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Opinion

Economic notes

March 27, 2018
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Who makes the next budget?

Opinion

Economic notes

March 27, 2018

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Going by the well-established parliamentary practice, Budget 2017-18 is due in June. However, the National Assembly will be dissolved on June 1 and an interim government will be in place.

This is the constitutional schedule of transition across successive governments. This time, however, the schedule is so precisely timed that questions are being asked regarding the responsibility of the government and the National Assembly to make a budget that they will not be using.

The government has announced that it will present the budget to the National Assembly on April 27 and have it passed by the assembly either in the standard three-week period or just before the commencement of Ramazan on May 17. It is not clear if the opposition has endorsed this proposal. Even if it is not on-board, the government can pass the budget as it has a comfortable majority in the National Assembly.

It is, therefore, not a question of whether the government is capable of passing the budget, but of whether it should make a budget that will not reflect the priorities and programme of the next government – the actual user. Therefore, we ask the following questions: (a) is it incumbent on the government to present a budget that it wouldn’t be making use of; (b) would there be a constitutional vacuum when an approved budget is not put in place during the period of an interim government; and (c) what is the desirable course of action for the government?

Before we answer these questions, we should make the following submissions: First, let’s explain the budget, as presented by the federal government and approved by the assembly. There are basically two parts to this exercise. One, there is an annual budget statement (ABS) under Article 80, which provides estimates of receipts and expenditures (with a break-down between charged and voted expenditures); a detailed demand for grants voted for by the assembly under Article 82; and a schedule of authenticated expenditures under Article 83 that are signed by the prime minister and laid out in the assembly. Two, the assembly has to pass the finance or money bill under Article 73. This contains the tax proposals of the government, which entail amendments in various laws.

Second, the term of the assembly is due to expire on May 31 and an interim government is expected to be in place on June 1. Under Article 224, elections are required to be held within 60 days after the term of the assembly expires (ie, by July 30) and results are to be announced by July 15 – not more than 14 days before this date. The interim government can authorise expenditures during the month of June from an already approved budget for the current fiscal year.

It is in July that the question of approved expenditures will arise. However, the constitution had envisaged such a possibility and has, therefore, made provisions to this effect. Article 86 of the constitution states that: “Notwithstanding anything contained in the foregoing provisions relating to financial matters, at any time when the National Assembly stands dissolved, the federal government may authorise expenditure from the federal consolidated fund in respect of the estimated expenditure for a period not exceeding four months in any financial year, pending [the] completion of the procedure prescribed in Article 82 for the voting of grants and the authentication of the schedule of authorised expenditure in accordance with the provisions of Article 83 in relation to the expenditure”.

Evidently, the caretaker government can authorise expenditures for 120 days (up to October 28, 2019) when the assembly stands dissolved. Third, presenting the budget on April 27 would require advancing it by five weeks from its traditional schedule.

However, the main ingredient of the budget – ie, reliable assessment of economic performance during the current fiscal year – will not be in place for three reasons. First, the budgetary outcomes of the current year known as “revised estimates” that are based on the actual outcome for ten months (Jul-Apr), would be missing as the proposed date would make the outcomes for even the nine months difficult to compile. The reliability of revised estimates would, therefore, be subject to a greater margin of error.

Second, the National Accounts Committee (NAC), which is responsible for compiling national accounts (GDP, investments, savings, etc), meets in early May every year to announce the revised estimates of the growth rate for the year ending on June 30, the single most important indicator of economic performance during the year. Even if the NAC meeting is moved forward, its coverage would be inadequate and raise questions about the reliability of estimated GDP.

Third, the Economic Survey, which is released a day before the budget, gives the official account of economic developments made during the year. Advancing its publication by five weeks would compromise its coverage and involve a break from its historical comparative value.

We can now answer the three questions. In view of what is stated above, the first two answers are in the negative. Regarding the third, it would be wiser to let the budget be made by the next government. The new government should have the opportunity to formulate the budget according to its priorities and plans as it would be returning with a fresh mandate from the people.

More than the proposals for grants, it is the finance bill that would be of critical significance. The tax proposals approved by the assembly would hardly be implemented in its tenure. Yet, it may preempt many choices for the new government because if it alters those proposals within a couple of months, it would be injurious to some groups. A state of uncertainty would be created about the fate of budgetary measures. It would make the beneficiaries wary of their durability and, thus, not elicit the desired responses from them. This would be particularly true if the tax proposals planned by the government include the much-talked-about tax amnesty scheme.

Only a new assembly will have the true mandate to take as far-reaching a decision as an amnesty scheme. A government and assembly that are approaching the end of their term are ill-suited for this job.

The writer is a former finance secretary. Email: [email protected]

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