Daily Times Editorial June 12, 2011

Punjab’s ‘election’ Budget

The ruling PML-N in Punjab led by Chief Minister Shahbaz Sharif clearly had an eye on the next elections when framing its Budget for 2011-12. That explains the attempt to include ‘populist’ measures intended to consolidate and hopefully expand its electoral outreach. In this political endeavour that may or may not make economic and financial sense, the PML-N has been immeasurably helped by the increased allocations to the provinces after the 18th Amendment and the National Finance Award. But flush coffers should not blind anyone to the need for prudent financial and economic management, particularly in the current recessionary situation. As it is, there is a lot of criticism concerning some populist measures of the Punjab government that have badly backfired and disappeared without a trace.
But first things first. The Budget 2011-12 envisages an outlay of Rs 655 billion, of which Rs 220 billion is for development. This is even more ambitious than the allocation for last year of Rs 193 billion, of which not more than Rs 123 bullion could actually be spent in the outgoing financial year. Apart from the inherent bottleneck in all the provinces, and Punjab is no exception, of lacking the capacity to absorb larger and larger development budgets and actually implement them by spending the allocations, Shahbaz Sharif’s province has an additional quirk. That is the hands-on, one-man show style of governance of the younger Sharif. This involves ignoring his own party ministers, MPAs and workers and relying only on serving and retired favourite bureaucrats. Such a non-political, highly centralised decision-making and implementation regime cannot but add to the implementation bottleneck. The current budget is miserly in allocations for the social sector, partly perhaps because of the Punjab’s ‘declaration’ of foregoing US aid.
Punjab hopes to receive Rs 531 billion from the federal divisible pool, Rs 86 billion from the provincial tax revenues and Rs 22 billion from non-tax revenues. While this means no additional taxes have had to be imposed, marginal increases in certain taxes/levies have been proposed that may have more to do with wanting to cash in on popular sentiment rather than making any significant difference to the province’s coffers. For example, taxes are to be imposed on large farmhouses (a fashion that has become one of the favourite retreats of the elite), private swimming pools, elite club members’ fees, increased token tax on cars of 1300 cc and above, and there is a proposal to tax luxury vehicles that requires the consensus of the other provinces. None of these promises huge returns.
On the other hand, the ‘populist’ measures include 15 percent increase in provincial government employees’ salaries, and a 15-20 percent increase in pensions. Also, a 20 percent increase in conveyance allowance for grades 1-15. Entertainment tax is being brought down from 65 percent to 20 percent for theatres and circuses, and a three year exemption from the tax for cinemas is proposed. The Punjab Rozgar (Employment) Scheme envisages a revival of Nawaz Sharif’s Yellow Cabs plus interest-free loans of Rs 20,000-100,000 for skilled educated persons. Rs 30 billion is marked for various subsidies like cheap roti (bread), etc. There is an attempt to tilt such employment-generating measures in favour of the deprived southern Punjab, lately restive with calls for the carving out of a Seraiki and/or Bahawalpur province.
Electoral considerations aside, the Punjab government needs seriously to revisit the failed populist measures of the recent and not so recent past. The Yellow Cabs scheme came a cropper on recoveries. The Sasti Roti (Cheap Bread) scheme swallowed billions without trace. The Food Stamps handouts are heard of no more. Unless the design of the revived or new measures is seriously examined in the light of the flaws and failures of the past, they are likely to end up like their predecessors or even worse, given the changed negative economic climate. In its own interest, the Punjab government must not shut its eyes to the pitfalls of seemingly popular measures that end up causing more harm than good in the long run.