Putting money where the mouth is

June 28, 2020

An analysis of budgets of four provinces and the Centre suggests that health is a top agenda item

The Covid-19-specific health sector allocations are an addition to the conventional budget outlays of all provinces and territories in the country. In the budgets of all four provinces, and both Azad Jammu and Kashmir (AJK) and Gilgit Baltistan (GB), the health sector has emerged as the topmost priority. The province of Sindh has, as a matter of fact, cut its development budget to increase allocations for the health sector. Overall, the government of the Punjab has made an allocation of Rs 354 billion for health sector, followed by Sindh’s Rs 139 billion, Khyber Pakhtunkhwa’s (KP) Rs 124 billion, Balochistan’s Rs 38 billion, AJK’s Rs 1 billion and GB’s Rs 68 million.

Provincial governments have been in a fire-fighting mode over the last four and a half months (a quarter and a half quarter in terms of fiscal calendar) since the pandemic hit this part of the world. A careful analysis of Covid-19-specific health sector allocations for the fiscal year 2020-21 suggests that provincial governments have allocated funds for only one and a half or two quarters of the new fiscal year. That will likely be followed by budgetary variances during the last two quarters of the fiscal year.

Due to the downward/delayed provincial receipts from the ambitiously targeted federal divisible pool of Rs 4.965 trillion for FY 2020-21, periodic reviews and, most likely, changes in resource allocations would become unavoidable.

Since there is little to no certainty about Covid-19 and how it will act out in the future, provincial governments are likely to assume optimistic scenarios and act accordingly. No province is in a position to factor in a full year of Covid-19 spending. Therefore, they have chosen to focus on development programmes to revive economic activity and social protection measures to mitigate the impact of Covid-19 for those living below the poverty line.

Reduction in non-development expenditures and austerity measures, human capital development, protection of agriculture from locust attack and food security measures and public-private partnerships are a few salient features of all provincial budgets for the FY 2020-21.

A traditional raise in salaries of government employees has been allowed by the governments of Sindh and Gilgit-Baltistan (GB) where elections are due in August.

With a total outlay of Rs 2,240 billion, the Punjab government has set up a Public Private Partnerships Authority to initiate mega projects costing Rs 165 billion in the province. A five-year tax exemption has been announced in this regard in the budget speech. It is to be notified later. These projects include Lahore Ring Road Phase-IV, Multan Vehari Dual Road, the Leh Expressway, Rawalpindi Ring Road and provision of water meters. The objective is to engage the private sector for job creation in the province. The government consulted private stakeholders from 11 sectors before finalising the budget and provided tax relief packages for them. Continuity of sustainable economic activity is clearly the idea driving the Punjab budget. It is focused on spending, growth and substantial allocations in the social sector to improve the quality of life. The government has already disbursed Rs 144 billion under the Ehsaas Kifalat Programme besides the distribution of five million Health Insaf Cards during the outgoing fiscal year.

Following in the footsteps of the Centre, the Punjab government has not raised the salaries of government employees. It has allocated Rs 106 billion for coronavirus related spending, which consists of tax relief of Rs 56 billion and direct spending of Rs 50 billion. The Punjab government has already spent Rs 43 billion on coronavirus related measures, including Rs 18 billion in tax relief and disbursement of Rs 25 billion through departments of health, zakat and the Punjab Disaster Management Authority. Tax relief to the business community, health practitioners and entertainment industry, and support to the construction industry are salient features of the Punjab government’s budget.

It is also worth noting that no province, except the Punjab, has announced relief in sales tax on services in their finance bills. The Punjab government has announced a reduction on tax rates ranging from 5 to zero percent in 23 sectors. It has also reduced the penalty for late payments of property tax and stamp duty on transfer of property from 5 to 1 percent. In order to get an automatic stay in case of first appeal the deposit requirement of 25 percent of tax has been reduced to 10 percent and the time allowed for filing of appeal has been enhanced from 30 days to 60 days.

Besides, in restaurant and beauty parlour sectors a rate of 5 percent has been offered if payment is made through debit/credit card. This is meant to usher in an era of greater documentation of the economy.

As far as the province of Sindh is concerned, it hasn’t brought out any finance bill this year nor has it offered any relief. The KP Finance Minister Taimoor Saleem Jhagra has restricted himself from offering massive relief through a notification to be issued later. The province has offered a waiver of penalty up to 35 percent for property tax defaulters besides giving an option of payment in 12 equal installments. The provincial minister has announced that the Local Government will abolish taxes on 200 small and medium enterprises (SMEs), followed by the Excise and Taxation Department. As far as the abolition of 18 professional taxes is concerned, it has been subjected to registration with the provincial revenue authority.

The province of Balochistan is also silent on tax relief.

With a total outlay of Rs 1,241 billion, the Sindh government has prioritised the health sector over its annual development programme. While announcing a deficit budget, the government has deviated from the Centre and raised salaries of government employees by 10 percent for BPS 1 to 16 and 5 percent for BPS 17 onwards. No new tax, austerity, social protection, economic stability, health and education are a few highly prioritised areas to deal with the challenge of the coronavirus pandemic, economic slowdown and sluggish revenue recovery. It has allocated Rs 3 billion for small traders, Rs 2 billion for small farmers and Rs 20 billion for cash transfers under the Sindh People Support Programme. It has neither announced a tax relief nor any support to the construction industry. However, subsidies to agriculture sector and allocation of funds for dealing with the loss of crops due to locust attack are prominent features of the budget.

Development of the merged areas in Khyber Pakhtunkhwa has attracted handsome allocations while the World Bank is assisting the KP government in improving basic health units to deal with the pandemic. Balochistan, AJK and GB governments have also focused on health sector in their budgets. This trend suggests that health is a top agenda item for the Centre as well as the provinces.

The writer is a political and economic analyst

Putting money where the mouth is