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Tuesday, June 22, 2010

This is mother of all democracies.....and it could fare no better...Please read and comment.

Budget 2010-11 presented by Pakistan's coalition government has attracted sever criticism even from those who have no clue to even simple figures. In spite of the fact that in the given circumstances, the government could hardly come up with a better budget, criticism is going on. We, just as a matter of routine, always think that Pakistani budget is always a recipe for disaster for average Pakistani? How wrong we were?

There is another budget presented by another coalition government in what you always refer to as mother of democracies..yes the United Kingdom. This budget has taken away many things from the common man and increased the VAT which alone will cost every family 500 additional pounds. The rise in VAT will push up the price of many basic household items, notably petrol, alcohol, clothing, toiletries, furniture and electrical items.

It will push up the average price of petrol from £1.18 a litre to £1.21, adding £1.50 to the cost of filling up the average family car. The average pint of beer will rise above £3 for the first time and it will add £13 to the cost of an iPhone, which currently costs up to £630.

Deloitte, the accountancy firm, calculates that the average worker, earning £24,000 will pay an extra £183 a year as a result of the VAT rise. Charities said it was unfair because, unlike businesses, they can not claim back VAT. It has been calculated that charities pay £150 million a year in VAT.

It could also push up the rate of inflation, many fear, though the Treasury insisted the cost of living would fall next year. Retail experts said the rise was “dangerously counterproductive”, while some economists pointed out it was one of the easiest and most efficient ways to raise extra revenues.

KPMG, the accountancy firm, warned that many retailers “teetering on the edge” following from the recession could be “pushed over the edge” by the VAT rise. Andrew Burrell, Research Partner at King Sturge, a property consultant said: “The killer for retailers and consumers alike is clearly going to be the VAT hike. This was too big a temptation for the coalition to resist, despite the fact that consumer confidence remains extremely fragile and a sudden hike in prices could destabilise the recovery.”

“With inflation already running at around 5 per cent, earnings growth weak and public sector employment set to fall, household finances, which are already under severe pressure, will be dealt a further blow. Spare capacity for mortgage payments will also be squeezed.”

CEBR calculated that the poorest households pay disproportionately a higher amount of VAT. The bottom quarter of earners pay 12 per cent of their disposable income in VAT, compared with the top quarter of earners who pay just 6 per cent.

Matthew Sykes, chief executive of the anti-poverty charity Elizabeth Finn Care, said: “From its lowest point at the end of last year, VAT will have risen by a third. This latest measure alone is a rise of over 14 per cent. That is going to leave the poorest struggling to pay for many of the basics that the rest take for granted. Sadly, VAT is a disproportionate tax – the less you earn, the more you will feel the pinch when the rate is increased.” David Buick, at City firm BGC Partners, however pointed out that the richest consumers still paid the most, if not proportionately, then certainly in actual money. “This tax could raise an extra £13 billion in a year and it is not as socially debilitating as Labour would have us believe. After all, the wealthier will spend the most and buy the most goods.”

The Treasury has also tweaked the rate of VAT that people pay on some insurance policies from 5 per cent to 6 per cent, which will raise £455 million a year.

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