18th Amendment Unhappiness
There has been a lot of noise from some quarters in the federation about wanting to undo the 18th Amendment to the Constitution, but it is not clear what the noise is all about. The 18th Amendment made almost 100 amendments to the Constitution. Clearly, not all of them are problematic.
The amendment added a number of basic rights to the Constitution: Article 10-A on the right to a fair trial, 19-A on the right to information, and 25-A on the right to education. These are not contentious.
There are amendments regarding judicial appointments. Where we might think the procedures for judicial appointments and judicial accountability require further changes, the noise about the 18th Amendment has not been regarding this issue.
Most of the other changes, procedural or substantive, in governance structures, are also not being discussed. The main pushback against the 18th Amendment seems to be coming from players at the federal level. The presumption, then, is that somehow the 18th Amendment is impacting the ability of the federation to do what it wants to do.
There are two areas that appear to be problematic. One has to do with devolution and the other, related but separate, to do with fund-sharing arrangements between the federation and the provinces: the vertical part of the National Finance Commission formula.
Regarding the vertical part of the NFC formula, some people think that the federation has reduced its share too much. Some have even argued that the current fiscal deficit issues that the federation faces has a lot to do with this vertical arrangement in the NFC. Since the federation keeps too little, while its expenditure needs and commitments are large, it has to run a deficit. If the basis for the NFC could be redone, the deficit issue might be easier to address.
The resource division side is integrally tied to devolution as well. The idea for decentralised and devolved power is accepted by most. For services that have to be locally delivered, why should decisions about them be taken at the federal or even provincial level? Centralising power is not only anti-democratic, it is usually inefficient and ineffective as well. This is especially true for service delivery.
Where a school or local health unit should be based, who should run it and how, and how should it be monitored are local issues and ought to be handled by empowered local governments and communities. A few things might require coordination; they might even gain in efficiency from centralisation (curriculum, testing, book printing, equipment procurement) but it makes sense to have the bulk of administrative and governance-related decision-making done at the local level.
Most people in Pakistan agree with the basic principle behind decentralisation and devolution. There might be some quibbles about details, eg curriculum, but these can easily be handled through coordination and cannot be and are not arguments for centralisation.
If decentralisation makes sense, and it does for service delivery at least, why would this be a contested part of the 18th Amendment? The reason is financial again. Service delivery is expensive. If provinces have to deliver local services, especially health, education, water and sanitation, and social welfare, and in line with promises that have been made in our Constitution, or that we have signed up to (eg Sustainable Development Goals), they need resources. Given our revenue-generation system, this implies significant transfers from the federation to the provinces.
It is true there has been some talk of the need to have an agreement on the minimum standards of education and on certain parts of the curriculum. But these issues cannot provide a justification for centralisation. They can provide reasons for coordination and dialogue, but not for centralisation — how can the imposition of something that people do not agree on be better than trying to develop a consensus through dialogue?
In the end, it seems to be all about money. And the problem is not the NFC or the 18th Amendment. It is the fact that we have a poorly designed and poorly functioning tax system. All major taxes are with the federation, the tax net is narrow and tax compliance low. Moreover, there is too much reliance on presumptive, ad hoc and advance deductions, and provinces do not have and/or have been unable to develop their own source taxation.
So provinces rely on the NFC transfer to meet their obligations under the 18th Amendment. And the federation feels it is left with too little. But even if we revoke the 18th Amendment, or the devolution and NFC clauses of the Amendment, how will this address the financial issues? We will still need to spend as much, if not more, on health, education and other services. It will be the federation which will have to spend the money; how will this help in reducing deficits or in giving the federation more fiscal space?
The 18th Amendment and the last NFC agreement had some assumptions about how revenue generation, at the federal level, was going to evolve. It assumed a certain growth rate for GDP and tax collection and also an improvement in the tax-to-GDP ratio. This did not happen. This is the main reason that the federation is feeling extra pressure.
Dividing the existing revenue pie differently between the federation and the provinces is not going to address or resolve the financial issues facing the country. Nor is it the case that the federation will be able to cut expenditures on services if it had the power to spend on education, health etc. Nor will changing the responsibility for services change anything. So, the issue is not the 18th Amendment. The issue is the poorly designed and poorly functioning tax system. It is revenue reform that should be the focus and not the 18th Amendment.
This opinion piece was first published in DAWN here: https://www.dawn.com/news/1443035/18th-amendment-unhappiness
The author, Faisal Bari, is the CEO of IDEAS, and an associate professor of Economics at LUMS.