When the sky falls, give a populist budget

Soon after the recently announced economic reform package, where the government presented amnesty plans and tax cuts, PM’s Special Assistant on Revenue, Haroon Akhtar Khan is reported to have said: “We have delivered all what the people had asked for, now pay your taxes”. Just how charming is that!

Given his vantage point, Mr. Khan ought to know that people don’t go about paying taxes because of amnesty schemes or tax cuts. Amnesties and lower tax rates are not new to this country. They have been tried, tested and found wanting. Just as the fruits of filer-non-filer discrimination have been few, if any, the fruits of lower tax rates will be few. Unless of course, Mr. Khan is pinning his hopes to the political fruits (votes) that may ensue from lower tax rates. It’s a fat chance, but worth a try, and much expected.

“A cut in corporate tax rates may be announced in the budget in May before the PML-N hands over power. In fact, expect a great budget with lofty tax collection projections to meet big development spending plans despite slashing of tax rates for SMEs, individuals and corporations……. If the cubs win, then they can always find an excuse for mini-budget; if they don’t, they will at least be able to boast about it, that our budget FY19 could have delivered the moon,” BR Research wrote earlier this year. (See, The spaghetti bowl of finance ministry, published January 11, 2018)

But there are bigger issues at stake here: technical and moral. The technical emerges from possible fiscal deficit mismatch. If the federal government presents a full year budget, and a provincial government does not, as might be the case in Khyber Pakhtunkhwa, then how does one arrive at budget deficit estimations since those are consolidated full year federal and provincial numbers. This is perhaps why the PPP has decided to give a full year budget in Sindh if the centre presents a full year budget, according to its leader Sherry Rehman.

On to the morality issue: That the PML-N is choosing to present a (likely populist) budget for the full fiscal year 2019 is legally acceptable, but morally questionable, which is why the PTI has decided not to present the budget in Khyber Pakhtunkhwa. Their argument: when a party does not have the political mandate for the next year, it should not be presenting a full year budget. Instead, it should leave the matter to whoever comes to power next, so they can present a budget in light of the aspirations they expressed in their manifesto.

Whether or not one agrees with that moral position, the honourable writers of the constitution of this country didn’t dwell on this subject. The constitution provisions on such affairs are silent on it, according to the reading of Mr. Wajid Rana, former federal finance secretary who is widely known for his command over matters of fiscal federalism. Mr. Rana points to Article 86 of the constitution that talks about the power to authorize expenditure when the assembly stands dissolved.

That article reads: “….at any time when the National Assembly stands dissolved, the Federal Government may authorize expenditure from the Federal Consolidated Fund in respect of the estimated expenditure for a period not exceeding four months in any financial year, pending completion of the procedure prescribed in Article 82 for the voting of grants and the authentication of the schedule of authorized expenditure in accordance with the provisions of Article 83 in relation to the expenditure.”

Note the language of article 86. It focuses on “expenditure”, rather than “budget” for a period “not exceeding four months”. This implies, according to Mr. Rana, that the incumbent government could have gotten a nod from the assembly over the expected expenditure until August 2018, leaving the rest of the matter to whoever forms the new government. It would have been akin to the continuing resolution that the US Congress passes as an appropriations bill for various government departments until such time their annual fiscal budget is debated and passed.

“It wasn’t as if the sky would have fallen”, says Mr. Rana. “They could have presented up to a four-month outlay, if not let the caretaker government do the job.” But with due respect, the sky has indeed fallen for the PML-N, with Mr. ‘N’ being barred from political office for life. This is why the ancient Romans used to say: When the sky falls, give a populist budget! The Romans never really said that, but it hopefully sends the point across about what to expect in the upcoming budget.

Enter the devil’s advocate. The constitution and the rules of business are silent about whether an outgoing government can present a budget or not. That document surely hasn’t stopped an outgoing government from presenting a budget. Even Article 86 does not use the word “shall”, it uses “may”. Nor does the constitution prevent the new government to present a new budget by way of a supplementary budget or an excess budget statement, through which it can change whatever was passed by the outgoing government.

As for the argument that any outgoing government should not present a budget because it does not have a mandate beyond five years, one really needs to think twice. After all, various policies announced during the five years of any government have far reaching implications beyond the five-year period. Surely one cannot expect any government to make a policy for limited time frame just because it lacks the mandate beyond five years. If the impact of policies can be expected to extend beyond the five years’ mandate, then why can’t the impact of fiscal budget (influenced by policies) be expected to do so?

The political parties who hold a moral critique over PML-N’s decision to announce a budget are implicitly saying that the constitution by way of its silence is trailing behind morality; or that the constitution does not fully capture the moral sentiments of the society. They must, therefore, ensure that they amend the constitution to address this silence, if and when they come to power, or at least present a bill to this affect in case they stand in opposition after the general elections 2018.