Sharing the financial cake

Govt needs to urgently call meeting of CCI, discuss responsibility redistribution among center, provinces, local govt

It is a bad practice to take liberties with constitutional obligations. Especially when the obligation has to do with the distribution of the nation’s financial resources between the federation and the provinces on the one hand, and on the other, among the provinces. More so, when the delay in meeting this particular constitutional obligation renders it almost impossible to incorporate the resource distribution award in the federal and provincial budgets for nearly one full fiscal year necessitating extending the life of the previous award by 12 months.

The 7^th National Finance Commission (NFC) Award was announced well in time to be incorporated in the 2010-11 budgets. Though it was claimed later that the new allocation formula was evolved keeping in mind the anticipated increase in the financial needs of the provinces after the expected passage of the 18^th Amendment, the mismatch between the increase in the needs of the provinces following the passage of the 18^th Amendment in June 2011 and the budgetary allocations received by the provinces under the 7^th NFC Award remained irreconcilable throughout the five-year tenure of the Award. This happened notwithstanding the fact that the federation failed to jettison a number of provincial responsibilities merely because the federal bureaucracy was not prepared to let go what it considered to be its fiefdom, thereby causing the federation to shoulder burdens that were to have been passed on to the provinces.

The 12-month delay in finalising the 8^th NFC Award would surely create some problems for the provinces in making proper allocations under the proposed Provincial Finance Commissions (PFC) because local governments in all the four provinces would have come into existence by the end of the current calendar year necessitating the constitution of PFCs. However, on the positive side, the delay would allow the 8^th NFC Award to take into consideration the results of the next census which is scheduled to be held in March next year rendering the Award more realistic as population carries the maximum weightage in the provincial distribution formula.

The government needs to urgently call a meeting of the Council of Common Interests to discuss the redistribution of responsibilities among the federation, the provinces and the local governments as envisaged in the 18^th Amendment. Otherwise, the provinces would continue to draw ever larger share of resources without increase in their responsibilities in accordance with the 18^th Amendment. On the other hand, the federation would continue to draw an ever smaller share from the divisible pool with its responsibilities remaining the same as before the passage of 18^th Amendment, with the added burden of debt servicing and subsidies along with the responsibility of providing hard cash for the ongoing war against terrorism which is expected to last for some time.

Roughly speaking, if the 18^th Amendment is implemented in its true letter and spirit, the federation will have no more than four portfolios to look after — finance, foreign affairs, defence and communication. Additionally, it would need to spare resources for expanding and building physical infrastructure. The provinces, on the other hand, would need to take care of development, law and order, agriculture, commerce and industry. And the local governments would be left with the task of taking care of education, health and drinking water, etc.

Under the current resource distribution formula for provinces, 82 per cent of the Award is based on provincial population, 10.3 per cent based on poverty and lack of infrastructure, five per cent on revenue collection, and 2.7 per cent on the basis of inverse population density. Under the 7^th NFC Award, the federal government had agreed to increase the provinces’ share from the divisible pool of federal tax revenues from 46.5 per cent to 57.5 per cent. In conjunction with economic growth and inflation, this increased the provinces’ share from Rs677 billion transferred in fiscal 2010 to Rs1.6 trillion for fiscal 2015. Some quarters have suggested that the new formula could also consider including the ‘tax effort’ criterion for horizontal distribution of the combined provincial share.

The nine-member National Finance Commission announced by President Mamnoon Hussain last month is chaired by Finance Minister Ishaq Dar and consists of the four provincial finance ministers and four provincial nominees: Ayesha Ghaous Pasha from Punjab, Saleem Mandviwala from Sindh, Mohammad Ibrahim Khan from Khyber-Pakhtunkhwa and Kaisar Bengali from Balochistan.

Published in The Express Tribune, May 6^th,  2015.

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