Get the latest news and updates from Dawn
DELAYS in budget announcements are normal. After all, it is not easy to satisfy different lobbies competing for a bigger share of the shrinking fiscal pie. But the current impasse is of a different order. It signifies a constitutional and political crisis that the government is struggling to contain. The immediate cause is clear, even if the government is reluctant to state it openly.
Islamabad wants the provinces to freeze their share from the federal tax divisible pool under the NFC award, returning any receipts above the current year’s level to the centre. This demand comes over and above the Rs1.95tr cash surplus that provinces are required to produce under the National Fiscal Pact.
The provinces are resisting the pressure. The reason the centre finds itself in this position is rooted in its failure to expand the tax net and boost revenues. That Pakistan is operating under the IMF programme’s strict conditions, requiring it to maintain a primary surplus and contain expenditures, is another reason. Meeting those targets while not touching defence spending and civil service perks intact leaves only one lever: squeeze the provinces.
The federal government’s broader narrative that the existing NFC award is the primary driver of its fiscal distress does not hold water. It excludes the petroleum levy and every other surcharge collected outside the divisible pool. GST on petroleum products was replaced by a levy precisely so that it would not have to be shared with the provinces.
