact that it’s hard to pay the rent and raise two kids on this amount. In the latter case, you have realised that after deducting for double digit inflation, even your 20% salary raise doesn’t leave you with very much more than you had before. And so, you too will join the ranks of those unhappy about the budget.

The good news is, you will be among the majority. Years of economic mismanagement and an unwillingness to implement essential but politically contentious reforms have left Pakistan with a patchy tax collection system, a largely undocumented economy, a burgeoning fiscal deficit and much debt, both domestic and foreign. This year too, in its quest to raise money painlessly, the Government has avoided taxing the big shots capable of creating a political stink – the agriculturalists, the real estate magnates and the stockbroker kings – and has focused on the birds in hand: the consumers.

On the face of it, this is a tax-free budget: no new taxpayers have been roped in. The tax exemption limit has also been revised upwards from Rs 350,000 per annum to Rs 400,000; the number of income tax slabs has been reduced from 17 to six; the sales tax has also been rationalised down to an average of 16%. However, to realise the budgetary estimate of Rs 2.38 billion in revenues, someone’s gotta give and by the looks of it (indirect taxes are supposed to generate Rs 1.572 trillion compared to the Rs 932 billion in direct taxes), it is going to be the consumers. Even the ‘relief’ provided in the form of tax concessions and exemptions – worth Rs 25.5 billion in income tax and Rs 5.5 billion in sales tax – reflects a bias against consumers.

Problem is, consumption-based taxes on essential items are inherently unfair because they don’t account for income disparities. The tax collected from the sale of, say, a packet of tea is the same, regardless of whether a high-powered CEO is buying it or a BPS 12 official; the issue is, the money represents a larger chunk of the latter’s earnings. (Consumption-based taxes only make sense when big-ticket, non-essential items are involved – say, the import of luxury vehicles – but this budget has not revised upwards the rates of those taxes.) Now factor in the politics. With the active support of parties such as the MQM and the PML-N, retailers, traders and businesses across Pakistan have successfully nipped in the bud any attempts by a government to document the economy by demonstrating ‘shutter power’. As a result, far too many economic actors in the country are not within the tax net and much of the tax collected on consumption doesn’t even end up with the government.

There is also the fact that the additional taxes on consumption tend to create inflationary spirals, which ultimately hurt everyone. For four years now, Pakistan has been grappling with double digit inflation. Confronted with the twin plagues of inadequate revenue on the domestic front and an increasingly belligerent external sector – the international financial institutions (IFIs) lost patience with Islamabad’s begging in the face of a demonstrated inability to fix its own economic problems – the Government began pushing the State Bank to print currency (while simultaneously dipping into the pockets of commercial banks). As more money chased fewer goods, inflation galloped forward untrammeled.

Given that the new budget doesn’t speak about how the Government will mobilise additional revenue and there are no clear plans on how to woo back the IFIs, the currency printing trend and, consequently, inflation are expected to continue.

It is also worthwhile to look at what these new currency notes will buy. The budget has increased the provisions for public sector development, salaries and pensions and some subsidies. The issue is, such measures are akin to robbing many Peters to pay a few Pauls. The IMF has long been asking Islamabad to come up with pro-poor, targeted subsidies. Instead, the Government chose to please the electorate at large by, for example, providing cheaper electricity to all (in the process, running up circular debt worth Rs 400 billion) and bailing out inefficient public sector enterprises (as they can be used to provide jobs for constituents). The point to remember is, someone will eventually have to pay for all these freebies. And since the Government can’t, eventually, the consumers will.