28th time the charm?

There are rumours of another amendment to our much-amended constitution – and this time it is said it might actually reform governance and end up decreasing taxes and improving the lives of Pakistanis.

The record of our previous amendments, whether passed in a single night or with much fanfare, isn't particularly good. These amendments serve only to help governments of the day and don't really benefit people. Still, we hope the 28th time is the charm.

Since the return of democracy to Pakistan, the nation has been declining in health, education and income compared to its neighbours in South Asia. This is evident first from our relative, and now our absolute, decline in the Human Development Index over the years.

Pakistan's per capita income since 2008 has increased by only 68%, whereas Sri Lanka's income has increased by 114%, India's by 207%, and Bangladesh's by 278%. That is why Bangladesh and India, which were poorer than us in 2008, are now 54% and 78% richer than us, respectively. Sri Lanka is richer still.

According to PBS data, the average real (inflation-adjusted) household income in Pakistan actually declined between 2014 and 2024. Our low growth and decline in health, education and incomes is no accident. These outcomes result from the structure of our constitution. Thus, no amount of handwringing or changes of the faces at the top will change our policy outcomes if the constitutional structure remains the same. So, if we want to change our health, education and income outcomes, we will have to change the structure of the constitution.

Here are two reforms that can improve the lives of Pakistanis. The most deleterious change in our fiscal policy in recent times was the large and unsustainable award to provinces in the 7th NFC Agreement in 2009 and locking it in the 18th Amendment. This award provided 59% of total taxes collected by the federal government to the provinces (not including AKJ, Gilgit-Baltistan, Islamabad or ex-Fata, that are also funded by the federation) and the 18th Amendment didn't put any condition for empowered local governments or transferring of resources to localities.

This fiscal arrangement has meant that provinces are flush with cash (surplus this year of over Rs1.6 trillion) while the federation is near bankruptcy, always borrowing, creating both inflation and crowding out private investment.

After the return to democracy, the most important 'reform' by our 'democratic' political parties was to undo the Musharraf-era devolution of power to local governments. Thus, democracy led to maximalist provincial governments and, despite trillions of taxpayers' dollars, no improvement in literacy, health or education in any province and actual regression in Sindh.

After increasing the provincial share of taxes from 37.5% in 1997 to practically over 60% now, and with taxpayers paying a higher and higher share of their stagnant incomes in sales, import and income taxes, people have a right to expect significant improvements in health, education, law and order and civic services being delivered by the provinces. (Remember also that even as we pay provincial governments a lot more today, we are also paying more for the federal government every year, too. It's not like the federal government has curtailed any of its expenditures).

People think of the NFC as a competition between the federation and the provinces. That's inaccurate. It is actually governments versus the people, for it is the people who are paying taxes to keep provincial and federal governments going. The biggest effect of the 7th NFC Award was to make people poorer, as they were asked to pay more in taxes to support our extravagant provincial governments.

For instance, to fund a deficit of say Rs1,000, the federation needs to tax Rs2,500 and first give Rs1,500 to the provinces and only then use the remaining Rs1,000. This means the people end up paying Rs2,500 when only Rs1,000 was required, and provinces, already in surplus and without needing it, get an extra Rs1,500. It's not just the money going to the provinces, but the fact that they need to be given 60 paisas first from every rupee collected, that is making sustainable federal fiscal health impossible.

And with the windfall provinces get, political leaders publicise their name and pictures incessantly across social and traditional media or hire an army of provincial workers for political reasons and try to perpetuate their hold on power.

A good change in the NFC Award would be to give provinces (including AJK, GB, Islamabad and ex-Fata) 60% of the federal revenue from the first Rs12,000 billion of federal taxes and then the federation should retain 80% revenues after that.

Levies should be treated as federal taxes, but the federal government should be allowed to tax agricultural income, services and property, with half the revenues from these sources returned to the respective provinces. Major and successful federal programmes such as the HEC and BISP, which are provincial responsibility, should continue to be run by the federation but charged to the provinces.

A second reform that can be brought about through the 28th Amendment is the empowerment and federal financing of local governments. Each of Pakistan's divisions should have a directly elected mayor that controls police, health, education, roads, sanitation, zoning and building control and other civic services. Some of these areas should be further devolved to districts and tehsils, and district and tehsil nazims should also be directly elected. And all divisions should be funded directly by the federation, using the same formula agreed in the NFC Award.

We should also freeze population numbers based on the last census, so that provinces neither have an incentive to overreport their population nor to let their population grow rapidly. And we should use BISP and other social programmes to incentivise recipients to have smaller families.

These two are among the many reforms Pakistan urgently needs if it is to arrest its rapid decline. Since 2008, Pakistan has run for the benefit of elite politicians. It's time it is run for the benefit of the people.

The writer is a former finance minister and secretary of Awaam Pakistan.

Disclaimer: The viewpoints expressed in this piece are the writer's own and don't necessarily reflect Geo.tv's editorial policy.

Originally published in The News