Reflections on provincial budgets FY27—IV

Moreover, in the case of Balochistan the direction of taxes also needs to be shifted away from indirect taxes over the medium-term, given the regressive, and price distorting nature of regressive taxation. Currently, the direction is undesirably, showing an opposite trend, whereby not only is direct taxation much less than indirect taxation, the gap is also widening. Hence, against the budgetary estimate for FY26 for direct taxes at Rs 2. 4 billion, revised estimate stood at only around Rs1. 1 billion with budgetary estimate for the ongoing fiscal year for direct taxes was slightly increased to Rs. 2. 8 billion. At the same time, budgetary estimates for indirect taxes for FY26 stood at Rs44. 5 billion (which is 18. 1 times more than budgetary estimates of direct taxes), while revised estimates are expected at Rs. 37. 5 billion (which is 35. 8 times more than revised estimate of direct taxes), where budgetary estimate for FY27 for indirect taxes stood at Rs. 51. 5 billion (which is 18. 2 times more than the budgetary estimate of direct taxes). READ MORE: Reflections on provincial budgets FY27—III Just like at the level of the Centre, at the stage of provinces, on one hand, the provincial budgets are indirect tax heavy, which are regressive in nature and, on the other, there has been a serious lack of ambitious direct tax expansion policies, especially given the rising challenge of meeting elevated level of resilience-, and overall greater welfare spending related needs that have, in turn, risen due to fast-unfolding climate change crisis, high inflationary pressures in the wake of recession-causing Covid-19 pandemic, the Ukraine War, and ongoing high level of commodity shock in the aftermath of the Middle East (ME) conflict, and practice of over-board austerity policies over the medium-terms, all likely enhancing inequality and deepening poverty. Hence, in the case of Punjab, the total budgetary estimates for expenditure for FY27 at Rs 3. 3 trillion, where current (non-development) expenditure stood at Rs 3 trillion, and around one-third of that is development expenditure, with its budgetary estimates at Rs. 1. 3 trillion. READ MORE: Reflections on provincial budgets FY27—II Moreover, budgetary estimates for subsidies for FY27 stood at Rs 67. 2 billion, which is in fact less than the budgetary estimates for FY26, which stood at Rs 77. 3 billion; where the revised estimates for subsidies were much less at Rs 41. 8 billion. At the same time, interest payments are more than subsidies for the last fiscal year, whereby budgetary estimates in this regard stood at Rs. 70. 1 billion, not to mention the fact that revised estimates of interest payments for the last fiscal year at Rs. 64. 1 billion were much higher than the revised estimates of subsidies for FY26! This is strange, given the onslaught of the ME conflict, much elevated levels of prices of oil, and fertilizer calling for greater provision of subsidy for both consumption in general for the lower income groups, and also for farmers. It is strange that, just like the federal government, the government of Punjab has practiced fiscal austerity even when subsidy needs are high. These high needs are due to both last year’s floods, and an ME-induced severe commodity shock. The province is pursuing a primary surplus which, as per budgetary estimates for FY27, stood at Rs 1. 63 trillion. It needs to be indicated that as per revised estimates for FY26, primary surplus is expected to reach Rs511. 3 billion. Moreover, even at a stage of depressed economic growth in the country and high subsidy needs, given the commodity shock in the wake of the ME conflict, and elevated level of poverty overall, the province has been running fiscal surplus! At least, balanced budget needs to be pursued, with some reasonable level of allocations kept for contingency/shocks-related needs. READ MORE: Reflections on provincial budgets FY27—I Hence, according to the revised estimates for FY26, the budget balance stood at a positive Rs 447. 2 billion, while the budgeted balance for FY27 reached a higher positive level of Rs 1. 56 trillion. Better domestic resource mobilization efforts at the federal and provincial levels, and greater rationalization of fiscal federalism, will overall reduce the need for provincial surpluses to cover the overall fiscal deficit at the federal level. Furthermore, shifting the tax composition away from regressive taxation will improve equity. Additionally, planning expenditures away from non-development spending will support greater productive and allocative efficiencies. This will have an overall positive impact on growth and, in turn, on revenue levels. Here, it needs to be indicated that Sindh, on the other hand, has run budget deficit in both FY26 – where revised estimates indicated budget balance at negative Rs. 455. 1 billion, which was higher than budgetary estimates for the last fiscal year at Rs. 336. 1 billion – and FY27, where, as per budgetary estimate, budget balance stood at negative Rs. 185. 9 billion. Although calculation for primary balance has not apparently provided, the author’s own calculations point out that unlike Punjab, the province has run primary deficit, whereby against the budgetary estimates for the last fiscal year at Rs. 276. 4 billion, revised estimates for primary deficit were much higher at Rs 454. 9 billion, while budgetary estimate for FY27 stood at Rs 187. 9 billion. In the case of Balochistan, while the provincial government targeted reaching budget surplus for FY27, where budgetary estimates in this regard stood at Rs45. 6 billion against the same budget surplus targeting for FY26 at Rs. 51. 8 billion, the revised estimates showed a budget deficit of Rs. 95. 8 billion. Here, to the credit of the province, development expenditure saw an increase by around Rs 16 billion from the budgetary estimates at Rs. 336. 6 billion, while current expenditure saw a decrease by Rs. 9. 9 billion from the budgetary estimates at Rs. 639. 9 billion. Having said that, what is unfortunate is that current expenditure has been budgeted for FY27 with a significant increase of Rs 167. 9 billion over the revised estimates at Rs. 630 billion for FY26. Additionally, it is sad to see that development expenditure budgetary estimates for FY27 have decreased by Rs 61. 1 billion over the revised estimate at Rs 352. 6 billion. At the same time, as per the author’s calculations, the province ran a primary deficit of Rs 82. 5 billion for FY26 based on the revised estimates, contrasting with the budgetary estimates that projected a primary surplus target of Rs 51. 8 billion. Moreover, just like FY26, the provincial government is targeting a primary surplus for FY27 of Rs. 66. 1 billion, which is concerning mainly because of the fact that Without serious efforts to raise taxes or cut non-essential costs, hitting this surplus will likely require the government to cut development spending. Moreover, it is a shame that current (non-development) expenditure is around twice the amount of the development expenditure, where more specifically, budgetary estimates for current expenditure were 1. 9 times the budgetary estimates for development expenditure for FY26, revised estimates for the last fiscal year for current expenditure was 1. 8 times the revised estimates of the development expenditure, while this gap widens considerably over the last fiscal year, whereby, budgetary estimates for current expenditure are 2. 7 times the budgetary estimates for development expenditure for FY27! (To be continued on Sunday) Copyright Business Recorder, 2026

Read full story on Business Recorder