The National Finance Commission has been convened to meet by the federal government for December 4. After plunging into the cesspool of the division of the federal divisible pool by forming the Commission on August 22, it has tried to bite the bullet by holding its first meeting on August 27. However, there were four other postponements, the last from November 18, to December 4. This NFC Award might prove particularly contentious, for it comes after the Seventh Award of 2009. That was made for five years, but has been continued since, meaning that where the original award had been made in view of the needs of the federal and provincial governments for five years, there have been 16 years since the last Award, which means that it is badly misaligned with the government’s needs.
One of the thorniest issues the NFC will have to deal with, is the vertical distribution, between federal and provincial governments, of all the taxes put in the federal divisible pool. This issue arises because the 18th Amendment said that the provincial share could not be reduced. That implied a freeze, because no federal government would agree to a decrease in its share, which was the only way the provincial share could be increased. The original proposal for the recently passed 27th Amendment included the repeal of this provision, but the PPP refused to agree to it, because it said it infringed provincial autonomy. The armed forces and the IMF have a problem with this provision, because it leads to a position where revenues will not cover federal employee salaries. The upcoming 28th Amendment may tackle this issue from a different angle, by moving population planning and education to the federal purview, from which the 18th Amendment had excluded it. The last Award had increased the provincial share because the federal government had transferred many subjects to the provinces.
There is also the issue of the IMF being involved in the deliberations, though indirectly, because the country is on a loan programme. The IMF and the armed forces are on the same page as far as the provincial share ban goes, presumably because the IMF cannot see how the country is to keep servicing its debt out of its share. At this point, it might seem that the NFC has a lot of time, but it has to make its Award in time for the coming Budgets, a process which will start next month.
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