Spending on people

The core function of a democratic government is to generate revenue through taxation and utilise it judiciously for the welfare of its citizens, ensuring access to education, health, employment and an improved quality of life.

These ideals are embedded in Pakistan’s constitution, particularly under Articles 37 and 38, which mandate the decentralisation of power and the provision of essentials such as food, clothing, shelter, education and healthcare.

Yet successive governments have failed to decentralise authority effectively. Challenges like unemployment, poverty, illiteracy and disease remain pervasive. Despite constitutional obligations, central and provincial governments have not fully empowered local administrations to meet the needs of the people.

The 2025–26 federal budget reflects a mix of progress and shortcomings. Defence spending has increased by 18 per cent due to regional insecurity. However, due to pressure from the PPP, some significant social measures were introduced: a 20 per cent increase in BISP funding, tax relief for the salaried class (zero tax on annual income up to Rs1 million) and restored funding for higher education, which the government initially proposed to cut by 50 per cent.

In another victory for the PPP, a proposed federal tax on digital services was withdrawn, and the tax on solar energy equipment was halved. These concessions highlight how political pressure can sometimes redirect fiscal policy towards public interest.

The government's overall budget has decreased from Rs18.8 trillion last year to Rs17.5 trillion. Debt repayments have also been lowered to Rs8.2 trillion, freeing up approximately Rs2.8 trillion. With an increased tax revenue target of Rs14 trillion (up from Rs12 trillion), another Rs2 trillion becomes available – offering a potential cushion of Rs4.8 trillion.

Despite this fiscal space, the government missed an opportunity to provide broader relief, particularly in the agricultural sector. It could have reduced the petroleum levy from Rs2.6 trillion to Rs2 trillion and cut prices of agricultural inputs like fertilisers and seeds to aid farmers, many of whom are still reeling from last year’s wheat crisis and environmental challenges. The government also could have transferred hydel profit dues to Khyber Pakhtunkhwa and allocated at least Rs500 billion for development in conflict-ridden Balochistan.

Instead, the federal government has increased non-development spending in ministries that oversee subjects constitutionally assigned to provinces – despite having already wound up the Public Works Department. This indicates a lack of direction and undermines the principle of provincial autonomy.

The federal revenue target this year stands at Rs19 trillion, combining tax and non-tax sources. Of this, only Rs6 trillion will be transferred to the provinces. Furthermore, the provinces have been asked to generate a surplus of Rs1.4 trillion and hand it back to the federal government. This demand undermines the spirit of fiscal federalism. Why should the federal government consume 70 per cent of national revenue while the provinces, home to the vast majority of the population, receive only 30 per cent?

Under the constitution, development is primarily the responsibility of provinces and local governments. Sectors like education, health, agriculture, industry, irrigation, law and order, and justice fall under their domain. Yet, the Rs1 trillion Federal Public Sector Development Programme (PSDP) largely funds provincial projects. Instead of duplicating efforts, the federal government should transfer these funds directly to provinces to fulfill their constitutional mandates.

The current budget reflects misplaced priorities. Aside from Rs11 trillion for debt repayment and defence, the federal government could manage its core responsibilities – foreign policy, tax collection, strategic highways (less than 14 per cent of the road network), commerce and ICT – within Rs1,500–2,000 billion.

However, it continues to run ministries for health, education, housing, agriculture and other devolved subjects, driving up non-development expenditure. By abolishing these ministries, axing redundant spending, and devolving electricity and PSDP responsibilities, federal expenditure could be cut to Rs13 trillion.

This would free up Rs4 trillion – funds that should be redirected to the provinces or used to reduce the country’s staggering Rs76 trillion debt – ensuring a more sustainable and constitutionally sound fiscal future.

An ideal federation should not require more than 30 per cent of the revenue for the federation. The remaining 70 per cent should be allocated to the provinces. But in this topsy-turvy budget, it’s the other way around. As a result, neither the provincial nor local governments have the necessary funds to take people out of poverty and illiteracy and provide them with the health facilities and jobs that people need.

Despite having access to 70 per cent of the revenue of the country in its coffers, ‘centrists’ (those who favour a rich/powerful centre at the expense of poor provinces) are demanding even more revenue from the National Finance Commission (NFC awards to the provinces). This is a totally irrational demand and utterly unjustified. It is a great travesty of justice as millions are mired in poverty, illiteracy and unemployment. The poor state of infrastructure, law and order and environmental degradation faced by especially the smaller provinces (Sindh, Balochistan and Khyber Pakhtunkhwa) is a huge impediment to attracting foreign investment and tourism in the country.

Since the 7th NFC Award, provinces have increasingly mobilised their own revenues. This year, after receiving Rs6 trillion from the federal government, the combined provincial budgets stand at Rs12 trillion. However, the federal government has asked the provinces to generate a surplus of Rs1.4 trillion, more than the federal PSDP, forcing them to raise nearly 50 per cent of their budgets from internal resources.

This reflects an unsustainable federal expenditure burden. The upcoming NFC Award must reduce the federal government’s share of tax revenue from 42.5 per cent to 30 per cent, especially since it also receives Rs5 trillion in non-tax revenue and has no constitutional responsibility for development or social sectors.

All federal ministries dealing with provincial subjects must be abolished, and their funds transferred to the provinces. Critical sectors such as health, education, law and order, local government, agriculture and industry require increased funding to meet public needs.

The federal government must also present a concrete debt retirement plan. With debt repayments at Rs8.2 trillion and total debt reaching Rs76 trillion, urgent reforms are needed to secure Pakistan’s financial future.

The writer has served as advocate general of Sindh. He tweets/posts @zamirghumro