The PML-N is back in power. So is its signature consumption-based infrastructure development model, which has been responsible for much of our economic woes.

Flush with cash on the back of a 36 per cent spike in its share from the federal tax divisible pool under the existing National Finance Commission (NFC) arrangement to Rs3.7 trillion, Punjab’s proposed budget for FY25 unveiled last week focuses mostly on massive development stimulus, a social protection programme, and, last but not least, sops and freebies for various segments of the populace aimed at reviving the ruling party’s depleting support among voters.

The provincial spending plan of Rs4.8tr, which sharply increases the current revenue expenditure by nearly 26pc to Rs2.63tr and development spending by 28.5pc to Rs842 billion, proposes interest-free loans of Rs75bn for half a million farmers, free laptops worth Rs10bn for the youth, solarisation of tube-wells, a free solar system for domestic consumers using up to 100 units of electricity at a cost of Rs9.5bn, housing loans of Rs10bn for the ‘disadvantaged’ and so on.

In his budget speech, Provincial Finance Minister Mujtaba Shujaur Rehman said that 100pc cash cover was available for the annual development programme, which includes foreign project loans of Rs106.2bn.

“The development programme reflects the government’s ‘revolutionary five-year priorities’,” he added. The development budget allocates 33pc to the social sector, 29pc to infrastructure, 13pc to the production sector, and 5pc to the services sector.

A fifth of the development allocations is earmarked for the chief minister’s special initiatives and other programmes. A sum of Rs394.4bn has been allocated for ongoing schemes and Rs404.4bn for new projects.

The budget envisages a 53.5pc increase in the provincial own tax and non-tax source revenues from Rs625.3bn to Rs960.3bn. This increase in provincial own resource revenues is estimated to come through a more than 100pc spike in the non-tax revenues projected to grow from Rs231.8bn this year to Rs488.4bn next year. The growth in tax revenues is projected to be a meagre 19.9pc from Rs393.5bn to Rs471.9bn.

Given the economic slowdown, the chances of the Punjab government raking up the projected tax and non-tax revenue appear quite difficult, if not impossible. The government was unable to achieve the targeted revenues even during the current year, as tax collection has fallen short by 13.6pc to Rs339.9bn and non-tax revenue collection by more than 39pc to Rs139.9bn.

The massive increase in federal transfers under the NFC arrangement appears to have curbed the Punjab government’s appetite for tax reforms in the province. It was disappointing to see that the Rs5.4tr budget of the Maryam Nawaz Sharif government failed to reform agriculture tax to bring its rates on par with the normal federal income tax rates or effectively tax immovable property.

While the provincial agriculture income tax, which generated Rs3.5bn in revenues this year, may not prove to be a very big resource mobiliser, experts believe that the principle of tax equity demands that a uniform tax be imposed on all incomes irrespective of their source. Besides, the lower agriculture income tax slabs are a big source of tax evasion on incomes from other sources. Likewise, the property tax, as admitted by the finance minister himself, could generate Rs100bn if effectively imposed without changing its current rates.

Punjab’s tax target is less than 0.4pc of the size of the country’s economy and betrays the provincial authorities’ lack of motivation to raise tax revenues for political reasons, since Pakistan’s largest province is flush with cash owing to a whopping increase of 36pc in its share from the federal divisible pool.

With the country struggling to improve its abysmally low tax-to-GDP ratio of below 10pc to 13pc in the next three years, Punjab, which accounts for more than half the economy, was expected to do better than that.

However, it appears political considerations and the flak the provincial government has drawn in recent months over its refusal to procure wheat during the harvest, which resulted in a significant drop in the price of the crop, have kept it from taking any effective, meaningful taxation measures.

The present budget is almost a mirror reflection of the federal budget, where Prime Minister Shehbaz Sharif’s government also failed to translate its public commitments to ‘uniformly tax all sectors of the economy’, sparing traders and real estate once more.

A budget is but a reflection of the political aspirations of the ruling party, and it is the right of any government to align its economic and political agenda. The question is: will the PML-N’s utter failure to tackle the country’s core economic issue of a burgeoning fiscal deficit help it uplift the economy or boost its political support among voters?

Published in Dawn, The Business and Finance Weekly, June 17th, 2024