Punjab could see its current (non-development) expenditure spike significantly in the next budget as completion of several development schemes initiated over the last few years are going to add permanent costs to it.
“Development schemes like hospitals, schools, etc always add new expenditure in the shape of staff wages and maintenance costs to the government’s future downstream spending,” notes Dr Ayesha Ghaus-Pasha, provincial finance minister.
“After all, what’s the use of a school without teachers or a hospital without doctors, nurses, medicines and medical equipment? There’s a cost to operating a public facility and sustaining delivery of better quality services to people. This cost always shows up on the current expenditure side of the budget.”
The Shahbaz Sharif government in the province has stepped up work on numerous development projects, particularly in Lahore and other major cities, to complete them before the expiry of its present five-year term, and the subsequent installation of a caretaker setup.
The caretaker government is expected to take over federal and provincial governments on June 1.
Hence the dates of national and provincial budgets have also been moved back by four to six weeks, between the last week of April and first week of May, to allow elected lawmakers to discuss and approve the income and expenditure estimates for the next fiscal year starting from July 1.
Punjab’s civil accounts show that the provincial current spending has already surged almost by a third to Rs580.9bn in the first eight months of the present financial year from Rs437.8bn last year. This is despite the budget’s initial estimate of an increase of just above 17pc in current expenditure for the entire fiscal to Rs1.0 trillion from Rs849.9bn.
Development spending too has caught momentum with the government already consuming Rs301.2bn or about 47pc of the budgeted development funds of Rs635bn. This compares with Rs180.2bn or 32pc of the total development budget of Rs550bn spent during the same period last year.
The current Punjab government has stepped up work on numerous development projects aiming to complete them before the expiry of its present five-year term
The development expenditure details show that the authorities have sped up, spending mainly on construction and transport, health, education, energy, and agriculture and irrigation schemes with a view to attract voters, as well as give its candidates something to show their constituents during the campaign.
Punjab’s development spending has increased three times during the current term of this government, the minister boasts.
The massive increase in development funds wouldn’t have been possible without the increased federal transfers as a consequence of the historic 7th National Finance Commission (NFC) award and 18th amendment to the constitution or increasing provincial own tax income, she adds.
“The provincial tax collection has increased by around 30pc a year during the past four years. We have achieved this growth in provincial tax income by broadening the tax base, improving tax administration, using technology, decreasing tax rates on property and charging reduced (GST on services) tax rate below 10pc on 22 services.”
The number of taxpayers who were paying GST on services in Punjab stood at 2,350 when its collection was transferred from the Federal Board of Revenue (FBR) to the province.
“Today we have 48,000 active taxpayers and will take their number to over 100,000 by 2020. The number of services being taxed has also risen to 62 from 12 and share of telecom in the total collection has come down to 22pc from 78pc,” Dr Ghaus-Pasha underscores.
She says the reforms have increased collection of Punjab Revenue Authority taxes as well as significantly improved tax collected by the excise and taxation department and the Board of Revenue.
She admits that Punjab’s tax potential is much higher than being collected at the moment. “We are deliberately moving with caution and are targeting sectors that could produce results with lesser effort.”
Punjab’s own tax income estimates of Rs230.9bn form just above 11pc of the provincial consolidated fund of Rs1.97tr. This compares with Rs1.15tr or over 58pc of the consolidated fund estimated to come from the federal divisible pool under the 7th NFC award.
The loans from China and multilateral lenders are estimated to constitute a fifth of the consolidated fund and non-tax income, the remaining almost 10pc.
The minister points out that public spending on power and infrastructure projects, roads and social sector has transformed the Punjab economy that has been growing above the national average in recent years.
The provincial economic growth rate is estimated to have risen to 5.5-6pc from three per cent in five years. She concedes the government hasn’t been able to achieve all of its development, growth and tax targets. “Yet we have done a lot.”
Published in Dawn, The Business and Finance Weekly, April 2nd, 2018