Pyrrhic victories
"Lowering of the deficit numbers is simply the coincidence of having development spending suspended."
"Lowering of the deficit numbers is simply the coincidence of having development spending suspended." PHOTO: FILE
The good news is that the budget deficit for last year is going to be lower than expected. The bad news is that it will be lower for all the wrong reasons. Nothing represents the short-term thinking and ad hocism of the bureaucracy more than the way they manage the government’s money.
There is no long-term plan in Islamabad for lowering the budget deficit to sustainable levels and it has been revealed that the budget deficit being smaller than previously estimated has nothing to do with any serious policy successes in terms of reining in wasteful spending or increasing tax collection. This lowering of the deficit numbers is simply the coincidence of having development spending suspended by order of the election commission.
It seems that the finance ministry bureaucrats do not understand the difference between means and ends, and frequently confuse the two. The goal of the finance ministry should not be to lower the budget deficit by any means necessary; it should be to ensure that the government can spend on programmes it needs to spend money on in a sustainable manner, of which a low budget deficit number is only one indicator. Yet, from the way finance ministry officials operate, one would think that their job consists entirely of getting the numbers to balance.
In the case of last year’s spending numbers, for instance, the deficit was reduced because the Election Commission of Pakistan (ECP) ordered a halt to all development spending and the provincial governments ran artificial surpluses. Both of those are bad for the country, economically and politically. In the case of the development spending freeze, while we do not question the ECP’s decision, we are troubled by what prompted it.
Development spending is supposed to be an investment the country makes using hard-earned taxpayer money to improve the national infrastructure. But instead, our incumbent politicians have a habit of seeing it as political pocket money, to be spent liberally on re-election campaigns. The ECP quite rightly intervened and put a stop to this blatant abuse of power, but it is perturbing that it had to do this in the first place.
The second cause of the lower deficit is even more disturbing, since it represents a power grab by federal bureaucrats, who have not fully accepted devolution of power to the provinces and are doing everything in their power to stop it. The provinces have essentially been forced to run surpluses by a federal finance ministry that views the provinces’ share of federal revenue as power that has been lost and must be regained.
The finance ministry resorts to several methods in order to do this: its favourite is to withhold the provinces’ share of federal revenue, disbursing the amount only on the last day of the fiscal year, when there is no more time left to spend it. The provinces are not without blame either. They have not raised enough tax revenue on their own and rely too much on the federal government. They have not built their capacity to deliver the services that have been devolved to their jurisdiction from Islamabad, which often means that even disbursed money remains unspent.
But while provincial incompetence is appalling, Islamabad has no right to start cutting into the provinces’ share. This point is made all the more jarring by the fact that the amount by which the federal government missed its tax collection target is nearly 10 times larger than the amount that it withheld from the provinces.
In effect, Islamabad is using the National Finance Commission as an excuse for its own fiscal incompetence. Rolling back hard-fought political victories like provincial autonomy in order to lower deficits is too high a price to pay for too small an advantage. The ultimate source of salvation for federal fiscal sanity lies in getting more Pakistanis to pay their taxes. All else is a distraction.
Published in The Express Tribune, August 12th, 2013.
There is no long-term plan in Islamabad for lowering the budget deficit to sustainable levels and it has been revealed that the budget deficit being smaller than previously estimated has nothing to do with any serious policy successes in terms of reining in wasteful spending or increasing tax collection. This lowering of the deficit numbers is simply the coincidence of having development spending suspended by order of the election commission.
It seems that the finance ministry bureaucrats do not understand the difference between means and ends, and frequently confuse the two. The goal of the finance ministry should not be to lower the budget deficit by any means necessary; it should be to ensure that the government can spend on programmes it needs to spend money on in a sustainable manner, of which a low budget deficit number is only one indicator. Yet, from the way finance ministry officials operate, one would think that their job consists entirely of getting the numbers to balance.
In the case of last year’s spending numbers, for instance, the deficit was reduced because the Election Commission of Pakistan (ECP) ordered a halt to all development spending and the provincial governments ran artificial surpluses. Both of those are bad for the country, economically and politically. In the case of the development spending freeze, while we do not question the ECP’s decision, we are troubled by what prompted it.
Development spending is supposed to be an investment the country makes using hard-earned taxpayer money to improve the national infrastructure. But instead, our incumbent politicians have a habit of seeing it as political pocket money, to be spent liberally on re-election campaigns. The ECP quite rightly intervened and put a stop to this blatant abuse of power, but it is perturbing that it had to do this in the first place.
The second cause of the lower deficit is even more disturbing, since it represents a power grab by federal bureaucrats, who have not fully accepted devolution of power to the provinces and are doing everything in their power to stop it. The provinces have essentially been forced to run surpluses by a federal finance ministry that views the provinces’ share of federal revenue as power that has been lost and must be regained.
The finance ministry resorts to several methods in order to do this: its favourite is to withhold the provinces’ share of federal revenue, disbursing the amount only on the last day of the fiscal year, when there is no more time left to spend it. The provinces are not without blame either. They have not raised enough tax revenue on their own and rely too much on the federal government. They have not built their capacity to deliver the services that have been devolved to their jurisdiction from Islamabad, which often means that even disbursed money remains unspent.
But while provincial incompetence is appalling, Islamabad has no right to start cutting into the provinces’ share. This point is made all the more jarring by the fact that the amount by which the federal government missed its tax collection target is nearly 10 times larger than the amount that it withheld from the provinces.
In effect, Islamabad is using the National Finance Commission as an excuse for its own fiscal incompetence. Rolling back hard-fought political victories like provincial autonomy in order to lower deficits is too high a price to pay for too small an advantage. The ultimate source of salvation for federal fiscal sanity lies in getting more Pakistanis to pay their taxes. All else is a distraction.
Published in The Express Tribune, August 12th, 2013.