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Punjab focus on large investment spending

Updated June 18, 2013
Punjab Chief Minister Shahbaz Sharif.—File Photo
Punjab Chief Minister Shahbaz Sharif.—File Photo

LAHORE, June 17: Punjab’s Rs931.65bn deficit budget for 2013-14 focuses on large investment spending, doles out billions of rupees in untargeted subsidies, vows to continue populist schemes, and aims to raise tax revenues by above 33 per cent without any major change in the taxation regime.

Finance Minister Mujtaba Shujaur Rehman tabled the budget in the Punjab Assembly on Monday.

The investment (development) spending has been raised by over 73pc to Rs290bn (inclusive of the operational shortfall) from the actual spending of Rs166.88bn in the current fiscal year. About 32pc of this will be allocated for uplift schemes in south Punjab. The development is being financed from the revenue surplus of Rs230.30bn and foreign project assistance of Rs29.70bn. The focus of infrastructure spending (Rs92.60bn) will be on energy, roads, bridges, housing, industrial estates, irrigation and urban development.

Other areas where the Shahbaz Sharif government plans to make major investments are education, health, water supply and sanitation, urban development, agriculture, information technology and transport. The government pledged to launch metro bus projects in Rawalpindi, Multan and Faisalabad, but did not say when.

The total subsidy for the next year is estimated to be Rs36bn — Rs28bn for wheat support price (which will be pocketed mostly by flour mills and commercial consumers of wheat), Rs5bn for transport and Rs3bn for Ramazan package.

The government announced populist schemes like distribution of free laptops and solar systems amongst students, construction of Daanish schools, provision of interest-free loans under the self-employment scheme and a paid internship programme for fresh graduates.

The yellow cab and green tractor schemes have been disbanded.

The budget envisages a health insurance card scheme at a cost of Rs4bn for reducing health expenses of the poor and low-cost housing initiative for the low-income people across the province. Knowledge cities and parks and new universities will also be established in different places.Taking a cue from the federal government’s decision, the Shahbaz Sharif government has allowed a 10pc raise in the salary and pension of its employees.

Similarly, it has decided to increase the minimum wages to Rs10,000 from Rs9,000 in view of the wide criticism on the PML-N government at the centre for not keeping its election promise. Labour colonies will be built from the Punjab Workers’ Welfare Fund in Multan, Gujranwala, Kasur and Sheikhupura.

The budget projects an increase of Rs702.12bn in federal transfers, Rs126.70bn in provincial tax, Rs28.71bn in provincial non-tax revenues and Rs29.70bn in foreign project assistance. Still, the development programme carries an operational shortfall or deficit of Rs30bn.The current expenditure has been pitched at Rs607.57bn, up by 14pc from the estimates for the outgoing year in spite of several austerity measures like cutting non-salary expenditure of all provincial departments by 15pc, reducing the allocation for the Chief Minister’s Office by 30pc, a ban on purchase of new cars, abolition of ministers’ grant for furnishing their official residences, etc.

As part of its effort to cut expenditure, the government has decided to continue a ban on recruitment in the provincial departments save education, police, health and judiciary. A commission has also been constituted for restructuring and right-sizing provincial departments.

Since a sum of Rs34bn will be used to fund the capital account deficit from the revenue surplus, the total development and current budget outlay is estimated at Rs897.57bn.

Major current expenditure includes transfers of Rs239bn to districts under the provincial finance commission award of 2006, Rs93.71bn for public order and safety, Rs101bn for general administration and over Rs33bn on repayment of foreign and federal debt.

The budget proposes to raise provincial tax revenue to Rs126bn, mainly by pushing collection of provincial sales tax on services to Rs62.35bn from Rs36.53bn collected this year.

Officials told Dawn that the government planned to expand the scope of provincial GST on services to hitherto untaxed services to net more services and increase its rate by 1pc to 17pc later through a notification.

The provincial government hasn’t announced an increase in sales tax as proposed in the federal budget. It will also be done later through a notification.

Other minor changes in the taxation regime include withdrawal of tax exemption for five-marla houses in posh localities, imposition of capital gains tax on immovable property and a one-time luxury tax on houses measuring two kanals and above with a maximum limit of Rs1.5m. However, widows owning houses up to two kanals have been exempted from this tax.

Additionally, it proposes to raise collection of agriculture income tax to Rs2.02bn from the outgoing year’s estimate of Rs772m.

The officials claim that the increase in Punjab’s tax revenues will raise the provincial tax revenue to one per cent of GDP. Analysts, nevertheless, expressed doubts over the ability of the government to meet the ambitious target.

“We need more details on the government’s plan to raise tax revenues. So far I don’t see the province collecting more than Rs36bn additional taxes next year at a time when it fell short of the current year’s target by over Rs5bn,” an economist who has worked with the provincial government in the past told Dawn. Similarly, he found the Shahbaz Sharif government’s investment spending plan as too ambitious and questioned the wisdom of incorporating a large operational shortfall in its development allocations.