Sindh's 'tax-free' budget

Sindh government's budget for 2012-13 announced on 11th June, 2012 is completely devoid of additional revenue raising proposals but contains a lot of populist measures to gain the sympathies of important sections of voters at the cost of public exchequer. Contrary to the expectations of a surplus budget, it envisages a total outlay of Rs 577.98 billion as against the estimated receipts of Rs 570.82 billion and the result is a deficit of Rs 7.16 billion for FY13. Although the budget does not contain any new taxes and levies, yet revenues have been estimated higher by 25 percent, indicating the possibility of a shortfall during the course of the year. On the other hand, expenditures are proposed to be even higher, with development outlay estimated to be raised by about 64 percent to more than Rs 231 billion. Budget documents indicate that priority would be given to education, health, clean water supply and development of alternative energy sources, particularly Thar coal project. To overcome electricity shortfall, an amount of Rs 13.58 billion was allocated for infrastructure development to expedite execution of the project, in addition to Rs 654 million for the Islamkot airstrip and water carrier from Nabisar to Thar coal field with a capital outlay of Rs 5 billion. Some of the specific proposals include the creation of 20,000 jobs in addition to 17,000 jobs created during FY12. The budget document boasts that 100,000 jobs have been provided during the last four yeaRs In the next fiscal year, government would provide subsidy for 15000 tractors as against 6000 tractors during the current year. An interest subsidy of 7 percent would also be provided to the small farmers through Sindh Bank and an allocation of Rs 2 billion has been proposed for agriculture sector. An amount of Rs 1.5 billion has been earmarked for the provision of Sui gas to towns and villages in Sindh while Rs 1.02 billion have been reserved for village electrification programme. Rs 11.08 billion have been proposed for allocation under MPAs' priority programmes (Rs 60 million for each MPA). In our view, the Sindh budget is aimed to satisfy a number of objectives at the same time. While substantial funds have been earmarked to meet certain socio-economic goals, the priority of course has been accorded to schemes/projects that are likely to yield political dividends. More funding for social sectors like health and education is definitely welcome but extreme attention to Thar coal project was probably the most desirable thing to do. Country is starved of energy and this project is perhaps the only hope to supply adequate energy to the whole of the country at reasonable rates. However, the government of Sindh continues to be pre-occupied with politically motivated schemes, which hardly make any economic sense. For instance, increasing emphasis on employment creation through budgetary measures is not only counter-productive but promotes the culture of patronage. There is always a right number of qualified people to do a specified job but if more staff than the actual requirement is recruited just to promote employment, work environment would deteriorate and overall efficiency would be adversely affected. It also should not be forgotten that people likely to get such jobs would have political affiliations, which a government servant should not have in order to perform his duty in a neutral fashion. Allocation of certain amount (Rs 60 million) to each MPA to execute development projects has become almost synonymous with bribing the elected representatives and sheer waste of money. The biggest weakness of the budget, however, is a complete lack of effort for higher level of revenue mobilisation including the avoidance of agriculture income tax despite repeated demands by the MQM to impose such a tax in order to ensure equity in taxation and raise more resources to improve the budgetary position. Instead, incentives in the form of interest subsidy and subsidy on tractors have been offered to the farmers, which would place extra burden on the budget. It also needs to be highlighted that with the transfer of resources to the provinces under the latest NFC award, it was expected that provinces would also mobilise their own resources to have surplus budgets, which would help contain overall fiscal deficit of the country. Unfortunately, such hopes do not stand any chance to materialise. For instance, budgets of the provincial governments, according to the country's Finance Minister Hafeez Shaikh, were expected to be in surplus by Rs 80 billion during FY13, and help reduce the overall fiscal deficit of Pakistan to 4.7 percent of GDP from 5.5 percent during 2011-12. Provincial budgets announced so far indicate that these expectations are not likely to be met at all and instead provinces are likely to add to the fiscal problems of the country. The negative consequences of such an outcome are not difficult to visualise. However, the most puzzling part of the budget is substantial allocation for the provision of Sui gas and village electrification programmes when both electricity and gas are so short in supply that the demand of even the present consumers cannot be properly met.