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Ghalib once remarked that (In my construct, there is an element of malady). The genesis of fiscal malaise originates from the budgetary provisions contained in our constitution. The constitutional provisions relating to fiscal affairs are summarized below (for simplicity we have restricted the text)

Article-77 requires that no tax shall be levied except by or under the authority of Parliament. Article-78 requires that all revenues of federation, all loans raised and moneys received as repayment of loans shall form part of the Federal Consolidated Fund. Other moneys, including those deposited in the Supreme Court or any other court shall form Public Account of the Federation.

Article-79 specifies that the custody of federal consolidated fund and public account shall be regulated by an Act of the Parliament; or until such time by the rules made by the President.

The above provisions provide for the setting of a financial system for the federal government. The manner in which finances will be expended and procedures adopted for seeking the authorization from the parliament are specified in the next five articles 80-84.

Article-80 requires Federal Government shall, in respect of every financial year, cause to be laid before the National Assembly a statement of the estimated receipt and expenditure (emphasis added) of the Federal Government for that year, in this Part, referred to as the Annual Budget Statement (ABS). (2) The ABS shall show separately — (a) the sums required to meet expenditure described by the Constitution as expenditure charged upon the Federal Consolidated Fund; and, (b) the sums required to meet other expenditure proposed to be made from the Federal Consolidated Fund;

Article 81. Specifies expenditure which are charged upon the Federal Consolidated Fund such as on the President, Judges of the Supreme Court, Chairman, Deputy Chairman, Speaker and Deputy Speaker, Auditor General, Chief Election Commissioner and some other offices.: — (a) the remuneration payable to the President and other expenditure relating to his office, and the remuneration payable to (i) the Judges of the Supreme Court [and the Islamabad High Court]; (ii) the Chief Election Commissioner; (iii) the Chairman and the Deputy Chairman of Senate; (iv) the Speaker and the Deputy Speaker of the National Assembly; (v) the Auditor-General, all debt services obligations ……

  1. The charged expenditures may be discussed in the National Assembly but would not be presented for voting (emphasis added). So much of the Annual Budget Statement as relates to other expenditure shall be submitted to the National Assembly in the form of demands for grants, and the Assembly shall have power to assent to, or to refuse to assent to, any demand, or to assent to any demand subject to a reduction of the amount specified therein: No demand for a grant shall be made except on the recommendation of the Federal Government.

  2. (1) The Prime Minister shall authenticate by his signature a schedule specifying— (a) the grants made or deemed to have been made by the National Assembly under Article 82, and (b) the several sums required to meet the expenditure charged upon the Federal Consolidated Fund but not exceeding, in the case of any sum, the sum shown in the statement previously laid before the National Assembly. (2) The schedule so authenticated shall be laid before the National Assembly, but shall not be open to discussion or vote thereon. (3) Subject to the Constitution, no expenditure from the Federal Consolidated Fund shall be deemed to be duly authorised unless it is specified in the schedule so authenticated and such schedule is laid before the National Assembly as required by clause (2).

Article-84, allows federal government the leeway to spend more than allocated funds or to fund unbudgeted expenditures or to incur excess expenditure in a given head. For such purpose the federal government shall cause to be laid before the National Assembly Supplementary Budget Statement or, as the case may be, an Excess Budget Statement, setting out the amount of that expenditure, and the provisions of Articles 80 to 83 shall apply to those statements as they apply to the Annual Budget Statement.

This then is the budgetary scheme specified in our constitution. The following important conclusions are evident:

First, regarding the power of taxation (Art-77) is not per-se a budgetary provision because it can be used at any time during a fiscal year. Within the budgetary documents declared as such doesn’t include taxation proposals;

Second, the Budget proper is what has been specified in Arts-80 to 83, which simply means, except for charged expenditures, voting on demand for grants by the National Assembly and which have been included in the Schedule of Expenditures duly signed by the Prime Minister and placed before the National Assembly.

Evidently, the constitution doesn’t require the government to commit to a given level of deficit, i.e., the difference between receipts and expenditures. The ABS requires specification of revenue receipts but it doesn’t constitute an element of an approved budget.

The only occasion where fiscal deficit is mentioned about is in the budget speech of the finance minister who would indicate his plan to contain it within a certain limit. However, this commitment is observed in breach than honor.

A comparison of last five budgets shows that on average, deficit at the time of budget was announced at 5.6% whereas in the final outcome it was 7.3%. An over-run of nearly two percentage points is a phenomenal sum and contributes directly to rising public debt increasing debt servicing burden. There are two aspects of constitutional provisions that afford unprecedented freedom to government to act as it wishes so long as it has the majority in the National Assembly.

First, no accountability of revenue collection performance and, second, the open license provided under Article-84 where it may go beyond the approved budget and do things not envisaged and also incur excess expenditure beyond the budget limit and get all this approved with the Assembly alongside the next year budget as supplementary budget.

(To be continued)

Copyright Business Recorder, 2022

Waqar Masood Khan

The writer is a former finance secretary, government of Pakistan


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