LAHORE, June 9: The Shahbaz Sharif government made a ‘mission statement’ about the areas it wants to concentrate on during the ‘election year’ as its deficit budget for 2012-13, announced on Saturday, proposed generous subsidies and spending on schemes like grant of interest-free loans, subsidised tractors and yellow cabs as well as free laptops to voters, particularly the youth.

It also promised to create 80,000 jobs in the public sector and to start an internship programme for 50,000 graduates.

The provincial government announced an increase in pay and pension of its employees by 20 per cent to provide relief to them in line with a federal government decision for its employees. The Punjab government has already raised the minimum wage to Rs9,000.

Transfers to local government under the provincial finance commission award were raised by 24.3 per cent to Rs210.98 billion. The size of one-line transfers of development funds to districts and autonomous institutions like hospitals was more than doubled to Rs41.82 billion from Rs18.74 billion.

In a departure from its stand, the government has decided to set up a Punjab revenue authority to collect general sales tax (GST) on services (provincial). A new bill — the Punjab Sales Tax on Services bill, 2012 — was laid before the assembly as part of the finance bill for the next financial year to replace the existing Punjab Sales Tax on Services Ordinance, 2000, as the first step towards the formation of the new authority.

The passage of the bill, which does not change the scope and rate of tax, and the establishment of the new authority will allow the provincial government to collect GST on services within the province.

It is hoped that the new arrangement will help raise the revenues to Rs40.49 billion next year. At present, this tax is collected by the federal government on behalf of the provinces.

The budget, which shows a total current and development outlay of Rs782.85 billion, is lacking in fiscal discipline. It commits no effort towards raising the provincial tax revenues by seeking effective taxing of the under-taxed sectors like agriculture income and real estate or broadening the tax net, increasing the province’s dependence on federal transfers under the National Finance Commission award.

TAX RELIEF: Instead, the finance bill tabled in the assembly, along with the budget documents, proposes tax relief, which, no matter however puny, is obviously aimed at attracting voters.

In all, the government has allocated Rs15bn for the youth-related initiatives and Rs34bn for subsidy on food (Rs27.50bn), public transport (Rs2bn) and provision of solar panels to 50,000 households (Rs1bn).

The total subsidy provided by the government during the outgoing year stood at Rs15bn against allocation of Rs30bn in the budget. The allocation for subsidy and youth initiatives forms 20 per cent of the province’s annual development programme (ADP) of Rs250bn and 6.4 per cent of the total budget outlay. No wonder that the development budget carries a hefty “shortfall” (or deficit for which no financing is available) of Rs30bn, effectively reducing the ADP’s actual size to Rs220bn, or equal to the current year’s estimates.

The budget documents betray the provincial government’s liberal use of public money for the election campaign of the ruling Pakistan Muslim League-N at the expense of people and economic growth, commented a professor of the Lahore University of Management Sciences, who did not want to give his name for personal reasons.

Over 83 per cent of the Punjab budget will be financed through federal transfers of Rs650.74bn under the NFC, 12 per cent through provincial tax revenues of Rs95bn, including GST (provincial) of Rs40.50bn, and the remaining 5 per cent through provincial non-tax receipts of Rs35bn.

The estimate for revenue expenditure of Rs532.859bn for the next year is over 22 per cent higher than current year’s Rs434.749bn. Compared to this the development budget has recorded 13.6 per cent increase in its size, or equal to the shortfall of Rs30bn in financing shown. The target for the provincial tax revenue has been set 7 per cent bigger from the outgoing year.

Additionally, the government expects Rs11.48bn as foreign project assistance to finance part of its development programme along with the net revenue surplus of Rs208.34bn after covering the net capital deficit of Rs39.50bn.

Other major allocations announced in the budget include Rs10bn for power generation for the industrial estates, Rs2bn for low-cost housing schemes, Rs11bn for Metro Bus System in Lahore, distribution of 105,000 free 5-marla residential plots to people with income up to Rs6,000 a month, regularisation of katchi abadis, Rs2bn for Punjab Educational Endowment Fund to provide scholarship to students studying in top private universities, Rs2bn for Daanish Schools, Rs5bn for supplying free medicines to public hospitals, Rs500mn for Innovation Development Fund for the youth, and Rs500mn for launching ambulance service in rural areas.