Sindh budget: subsidizing the rich, burdening the poor

Following the announcement of federal budget in Islamabad, announcements of provincial budgets have started following.
Though not as large, this time around provincial budgets deserve a closer review. These are the first announcements after the NFC award, where the size of provincial governments is set to become larger at the expense of the centre.
The first of these announcements was made by Chief Minister Sindh, Qaim Ali Shah, who also serves as the head of the finance department for the province. The government of Sindh unveiled a Rs422 billion budget showing a deficit of Rs25 billion in FY11.
At the heart of the budget was the announcement of Rs115 billion for development projects next year. The most significant investment, according to the Chief Minister will be the construction of nine highways within the province, which will cost Rs100 billion of taxpayer money.
Ironically, development of Thar coal has received lesser attention in the announcement. The government has allocated Rs10 billion under this head. Joint ventures to exploit the huge reserves of coal are underway, it is hoped that the federal government and the other provinces will join the effort to resolve the energy crisis that has held the economy hostage.
While outlays on development are a positive step, the provincial government as always has failed to recognize the importance of health and education, given minor improvements in outlays under these heads.
The decision is set to create a lag in the long term development of the provincial economy.
Nonetheless, knowing the condition of government schools and teachers capabilities, as according to research by Shahid Kardar many teachers in Sindh rural areas cannot even divide 505 by 5, it will not hurt economy in the real sense.
Sindh government raised the salaries of all public servants, in accordance with Dr. Abdul Hafeez Shaikhs announcement. While the initiative is expected to provide relief to government employees, it is set to cost taxpayers up to Rs31 billion. In turn, the employees will spend more and drive prices higher, because of a sudden increase in wages.
Not all decisions made by the Chief Minister make economic sense. At a time when the administration and donors alike cite low revenues as the primary area of improvement, Capital Value Tax has been decreased from 4 percent to 2.5 percent. Arguably, the land owing classes, both in rural and urban areas do not need much relief from the government. Subject of agriculture tax once again didn get the attention of legislators.
At the same time, the common man has been further burdened by the increase in General Sales Tax. Policy makers are right in wanting to widen the tax net, but there are certain pools where there is a dire to need to cast the net deeper as well.
In the words of Dr. Abdul Hafeez Shaikh, budget is merely a component of economic management. It remains to be seen how effective the government of Sindh will be in implementing its announced initiatives while moving to curtail the deficit.

Correction: On June 11, 2010 BR Research in its note "Old is Gold" inadvertently reported the age of Mr. Rashid Mansur, CEO JSIL as above 60. He is 57. The error is regretted