Punjab's populist Budget

Since Punjab is the dominant province of Pakistan, both in terms of resources and population, its annual budget affects a large population of the country and, therefore, is keenly awaited. Touted as "pro-poor and reforms-oriented", its Budget for FY-12 was presented by Finance Minister Kamran Michael envisaging a total outlay of Rs 654.7 billion and showing an increase of Rs 71.15 billion or 12.72 percent over last year's budget estimates.
However, contrary to the claims of putting the province on path of self-reliance and refusal to accept outside assistance, the provincial revenue collection target, inclusive of provincial sales tax on services, was estimated at Rs 88.5 billion during FY12, down from the outgoing year's original target of Rs 91.58 billion. The provincial non-tax revenue target was also scaled down to Rs 25.72 billion from last year's original target of Rs 34.19 billion.
It means that the province will be largely dependent on funds it hopes to receive from the federal divisible pool of taxes (Rs 530.8 billion), straight transfers (Rs 6.15 billion) and federal grants (Rs 3.48 billion). The provincial government will also get foreign loans of Rs 48.61 billion from multilateral and other lenders, including borrowings of over Rs 30 billion for budgetary support and project loans of Rs 18.61 billion for financing development spending. The budget has earmarked Rs 220 billion for Annual Development Plan for FY12, which is higher by 16 percent than last year's, while non-development expenditures are projected to rise by 12.5 percent. With an allocation of Rs 70 billion for the development of South Punjab and Rs 13 billion for women development (including establishment of new universities), the government of Punjab claims to have focused on the less-developed areas and the deprived segments of population in the province.
As far as individual proposals are concerned, the Punjab budget is full of populist measures, mainly directed at the common man. Wearing the look of a pre-election budget, it has proposed to revive the yellow cab scheme at the cost of Rs 4.5 billion, with the promise of earmarking 40 percent of the yellow cabs to the youths of southern Punjab. Interest-free loans of Rs 2 billion will also be disbursed to the educated unemployed youths for starting small businesses under the Punjab Rozgar Scheme. The agri and veterinary graduates will be given up to 25 acres of public land on 15 years' lease, besides providing each of them a loan of Rs 90,000. Rs 30 billion have been earmarked for "pro-poor" initiatives and a new programme known as South Punjab Development Programme has been started with an allocation of Rs 70 billion or 32 percent of the development budget. Salaries and pensions of provincial government employees have also been increased in line with the increase in the Federal Budget.
The budget proposes some additional tax measures to broaden the tax net purportedly to "tax the elite" and shun foreign assistance as promised earlier by the Chief Minister. The finance bill seeks to increase motor vehicle tax on engine capacity greater than 1000 CC, proposes an annual water conservation charge of Rs 60,000 on swimming pools which are associated with the rich and property tax at Rs 10 to 20 per square feet on farmhouses built on four canals or more of land with minimum covered area of 5,000 square feet. Club membership has also been taxed by imposition of an education cess. The salaries of the provincial ministers slashed by 25 percent last year, will not be enhanced and office expenditure of ministers and Chief Minister's Secretariat will be reduced by 25 percent in the coming year.
Even a cursory look at the budget would show that it has all the elements of playing to the gallery. At the same time, however, a message has been given to the affluents that they need to contribute an increased part of their wealth to the exchequer in order to ease growing social tensions. Needless to add, that unlike in the past, at least some effort has been made to read the pulse of the people with a view to lowering the level of their anxiety. Youth unemployment is undoubtedly a major problem and the government deserves credit for initiating certain schemes towards this goal. The Yellow Cab Scheme has been reintroduced to enable the ordinary people to earn their livelihood and provide for greater capacity utilisation in the auto assembly plants in the country.
Distribution of land and loans to agriculture and veterinary graduates would increase productivity and employment in the province if due care is taken to facilitate only deserving candidates. Comparatively higher allocation for southern parts of Punjab would be helpful for a balanced growth in the province. It is also a shrewd move to defang the political elements now campaigning for a separate province. Taxing the farmhouses and swimming pools would also assuage the negative feelings of the poor to a certain extent but would not add to revenue in any significant manner.
However, the budget must be blamed for omissions and poor judgement in certain areas. At a time when the agricultural income tax is a burning issue and very much within the exclusive domain of the provincial government, no worthwhile effort seems to have been made to raise revenues through this source. We do not want to go into the background and details of this issue but would urge upon the Punjab government to take a lead in the matter so that smaller provinces may muster courage to follow suit. Also, we have seen a number of flaws with the employment-generating schemes like in the Yellow Cabs in the past an act of sheer folly which is marred by a low recovery rate. A much better alternative would have been to deploy the allocated funds for upgrading the skill levels of the unemployed youth in professions, which are really in high demand at the moment. If the skill levels are adequate and creditworthiness is found to be beyond any reasonable doubt, the existing micro finance institutions could then be encouraged to be more helpful in meeting the genuine credit requirements of the unemployed people in the province.