COVID-19 pandemic & Rich-Poor Divide

Huzaima Bukhari & Dr. Ikramul Haq

Much before Covid-19 outbreak, the widening income and wealth disparities were highlighted by us in various columns with solutions to bridge the growing rich-poor divide, but no government paid any heed. During the rule of General Pervez Musharraf [October 12, 1999 to August 18, 2008], a report by Centre for Research on Poverty and Income Distribution (CRPID) revealed that in his first five years, the income/wealth inequalities registered an unprecedented increase in our history. The report of CRPID showed that 32% of the population was ‘chronic’ or ‘extremely poor’, while 63% were “transitory poor. The major devastating factor behind abject poverty was the regressive tax system under which incidence on the poor increased substantively by 35% while was reduced by 47% on the rich facilitating them to amass colossal wealth.

The trend set by Musharraf continued unabated by Pakistan Peoples Party and Pakistan Muslim League (Nawaz) during the Decade of Democracy [2008-18]. Prime Minister, Imran Khan, who took oath on August 18, 2018, came to power promising justice in all spheres and building “Naya [New] Pakistan. However, nothing substantially changed as during Covid-19 outbreak, millions of vulnerable workers became jobless and the State’s kitty was strapped to look after them and their families living in sub-human conditions. Premier Imran Khan started making calls for tax-free donations from all, especially Pakistani expats facing also destructive impact of Covid-19. Thus, the tall claims of Pakistan Tehreek-i-Insaf (PTI) converting Pakistan into a welfare State proved a mere lip-service.

Undoubtedly, since removal of Zulfikar Ali Bhutto on July 5, 1977 through a coup d’état, the small farmers, industrial workers, daily wagers and all weaker segments of society have been neglected by all governments—military and civilian alike. As elsewhere, our State has become pro-rich. The Oxfam’s report, ‘Time to Care’ of January 20, 2020, says: “2,153 billionaires have more wealth than the 4.6 billion people who make up 60 percent of the planet’s population”. Pakistan is cited among the countries, where due to elitism, oppressive taxes, rent-seeking, concentration of resources/wealth in a few hands and non-delivery of social services, have been contributing perpetually towards widening the rich-poor divide.

Elites in Pakistan use their influence to secure money whitening & tax amnesties schemes/exemptions/immunities/concessions/subsidies, while showing apathy towards the downtrodden not to provide them even basic entitlements. Oxfam’s report observes, “In Pakistan even the rich parliamentarians pay negligible taxes important to fund education, healthcare and small-scale agriculture that can play a vital role in reducing inequality and poverty and the poor are hit hardest by petty corruption, which acts as de facto privatization of public services that should be free”.

The above facts are once again established by the latest Household Integrated Economic Survey (HIES) 2018-19 released by Pakistan Bureau of Statistics (PBS) on April 20, 2020. The survey compared social and economic indicators across the provinces with results of the HIES 2015-16. The salient features, highlighted in HIES 2018-19 and reported in Punjab leads in household income, are as under:

• “Punjab left behind Khyber Pakhtunkhwa (KP) in average monthly household income that increased to Rs42,861 at the end of terms of previous assemblies, due to concentration of development activities in one province, reveals the latest official survey.
• The key reason behind the increase in household income appeared to be consolidation of development activities in Punjab, which had been governed by the Pakistan Muslim League-Nawaz–the ruling party in the Centre at that time. The work on survey began towards the end of last political governments but field activities were carried out from August 2018 to June 2019.
• The average monthly household income in Punjab increased to Rs42,861, higher by Rs6,631 or 18.3% as compared to the results of 2015-16, according to the HIES 2019. It was also the highest average household income among all provinces, a distinction that was with K-P in 2015-16.
• The average household income in KP stood at Rs42,736, up Rs4,383 or 11.4%, showed the survey. However, in Sindh, the average household income stood at Rs39,078, higher by Rs5,130 or 15.1% over three years ago.
• Meanwhile, in Balochistan, the average household income increased by Rs6,346 or 21.2% to Rs36,387, according to the new survey.
• The increase in average income was the slowest in KP among all provinces. Punjab and Balochistan were the two main provinces where income increased significantly both in absolute terms and in percentages.
• The most populated province– Punjab–was the main beneficiary of the China-Pakistan Economic Corridor (CPEC) and other mega development initiatives, followed by Balochistan.
• Politicians belonging to Sindh and KP had protested against the uneven distribution of development funds during the 2013-18 tenures of assemblies.
• Findings of the survey also depict mixed social and economic results. The literacy rate in Pakistan increased by two percentage points to 60% and the infant mortality rate went down between the period of the two surveys.
• The review showed that economic disparity between the lowest income group and the highest income group fell marginally.
• According to the survey, average monthly household expenditure in 2018-19 stood at Rs37,159, up by Rs4,581 or 14% compared to 2015-16.
• This figure is used to assess the overall welfare of people. The pace of increase in expenditure in all income groups was lower than the previous survey year, showing positive impact of low global inflationary environment. However, the expenditure by the richest income group was 267% higher than the lowest income group, indicating disparity in living standards due to income levels.
• Average monthly income stood at Rs41,545 in 2019, higher by 13.6% or Rs4,883 over the 2016 period. The growth in income was slightly less than the growth in expenditure, which suggested that people hardly met their expenses from their income.
• The income of the richest was 273% more than the income of the poorest.

Expenditure disparity

• The increase in expenditure seems to be across the board as the expenditure for all income quintiles increased in the range of 10% to nearly 19%–-but the pace of increase was less than in previous years.
• There was usual disparity between the lowest quintile and the highest one – the highest income group spent Rs58,206 per month, which was 168% more than the spending by the lowest income group that amounted to Rs21,726.
• The poorest income group’s spending increased only Rs3,230 per month in the last two years. The second-lowest quintile’s average monthly expenditure amounted to Rs27,138, higher by Rs4,264 or 18.6% over the last surveyed year.
• Meanwhile, the third quintile, comprising the middle-income group, had average monthly expenses of Rs30,475, higher by Rs3,770 or 14.1%.
• Moreover, the higher middle-income group’s expenditure grew to Rs36,338, up by Rs5,001 or 16% more than the previous surveyed year.

Monthly income disparity

• The monthly income of all quintiles increased in the range of 5% to 22% and the major surge was recorded in the income of the lowest two quintiles, which appeared to be beneficiaries of the government’s economic policies.
• The lowest quintile’s average monthly income stood at Rs23,192, higher by Rs3,450 or 17.5% and sufficient to finance the expenses.
• The second-lowest quintile’s income stood at Rs29,049, which was 22% or Rs5,223 more than the previous year’s income and also higher than the pace of increase in expenses.
• The middle-income group saw a 12% increase in its income to Rs31,373. The higher middle-income group’s average monthly income increased to Rs37,643, showing 11.8% growth.
• The average monthly income of the highest income group was estimated at Rs63,544, higher by 5.1%, still short of matching the growth in expenses”.

It is an established fact as evident from above reports and latest data released by PBS that more and more people are moving from transitory category to chronic category, courtesy irrational economic policies, especially regressive taxation retarding growth and causing inequitable distribution of income and wealth. Monopolisation of assets by ruling elites—military-judicial-civil-complex, landed aristocracy, industrialist-turned politicians and unscrupulous businessmen—is the root cause of the ever widening gap between the rich and the poor. The inquiry reports about sugar, white and IPPs testify this reality. 

The Great Divide in today’s Pakistan relates to income and wealth disparities between the rich and the poor. The wealth of the nation is confined to a few families. The main burden of taxes—70% collection is from indirect taxes—is on the less privileged classes and the rich are not even ready to share a very negligible portion of their collossal wealth with the have-nots. The overwhelming majority of the elected members of parliament does not file tax returns and keep assets benami (in the name of others). India banned all benami transactions through a law, Benami Transactions (Prohibition) Act, 1988. Interestingly, we passed this law in 2017 but it remained dormant for two years and even now nothing worthwhile is achieved. Even in the presence of Article 19A of Constitution, the public has no access to assets of top military brass, honourable judges of Supreme Court and High Courts and grade 21and 22 civil servants.

It is pertinent to mention that Article 19A of the Constitution confers inalienable fundamental right to every citizen to know about the assets and tax declaration of persons holding any judicial position, government post or public office or where information is of public importance.  Even courts cannot curtail this fundamental right as Article 19A of Constitution says: “Every citizen shall have the right to have access to information in all matters of public importance subject to regulation and reasonable restrictions imposed by law”. This was explained by the Supreme Court of Pakistan in Watan Party & Others v Federation of Pakistan & Other PLD 2012 Supreme Court 292 as under:

“Article 19A has thus, enabled every citizen to become independent of power centres which, heretofore, have been in the control of information on matters of public importance….. Article 19A is a grant of the Constitution and, therefore, cannot be altered or abridged by a law enacted by Parliament…It, therefore, will not for this Court to deny to the citizens their guaranteed fundamental right under Article 19A by limiting or trivializing the scope of such right through an elitist construction whereby information remains the preserve of those who exercise state power.”

The most unforgivable crime of the ruling elites is grabbing of State property and non-payment of taxes on unprecedented perquisites and perks enjoyed by them—they get State lands as rewards and awards (free or at throw-away prices) and a host of free benefits but do not pay taxes due on them even where the law so requires. Adding insult to injury, the taxes collected from the masses are shamelessly wasted on their luxuries—palatial bungalows, fleets of cars, army of servants, foreign tours and what not.

Inequalities in income and wealth in Pakistan, as elsewhere, largely reflect inequalities in the distribution of assets. Since the poor have virtually no assets and the lower middle class own very few assets, income distribution is skewed. Distribution of state land; development of plots and houses for the common man at affordable prices and installments; the sale of shares of public enterprises in smaller lots; human resource development; and credit to the micro, small and medium enterprises are some of the ways that might help the poor in acquiring assets. However, the role of official bodies set up by federal and provincial governments in this regards (much-publicized Benazir Income Support Programme (BISP) now renamed as Ehsaas or Khushal Pakistan Fund etc!) is simply hopeless—due to various weaknesses—the main is not empowering the needy but to make them beggars, even the BISP was abused by government officials.

The income inequalities in Pakistan have increased sharply during the since 1977 after coup d’état   by General Muhammad Ziaul Haq and the trend continues unabated despite tall claims of poverty reduction by official quarters and successive governments—military and civilian alike.

The main factors that govern personal income distribution include: distribution of assets; functional income distribution; transfers from other households, government and rest of the world; and tax and expenditure structure of the government. Study of Pakistan from this perspective is very painful as our society is fast moving towards dehumanizing characteristics, unfettered and unchallenged—the poor recipients of Ehsaas Emergency Cash Programme were humiliated to come in centres and wait for hours to amounts. We were facing economic disparities, undernourishment, starvations, scarcity of eatables, power shortages and lack of essential services even before coronavirus epidemic but after the outbreak and lockdown these are expanding at a pace that is alarming. The Great Divide in today’s Pakistan between the rich and the poor, if not reduced through immediate curative measure, may eventually lead to bloody civil commotions.

An op-ed [Where is the empathy?], published on April 15, 2020, noted with concern: There has to be a mechanism of transferring of wealth/income from those who can afford to those who are vulnerable.  Private sector has to bring in all hands on table with the government. Forget about the mantra of being a philanthropic nation. Formal businesses and high net worth individuals have to give in the form of higher taxes to the poor……all the big and medium size businesses organization have come up with requests of waiving of numerous taxes…while the fate of poor is left to government to deal with through its Ehsaas programme… Where is the empathy of rich for the poor? How can they be so blindsided on vulnerabilities of millions of households”?

The author also aptly highlighted, “The battle between haves and have-nots has become uglier where haves want to have whatever fiscal kitty is offering. Out of the package of Rs1.2 trillion announced by the federal government, Rs. 144 billion are being arranged for poor people (Rs12, 000 for 12 million households for four months). That is just to cover food expenditure of those vulnerable for one month”. According to data, 32 million are vulnerable that is 56% of total labour force and 76% of these are “working without any formal contract (43 million people)”.

Our total labour force is 75 million—to give monthly minimum wage of Rs. 17,000 to them—we require Rs. 1.3 trillion per month. For 15% (11 million), who are at the risk of losing jobs due to lockdown, sluggish economy, and decline in earnings of businesses and incomes of individuals, the federal and provincial governments require Rs. 185 billion per month, which they lack! These are wages of policies of many decades of keeping the vast majority of people poor. The State shows “mercy” on the poor rather than making self-reliant and promote charities to get tax-free donations from the rich, who take pride in it as a gesture of piousness earning a place in Jannah [Heaven] for them.

The abdication by State of its responsibility of welfare of public under the Constitution is our real dilemma, no matter which government was/is in power. The ‘Thieves of State’ have always been, and will remain the main beneficiaries of taxes, even of funds given by foreign donors/lenders for mitigating economic suffering of the have-nots. It is highly lamentable that no regime has undertaken fundamental structural reforms to end elitist structures and ensure social mobility of the downtrodden. We spend billions on the perks/benefits of militro-judicial-civil complex and politicians in power, but when it comes to spending on economically deprived segments, there is a standard excuse of running short of funds! Thus, appeal for more tax-free donations!

In May 2019, Special Assistant to Prime Minister, Dr Sania Nishtar, who is also heading Benazir Income Support Programme (BISP), now called Ehsaas, in response to a proposal, sent the message: “Thanks for the innovative idea. I look forward to learning more about this”. The proposal was to introduce Negative Income Tax (NIT) as an alternative to schemes like BISP etc assuring every citizen, earning below taxable income, to get basic guaranteed amount through NIT to subsidize the needy at less cost than the inadequate welfare system. She said: “Yes I agree. Let me settle in and I will request you to brief me in detail to explore options”. This has yet to happen. Undoubtedly, she is highly committed to the cause of uplifting the poor and has shown extraordinary performance/dedication in the present crisis.  

Had funds of billions allocated to BISP since its inception alone were used for empowering the have-nots, making them earning hands and not beggars, we could have avoided the present crisis and humiliation faced by the recipients. The current challenge offers a golden chance to the federal and provincial governments to join hands to prepare national data of all households determining their economic status. Through NIT and other tax-financed schemes, we can provide universal pension and social security to all citizens, food stamps to the chronic poor and unshackling their poverty trap through economic empowerment and not through charities—this is the only solution and a lesson to be learnt from a calamity like Covid-19.

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The writers, lawyers and authors, are visiting s at Lahore University of Management Sciences (LUMS)