The Finance Ministry has identified five major challenges to be focused during 2006-07, which include increase in tax-to-GDP ratio, improvement in provincial receipts, review of subsidies, strict monitoring of public sector expenditure, completion of privatisation transactions, and GDRs.
The summary of Finance Ministry on federal budget 2006-07, a copy of which was made available to Business Recorder, suggests that one of the major failures of the government was 'slow improvement' in tax-to-GDP ratio at the federal and provincial levels.
While CBR's performance over the current year has been sterling, the primary challenge would continue to be a paradigm shift in the tax-GDP ratios which were, as stated, among the lowest in developing countries, the Ministry said.
It also observed that fiscal space for the kind of development agenda that the country needed could only be created by a significant and equitable increase in tax receipts to ensure the sustainability of the expenditures that were required for the future and to remain within the limits of the debt limitation and fiscal responsibility.
Regarding provincial taxation, the ministry said that for several years provinces' own receipts had stagnated at 0.9 percent of the GDP. It asked the provinces to make vigorous efforts to improve their revenue-GDP ratio. Despite this, large amounts were being transferred to the provinces from budget 2006-07.
"This will enable the federal government to focus and fund the critical national infrastructure including the mega dams," the ministry added.
The Finance Ministry is of the view that subsidy would continue to be carefully targeted and reviewed on need basis.
A case in point was the power and gas tariff, where industrial and commercial sectors cross-subsidise domestic consumers.
The ministry was also of the view that effectiveness of public sector expenditure would need to be monitored carefully to ensure that the government gets value for its monies.
"PSDP will need to be subject to a more vigorous result-based measurement, rather than being based largely on financial inputs and utilisation," the ministry said.
According to the summary, the ministry was disturbed for not meeting the deadlines of privatisation transactions, directing the Privatisation Commission (PC) to must ensure that the transactions planned for the next financial year, including GDRs, are completed well in time.