Trying to be fair

AT PENPOINT

The federal government has convened on December 7 the inaugural meeting of the National Finance Commission, with that meeting intended to begin a process which is supposed to last for five years, but which may well last for much longer. The present NFC is supposed to make the first Award since 2010. The missed Awards are 2015 and 2020, with an Award due in 2025. The Award which should be in force at the moment should have been halfway through its life.

Though Martial Laws are more disruptive of NFC Awards, elected governments have hardly covered themselves with glory. One result is that not a single Award has been made on time, even though the Constitution’s timeframe is clear enough.  This is because one or other province has prevented a consensus being formed, with the result that Awards are not enacted.

It could be noticed that NFCs were constituted in 1979 (when the First Award expired), and then five years later in 1984, but on neither occasion was an Award enacted. The existing Award was renewed, a formula thus being found to overcome the difficulty. This use of Article 160, which says that nothing shall be illegal just because it was not done on time, has been extensive.

The failure of the NFCs constituted in 1980 and 1985 to prepare Awards which could be enacted was succeeded by two PM, Muhammad Khan Junejo and then Benazir Bhutto, who did not address the issue at all. It was not till 1991 that Mian Nawaz Sharif constituted an NFC, whose Award was enacted, thus giving the country an Award for the first time in 17 years. The next Award was due in 1996, but was delayed by a year. In 2002, under the Musharraf Martial Law, an NFC was constituted but no Award made. That had to wait until 2010.

However, since then, even though there have been political governments in office. This is the first time an NFC has been constituted. This indicates that an NFC Award is not high on the list of government priorities, probably because it is well to let sleeping dogs lie, and also because not much is going to be solved. Second, there was no path to an Award. As the Award needs consensus, it means that any one province can stop its being made by a simple refusal.

That meant that while the PTI was in power in KP, the PML(N) had no hope of getting an Award though. When the PTI took office at the Centre, the PPP’s Sindh government provided a bulwark against consensus.

It seems there is a repeat of the 2014 situation, where the PTI can block consensus. It probably will, holding the release of imprisoned party founder Imran Khan an essential condition for KP’s consent. His release or otherwise seems to have nothing to do with an NFC Award, but the new KP CM is more of an Imran fan than his predecessor. However, there is the factor that Prime Minister Shehbaz Sharif, back in 2009, became the first CM to form part of the consensus for an NFC Award even though his party was in the opposition in the Centre. Only if Sohail Afridi can follow that example will an Award be possible.

Apart from party politics, there are disputes looming over both the vertical and horizontal splits, both of which are determined by the NFC. Once it is decided which federal taxes are to be placed in the federal divisible pool, it is then decided how that pool should be split between the federal governments. Then comes the horizontal split, which is between the provinces.

The problem is that the Award may have to be taken further into the future. The precedents exist for the Award to go beyond its scheduled life. The various issues that have become attached to it have caused some of the difficulty which makes governments shy away, but the basic problem has not been solved: the country is poor. If the country was richer, and the federal collections greater, the federal divisible pool would be enough for both federal and provincial needs. However, the NFC is not allowed to indulge in wish-fulfilling fantasy. With a poor country’s tax collection it will have to do its best to meet the needs of all governments.

This is the first NFC which will involve a debate on both the vertical and horizontal splits. The federal provincial split now stands at 57.5 percent. It has been calculated that the federal debt servicing, salary and administration burden may soon be next only by borrowing, unless the federation keeps more of the taxes it makes. The natural step is for the federal government to demand that the divisible pool be reduced.  It would mean a reduction in the provincial share, something which will be strenuously resisted by all provinces, and it would need only one to refuse consent for there to be no Award.

The horizontal split has also been hotly debated in the past, and one of the achievements of the last Award was to move away from the population basis. Population was not abandoned entirely, and was given 82 percent weightage. Federal ministers have expressed reservations about population, which makes it likely that it will try to further reduce its weightage.

There are two issues which the federation is likely to take up, which had been agreed at the last NFC, but which have not been implemented. The first was the setting up of Provincial Finance Commissions, which were supposed to divide the provincial budgets between the provinces and the local governments, and then the local governments were supposed to divide their share among themselves. This was not operationalized, primarily because the provincial governments did not like the loss of control it meant.

The provinces are also likely to face awkward questions about service delivery. The provinces have to deliver health and education. Indeed, interwoven is the Musharraf-era district governments idea, which were supposed to deliver health, education policing, and other devolved departments, and for which funding was needed. The federal government has indicated that service delivery may form part of the criteria for intra-provincial distribution, in an attempt to create a virtuous cycle, where provinces delivering more on health and education get more resources.

Probably related to this is the small controversy over the 28th Amendment, which has now been ruled out definitely by the government. The controversy probably arose because the 27th Amendment did not contain everything that it was supposed to, and the rumour arose that the government intended to bring the 28th Amendment containing those items on its agenda. This was not as far-fetched as it may seem, because the 27th itself included as its main focus the Constitutional Court that was not accomplished by the 26th Amendment.

The 27th was to have included a repeal of the ban on changing the provincial share, which had been shot down by the PPP, as well as returning parts of education and health to federal purview. In short, the NFC was to have been able to reduce the provincial share. That the PPP will not allow, but at the same time the IMF wants it repealed, for it cannot see a path towards keeping debt servicing going without a greater share of the revenue collection. However, that issue will probably be thrown forward to future NFCs, and awaiting a future constitutional amendment. The IMF intrusion is surprisingly late, but where it was previously a vaguely ominous shadow in the background, it is now front and centre, offering advice. That advice will be taken as binding, the first sign that the present IMF programme will be the last, because the Award goes well past the IMF programme, even if

The problem is that the Award may have to be taken further into the future. The precedents exist for the Award to go beyond its scheduled life. The various issues that have become attached to it have caused some of the difficulty which makes governments shy away, but the basic problem has not been solved: the country is poor. If the country was richer, and the federal collections greater, the federal divisible pool would be enough for both federal and provincial needs.

However, the NFC is not allowed to indulge in wish-fulfilling fantasy. With a poor country’s tax collection it will have to do its best to meet the needs of all governments.