A Skeptical Guide to the Budget

By Anjum Altaf in Herald

The budget affects everyone and therefore everyone ought to understand it. The fact is that very few do. I confess that I don’t but more than that I do not even wish to try. Let me explain why that is the case.

The simplest way for a layperson to begin making sense of the national budget, at least its purpose, is to think of the household analogy even though the experts will be quick to tell us that there are significant differences between the two. To mention just one, sovereign nations can print money while households can’t. But we can set that detail aside for the moment.

As everyone does know, at least intuitively, a household budget has two essential parts – income and expenditures. If a neighbor wished me to go over his household budget for the forthcoming year, I would look at his total income, the sources of the income (which might be stable or fluctuating), and its allocation over various expenditures (which would always include consumption and often investment). As a good neighbor, privy to the circumstances of the family, I might have some advice to offer.

But how would I react if I suspected the neighbor to be a member of a mafia, likely to hide more than to reveal, and who might have manipulated both sides of the budget? The income may be derived from undeclared sources, say extortion, and laundered under innocuous heads; the expenditures may include payoffs to one set of agents and buyouts to others. There may be off-budget items of which there would be no record. What if I suspected further that there was a capo di tutti capi who had instructed the local boss not to indicate more than a certain deficit at the cost of losing future favors?

In such a case, I might pore over the budget only if I were some kind of a Sherlock Holmes interested in figuring out what was really going on beneath the surface. But why would I be interested in doing that? I have nothing at stake and being too inquisitive might trigger an expense item in the budget that would not be to my advantage.

To push the argument to its logical conclusion, I wouldn’t trust the budget and so ignore it minding my own business. I have a little more at stake in the national budget because some of my income is going into the revenue streams and some of the expenditures are ostensibly intended to make my life easy. But the bottom line remains the same. I don’t trust the numbers – who does? – and I don’t believe my efforts at unraveling them would have any real impact.

Given that, I pay my dues for peace of mind, provide the services I need myself, and protect myself as best I can from the services that governments pretend they are providing from me, the police, for example. Knowing that a knock on the door at six in the morning in Pakistan is not the milkman, this is a reasonably safe strategy to follow if one intends to continue residing in the country.

My interest in the budget is lessened by the fact that I have no say in how the taxes I have contributed are to be spent. I am in favor of clean water, reliable electricity, good education, and an effective health system. I am not in favor of raising proxy armies to wage wars here and there. I am not in favor of endless delegations to Saudi Arabia. I am not in favor of bullet trains without feasibility studies or environmental clearances. But, of course, I don’t really know what’s going on and nobody has bothered to inform me how all these expenditures are vital to the national interest and the protection of our ideology.

My interest is further diminished by the depressing experience of the political economy of both sides of the budget. I am quite well aware that many who should be taxed are not, that many who are supposed to be taxed continue to evade their taxes, and that indirect taxes on the helpless bring in the bulk of the revenues. While the collection is widely distributed on the majority of citizens, the expenditures are concentrated on those with political and economic clout – to take one example, there is very little for the pedestrian and a lot for the owner of a private car. The American Revolution occurred because of a refusal to be taxed without representation. We have representation but still no say in how our country is to be governed and for whom.

Sometimes I wonder what I would need to do if I took the whole exercise seriously. First of all, I would read the budget in conjunction with the economic survey which lays out current problems that budgets should be designed to address. I would also look at the national budget in conjunction with all the provincial budgets because almost half the national revenues are transferred to the provinces who are supposed to be responsible for the provision of most social services. I would see what projects are being approved by the Planning Commission to be sure they are compatible with the expenditures that are being emphasized in the budget.

I also know that the budget is not simply about collecting money and spending it. It is equally meant to give signals that channel the decisions of firms and households in directions intended to stabilize or grow the economy. Tax rates influence the allocation of investments to some sectors rather than others; subsidies encourage consumption of particular commodities in preference to those that are offered at market prices.

All this requires serious examination and discussion by the representatives of citizens in parliament supported by subject experts. There isn’t any worth talking about. Due diligence by civil society organizations requires faith in the credibility of the numbers, faith that what is slated to be spent would actually be spent, and faith that snap supplementary budgets would not overturn the logic of the original allocations.

This is a tall order and not something I am willing to bet my shirt on. However, in the spirit of being constructive, I am proposing a radically different approach that can simultaneously interest, educate, and empower the ordinary citizen while at the same time begin to pressurize governments to be more transparent, honest, and accountable.

I would recommend a bottoms-up process of budgeting in which one would begin from the level of the union council. Each union council would have its annual revenue posted for public viewing on the door of its office. This would include transfers from higher levels of government and any local taxes, if applicable. Against this budget, residents of the union council would begin posting their choices for major expenditures. Any of a number of mechanisms could be used to elicit these choices. The choices with the majority votes would then form the expenditure side of the union council budget.

If the residents conclude that their revenues are insufficient they would suggest additional taxes that could be raised locally, broader coverage of existing taxes, or voluntary contributions. Over the course of the year, the expenditure side of the budget would be updated regularly to show money already spent and balances remaining. A simple monitoring and evaluation exercise managed by the residents themselves would verify that the expenditures have resulted in satisfactory progress with milestones achieved as stated. Any course corrections would be a follow-up to the regular monitoring and evaluation exercises.

This suggestion is not as far-fetched as it might seem. The late Dr. Akhtar Hameed Khan ran something very akin to this prototype when he was heading the world-famous Orangi Pilot Project in Karachi. The practice needs to be institutionalized across the board.

In a similar manner, municipalities that comprise more than one union council should also have their budgets posted for public scrutiny. Municipal budgets are not simply aggregations of the budgets of their constituent union councils because some infrastructure, particularly for networked services, cannot be devolved down to the lowest tier of government. Electric grid stations, water treatment plants, etc., are good examples of investments that make sense only on municipal or regional levels.

Such open-disclosure mechanisms would prevent the hijacking of local government prerogatives by higher levels of government and the arbitrary inclusion of investments not properly budgeted or approved by residents of any particular jurisdiction.

It is my belief that a few years of this regimen would restore citizen confidence in the budgetary process and pave the way to more accountable governance. I have a feeling that citizens would come to be much more involved in discussing the national budget once they have gained confidence in the credibility of local ones.

Till such time, whenever I am asked to comment on the budget I always recall Voltaire’s reply to a reminder to look at a letter from a correspondent: “I’m seated in the smallest room in the house. Your letter is before me. Soon it will be behind me.”

The rest of the article is here.

Anjum Altaf is the provost at Habib University. This article appeared in Herald online on May 28, 2015 and is reproduced here with the author’s permission.

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One Response to “A Skeptical Guide to the Budget”

  1. smnaseem Says:

    While very lucidly written and enjoyable to read, I am amazed at the laziness and nonchalance of a scholar of Mr Altaf’s erudition and wide international experience in giving advice to assorted governments of the developing world on aspects of budget making designed to rob the poor to support the comforts of the rich, to abstain from offering honest and forthright advice, even if unsolicited, to his country’s government and people, now that he is hopefully free from the pressures of earning highly lucrative emoluments. For starters, instead of invoking the holy name of the late Akhtar Hamid Khan and the now dormant OPP after the brutal murder of his successor, the late Perveen Rehman, two years ago, he could have started with the major private academic institution he is associated with now, or the even more prestigious one he was working for immediately before that, if in a less important administrative position, to elucidate the budget-making process in them and the motivations of their owners in financing higher education, after the abdication by the security-obsessed state of its social and public welfare responsibilities. It is a pity that voices like his are not being used to bring out such important issues into public debate and are being wasted in writing pedantic articles, such as the present one.

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