The Punjab budget

The Punjab budget presented by Finance Minister Dr Ayesha Ghous Pasha was in line with several of Prime Minister Nawaz Sharif's policy thrusts in terms of expenditure priorities, prompting her to invoke his name a number of times during her speech. And, like the budget of 2015-16 did not reflect a proactive attempt to enhance its own revenue base and instead continued to place massive reliance on resources from the federal divisible pool and foreign support for financing projects. Ayesha Ghous Pasha, unlike her counterpart at the Centre, is a respected economist; however, the budget itself proves what has been consistently evident in this country over decades: a highly qualified finance minister is unable to formulate an economically sound budget due to political pressure which rises as elections near and is compelled to keep the revenue base contained while prioritising highly visible projects considered to be vote gainers.
Reliance on its own revenue by the Punjab government in 2016-17 is to the tune of 280,055 million rupees, reflecting a similar model as that contained in the federal budget: higher reliance on indirect as opposed to direct taxes. Direct taxes (sourced to the Board of Revenue) have been budgeted at 42,955 million rupees while total tax revenue is budgeted at 184,436 million rupees or 23.29 percent for 2016-17 while the rest of the tax revenue is from indirect taxes whose incidence on the poor is greater than on the rich. This heavy reliance on indirect taxes is pretty much the same as in 2015-16 with 34,519.521 million rupees collected by the Board of Revenue out of total tax revenue of 150,787.001 million rupees or 22.89 percent.
Sadly, tax on agricultural income was budgeted at 2.3 billion rupees last year while only 1.55 billion rupees was collected and in 2016-17 the projected revenue from this source is budgeted again at 2.3 billion rupees. Revenue from rent of agricultural land for a single year was budgeted at 780 million rupees in 2015-16 though only 172 million rupees was realised (an appalling 22 percent) but the budget for next year envisages 500.3 million rupees from this source prompting one to hope that the reasons for poor collections this year have been identified and would be dealt with next year. The largest revenue source under direct taxes (about 50 percent) remained mutation fees with 12.67 billion budgeted in 2015-16 and 10.25 billion rupees realised with the proposal to generate 13.5 billion rupees in 2016-17.
Sales tax under indirect taxes was the most 'vibrant tax' as per the White Paper and showed a collection growth of 38 percent in comparison to 2014-15 with the major rise attributed to the introduction of RIMS bringing 152 restaurants in its orbit. A further increase of 20 percent is expected in revenue from this source next year with cosmetic surgery, hair transplants, warehouses and cold storage to be brought within its ambit - from 62 billion rupees collected in 2015-16 to 85 billion rupees budgeted for 2016-17. What is relevant however is to compare this amount with the 144 billion rupees collected by Sindh under this head in 2015-16 projecting a rise to 166 billion rupees in 2016-17 with a one percent decline in the tax rate each year. Since 2012 when Sindh began to collect sales tax the standard rate has dropped from 16 to 13 percent for next year.
Expenditure in 2016-17, Dr Ayesha Ghous Pasha stated, would be more focused on development of social and physical infrastructure, with an envisaged rise of 37.5 percent in 2016-17. Social sectors that would be prioritised next year include education, health, agriculture, law and order and provision of clean drinking water - priorities that must be fully supported. However, she added that 168.87 billion rupees has been allocated for these priority sectors for next fiscal year and while this is indeed a jump in allocation yet, more importantly, it may also be a reflection of the benefits that can accrue from democracy given that Khyber Pakhtunkhwa led by the rival PTI has focused so much on education and health in its budgets. However, one would hope that due importance is given to improving governance in these sectors because without that there will be little to show at the end of the day. The KPK government has successfully focused on ending ghost workers and is proactively attempting to check any political interference in public sector appointments and these measures need enforcement in Punjab as well.
Budget outlay for agriculture, as was expected, was completely in line with the federal budget given the proliferation of reports that the Chief Minister Punjab had convinced the Prime Minister to introduce such a package to ease the rising concerns of the farm sector - provincial share of subsidy of 13.15 billion rupees as cash compensation, 7 billion rupees subsidy for fertilisers, Khadim-e-Punjab Agriculture Package of 100 billion rupees in two years and 27 billion rupees for rural roads.
Some populist measures included a 10 percent raise in salaries, continuation of the self-employment scheme that provides interest-free loans of up to 50,000 rupees, Punjab Skills Strategy envisaging training of 2 million youth by 2018, and an increase in pensions.
Punjab's government's debt as of 30th June 2016 according to the White Paper was 533.1 billion rupees which is 3.5 percent of Gross State Domestic Product "smaller in relation to the national GDP" and out of the total debt 3.2 percent or 17.1 billion rupees is domestic while 96.8 percent or 516 billion rupees is foreign debt.
However, most disturbing of all in the Punjab budget are the assumptions made prior to formulating the Punjab budget which in effect are the assumptions made in the federal budget: a growth rate of 5.7 percent, inflation 6 percent, Federal Board of Revenue to GDP ratio 10.8 percent and size of GDP at 33,509 billion rupees. These assumptions, if one reviews data recently painstakingly tabulated by Punjab Finance Minister's well respected spouse Dr Hafiz Pasha, are likely to be severely flawed given the fact that the macroeconomic data presented for 2015-16 by the Federal Finance Minister Ishaq Dar on which projections for next year are based is grossly overstated.