Friday, 13 June 2014

Is the budget a law?

Is the budget a law?

Then why is it violated so easily?

When the budget is passed by parliament it is a law that lays out the expenditure limits and where expenditure is to be made. It also passes a revenue and financing plan.

Over the years we have seen how easy it is to violate the this law.  Expenditures are always turn out to be larger than envisaged in the law. Most of the sectoral expenditures made turn out turn out to be contrary to the law. In particular, realized development expenditures are often less than in the law.

Revenues are always less than in the law but what is worse, some of the decrease happens because the FM and the ECC hand out tax exemptions as politics or other considerations demand. Article 77 says Parliament has the power to tax and the tax law enunciates taxes that should prevail by law.  Yet MOF is able to violate the constitution and the law with ease. Unfortunately, Parliament is too unconcerned or unaware of its responsibility.

The ECC meets every so often to spend money that is not in the budget. Why? The law does not apply to them. It will buy large quantities of fertilizer that have not been provided for in the budget. They will give exemptions to various sectors on demand even though these have revenue implications for the budget in place. They will provide funding for the power sector or other PSEs that again is not in the budget. These are gross violations of the budget law and no one notices. Why indeed does the ECC consider proposals that are not backed by the budget law?

EAD will sign all manner of donor deals that affect the budget and often upset the planned development expenditures. Donors have their own priorities and will often disburse or allocate in keeping with their own domestic needs. Often this funding comes with its own conditionality asking say for a budgetary appropriation to a donor favored sector.  Not only is the budget law routinely violated in the process but also country development policy.

Parliament and civil society by abdicating its responsibility, have allowed poor governance, shoddy economic policy and budgetary management to take root. In the process MOF and the FM have acquired arbitrary power. As the Numero Uno ministry. FM and FS can arbitrarily please whoever they like because they have free hand with expenditures and tax exemptions. An ideal situation for back room deals and poor policy-development and implementation.

The PM or the president too love this situation. Recall the evolution of parliament as an institution.
From the Magna Carta Kings have struggled with Parliaments, which have increasingly become less aristocratic and more democratic on the question of the king's (executive's) authority and accountability. An important principle of government that has emerged as a result is that the executive power must be checked to prevent despotism and absolute rule.

An important check on the executive that has evolved through history is the control of the purse through the budget process and law in Parliament. This check is jealously guarded by all Parliaments in  the world.

If Parliament gives up a watch on the budget process as has been done in Pakistan, democracy is seriously eroded and the executive gains enormous power. This is the problem at the heart of our democracy. If parliament loses control of the budget why should PM, FM or ministers come to Parliament. In fact as it happens now all MNAs and politicos are beholden to minor MOF officials who have an unchecked power to spend.

Empowered by the lack of Parliamentary oversight, MOF rules with its unchecked control. To please donors it chases fiscal numbers that are out of sync with the realities of the country. It also seeks to please its masters and the various vested interests. When vested interest require that sugar should be bought from mill owners, it will starve education or the PSDP to do so and no one cares. When large payoffs have to be made to the power sector, railways and other areas are cut. MOF slows down releases destroying the timely delivery of all objectives. The best of intentions in any department are brought to naught by this kind of budgeting and an imperial ministry beyond any oversight.

With this power, MOF has no desire to budget properly after all the law means nothing. They can do as they like during the year. The planning function of the budget is lost now.

Expenditure overruns, re-allocation during the year are all done whimsically by the MOF. At the end of the year, the new budget law is appended with the details of these overruns and re-allocations in what is known as supplementary grants. In that way any questioning on the budget law is preempted.

Unaware of the importance of the budget for establishing good and accountable government, Parliamentarians happily agree to a summary debate on the budget of about 2 weeks (with more or less 7 business days) of discussion. (More than likely we have the shortest budget debate in the world). In this short duration no aspect of the budget is seriously discussed leave alone supplementary grants.

Sadly economic commentators are so busy discussing meaningless budget numbers (that MOF never means to keep) and fail to see the importance of Parliamentary procedure for the budget. But this issue sits at the root of mis-governance.