Balancing the budget


WEB DESK: Extraordinary. Budget-making exercises had already been relegated to obscurity as the Panama-leaks scandal hit the headlines in the first week of April.

And now the holding of the National Economic Council meeting as well as the budget related cabinet meeting on the same day and that too through video-conferencing with the mandatory chairman for both – the Prime Minister – joining in from London because he was to undergo an open heart surgery the next day.

Perhaps both the meetings could have been postponed until the PM was back on his toes but the month of Ramazan had perhaps precluded the option. Also perhaps the option of temporarily replacing the PM following due constitutional process pending the surgery was not considered because that would have been perceived even by the PML-N voters to have been the result of the demand of the opposition for his resignation pending the Panama probe.

Well, open heart surgery was not so commonplace and neither had it become such a relatively safe operation when the 1973 Constitution was being passed. Also, at that point in time even telecommunication and information technologies had not progressed to the on-line stage. So, the question whether or not the constitution was violated by holding the NEC meeting or the cabinet meeting to approve the budget through video conferencing would remain an academic question for some time.

However, when you wilfully take liberties with the democratic obligations you do break certain democratic rules – especially, when the obligation has to do with the distribution of nation’s financial resources between the federation and the provinces on the one hand and, on the other among the provinces. More so, when the delay in meeting this particular democratic obligation renders it almost impossible to incorporate the resource distribution Award in the federal and provincial budgets for nearly two full fiscal years necessitating extending the life of the previous Award by 24 months.

The 7th National Finance Commission Award was announced well in time to be incorporated in the 2010-11 budgets. Though it was claimed later that the new allocation formula was evolved keeping in mind the anticipated increase in the financial needs of the provinces after the expected passage of the 18th Amendment but the mismatch between the increase in the needs of the provinces following the passage of the 18th Amendment in June 2011 and the budgetary allocations received by the provinces under the 7th NFC Award remained irreconcilable throughout the five-year tenure of the Award.

This happened notwithstanding the fact that the federation failed to jettison a number of provincial responsibilities merely because the federal bureaucracy was not prepared to let go what it considered to be its fiefdoms, thereby causing the federation to shoulder burdens that were to have been passed on to the provinces. The delay in finalizing the 8th NFC Award would surely create some problems for the provinces in making proper allocations under the proposed Provincial Finance Commissions (PFCs) because local governments in all the four provinces have come into existence necessitating the constitution of PFCs.

One had expected that the census would have been held in the meanwhile and the delay would have only helped the 8th NFC Award to take into consideration the results of the census rendering the Award more realistic as population carries the maximum weightage in the provincial distribution formula. But census has also been delayed making the situation even grimmer. Soon after the passage of the budget for 2016-17 the government would need to call a meeting of Council of Common Interest (CCI) to discuss the redistribution of responsibilities among the federation, the provinces and the local governments as envisaged in the 18th amendment.

Otherwise, the provinces would continue to draw ever larger share of resources without an increase in their responsibilities in accordance with the 18th Amendment and continue to deny the local governments their responsibilities as well as their rightful financial shares under the PFC. On the other hand, the federation would continue to draw ever smaller share from the divisible pool with its responsibilities remaining the same as before the passage of 18th amendment with the added burden of debt servicing and subsidies along with the responsibility of providing hard cash for the ongoing war against terrorism which is expected to last for some time.

Roughly speaking, if the 18th Amendment is implemented in its true letter and spirit, the federation will have no more than four portfolios to look after – Finance, Foreign Affairs, Defence and Communication. Additionally, it would need to spare resources for expanding and building physical infrastructure. The provinces on the other hand would need to take care of development, law and order, agriculture, commerce and industry. And the local government would be left with the task of taking care of education, health and drinking water, etc. Under the current resource distribution formula for provinces, 82% of the award is based on provincial population, 10.3% based on poverty and lack of infrastructure, 5% on revenue collection, and 2.7% on the basis of inverse population density.

Under the 7th NFC Award, the federal government had agreed to increase the provinces’ share from the divisible pool of federal tax revenues from 46.5% to 57.5%. In conjunction with economic growth and inflation, this increased the provinces’ share from Rs 677 billion transferred in fiscal 2010 to Rs 1.6 trillion for fiscal 2015. Some quarters have suggested that the new formula could also consider including ‘tax effort’ criterion for horizontal distribution of the combined provincial share.

Article 140-A of the Constitution prescribes political devolution in unequivocal terms. But the appetite of our elected people who return to the national and provincial assemblies spending millions does not let them part with the powers to spend the taxpayers’ money and siphon off a part of it to recoup with profit what they had spent on elections.

The 18th Amendment recognises equal share of provinces in the oil and gas resources. Article 172 (3) reads, “subject to the existing commitments and obligations, mineral oil and natural gas within the Province or the territorial waters adjacent thereto shall vest jointly and equally in that Province and the Federal Government. Until the 18th Constitutional Amendment, oil and gas were fully controlled by the federal government. Article 158 of the Constitution further recognises rights of the provinces. The province in which a wellhead of natural gas is situated owns the wellhead.

This landmark amendment has bolstered provinces’ share on their resources. Thar coal is another example where the system has been manipulated to maintain federal government’s control. However, the colonial mindsets of federal bureaucracy and certain centralist politicians have demonised this amendment and are trying hard to get rid of it.-Business Recorder

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