AS budget time draws near, and the country gears up to enter yet another IMF programme, the fiscal framework will once again come under scrutiny. It is therefore useful to recall that not long ago, the prime minister, during a rally in Ghotki, claimed that the 18th Amendment had “bankrupted the federation”. If the federation is starved of resources because of the provincial transfers, the clearest path forward is tax reform to increase the size of the resource envelope available to the centre, rather than casting about for ways to roll back the scale of the transfers. After all, the PTI has included this in its manifesto.
The concerns of the government are understandable, since the devolution scheme under the 18th Amendment and the NFC award have significantly shifted resources and responsibilities to the provinces. But the government needs to also advance more credible ideas and a vision for mobilising its own resources rather than searching for ways to roll back the gains made by the provinces. Netting more tax filers is a good way to encourage a culture of compliance, but it cannot be said to be a vision for documentation of the economy and broadening of the tax base. Unless it puts in its own share of effort to raise revenues, the government risks sounding unfair when it decries the provincial transfers under the devolution scheme.
Why are provincial transfers, particularly under the 18th Amendment, a source of such deep irritation to the PTI government that controls two provinces directly? One would think such an arrangement, where the same party controls the centre and two provinces, would provide the ideal opportunity to take advantage of the constitutional amendment and the attendant NFC award that transfers more than half of the resources collected in the federal divisible pool to the provincial governments. This is the time to accelerate devolution, for the federation to rid itself of those responsibilities that it does not need to be holding on to — such as the Higher Education Commission which should also be devolved. And most importantly, for a party involved in ushering in a progressive and deep-rooted reform of local governments in Punjab, along with an accompanying fiscal model for local governments, the idea of devolution of power itself should be appealing. If the centre is starved of resources, the clear path forward is tax reform coupled with further devolution of responsibilities to the provinces, not rolling back the gains of the past decade simply to help foot the bill for the federation’s current expenditures. Words should be chosen carefully — in this case, the 18th Amendment has given the prime minister and his party the opportunity to improve governance and service delivery at the provincial and local government levels where the people can directly access the centres of powers.
Published in Dawn, May 11th, 2019