PUNJAB’S decision to propose an ‘austerity budget’ for the next financial year, which holds down both its current and development spending despite an estimated growth of over 25pc in its share from the federal tax pool, is understandable. The PTI government in Islamabad has through its own first full-year budget undertaken an economic stabilisation effort aimed at contracting the economy under the IMF’s watch and the party cannot afford to let its administration in the province upset the federal applecart. But it isn’t the only reason for the government to keep a tight rein on its expenditure; provincial finance managers, like many others, doubt the FBR’s ability to collect the targeted tax of Rs5.5tr. Therefore, despite a large hike, allocations for development expenditure are lower than planned; Punjab has reduced its non-salary current expenditure and pledged to run a cash surplus equal to 5.2pc of GDP to meet a federal requirement. The conservative allocations will allow it to attain its budgetary targets in spite of reduced transfers from the divisible pool during the year. At the same time, however, the Punjab government plans to attract private capital to build economic infrastructure by leveraging its major asset — land — available abundantly everywhere to make up for its lower allocations for the annual development programme. Besides, the budget has enunciated some measures to expand the provincial tax base and revenues by increasing tax rates on income from agriculture, changing the description of provincial sales tax on various services and strengthening the penal provisions, as well as extending the scope of the devolved urban immovable property tax it collects for redistribution among the districts. But the measures announced for this remain inadequate given how important it is for Punjab to quickly raise its own tax revenues to reduce its dependence on federal tax transfers from the divisible pool, create space for development and improve the quality of public service delivery.
The budget shows the policy direction in which the government is headed. Instead of pursuing large infrastructure projects like their predecessor, the incumbents have elected to focus on human resource development through significant public investments in the social sector to improve and expand the geographical scope of healthcare, education and other services. The decision to ring-fence the uplift expenditure for south Punjab must help bridge the massive opportunity gaps between the poorer and wealthier districts. But does the government have what it takes to execute its budget plans? That is the question.
Published in Dawn, June 16th, 2019