Q. Why do we call it a deficit budget if revenues are larger than expenditures?

A. Because a large portion of revenue collected by the federal government is transferred to the provinces as part of a constitutional arrangement called the National Finance Commission (NFC) Award. So the total revenue the federal government aims to collect next year is Rs 2,926.1 billion. This transfer is not counted as an expenditure item according to government accounting convention. Next year Rs 2,384.2 billion will be transferred to the provinces. When you take provincial transfers out of gross federal revenues, you get a figure called net federal revenues. After that, the federal government expects the provinces to run a surplus of Rs 347.3 billion because it is assumed the provinces do not have the capacity to spend all the federal funds they will be receiving.

Q. Why does the deficit matter so much?

A. If the government spends more than it has, there are only three options to plug the gap. One is to literally print more money, but that fuels inflation because you have “more money chasing fewer goods”. The second option is to borrow from the future, but this adds to the national debt and brings higher debt service costs the following year. The third option is to bill the citizens by raising taxes or raising funds through other means, such as power tariffs, which increases the burden on those who are already paying their taxes. Each of these options has its unpleasant consequences, and the larger the deficit, the greater the impact of these actions.

Q. Why are health and education expenses so small?

A. In Pakistan, health and education expenses are largely the responsibility of provincial governments. The federal government has a small share in these expenses, such as a few hospitals, the Higher Education Commission, and the running costs of the ministries and a few programmes. The real health and education expenses will be shown in the provincial government budgets that are released after the federal budget.

Published in Dawn, May 27th, 2017