For the purpose of the federal budget, governance is defined as the manner in which power is exercised in the management of a countrys economic and social resources for development. Good governance then becomes synonymous with sound development practices. Vital reforms for public expenditure may flounder if accounting systems are made dysfunctional so that budgetary policies cannot be implemented or even monitored; the countrys procurement systems are ignored in order to encourage corruption and distort public investment priorities. Good governance is central to creating and sustaining an environment which fosters strong and equitable development. The government plays a key role in the provision of public goods. It establishes rules that make markets work efficiently. It ensures safety of life and property of its citizens through an efficient and upright law enforcement machinery. It is unfortunate that despite heavy investments, the law enforcement agencies have been unable to deliver in accordance with the expectations of the Pakistani people. At the end of her seven hour long visit to Pakistan, Secretary of State Hillary Clinton addressed a press conference at the fortified US Embassy premises in Islamabad. Among other things that Pakistan must do, she emphasised the need to eliminate corruption. Whether this loud and clear call would be heard in the relevant quarters is a matter of opinion. The Supreme Court remains unimpressed with the governments efforts to assist it in the recovery of money unlawfully made and for the punishment of those involved. Dr Abdul Hafeez Shaikh, Pakistans Finance Minister, is a well-meaning person. He may have convinced himself that the budget for 2011-12, which he will present on June 3, will focus on fiscal consolidation to protect a fragile economic recovery. He has quite possibly not taken a closer look at the budgetary proposals which tell another story. The governments expenditure is likely to increase because of security conditions and debt servicing. The security related expenditure is going to be raised by 15 percent to Rs 835 billion. Similarly, a huge sum of Rs 786 billion will be consumed by interest repayments on public debt. This does not include repayments of the principal amount. For some strange reason no provision has been made for the repayment of IMF loan instalment becoming due in February next year. Fiscal deficit is being targeted at 4.3 percent of the GDP. This is what has been agreed to with the IMF. However, its realisation appears highly optimistic in view of rising inflation, drying public and private investment and the absence of any well thought out programme to tax the un-taxed sectors. The Federal Board of Revenue failed to meet its repeatedly revised targets for fiscal 2010-11. It is unlikely that it would be able to meet the target of Rs 1980 billion in the next financial year. Quite clearly, there is a breakdown in economic governance. A consequence of this breakdown is the prevalent inequitable tax structure. Taxes are imposed and collected from the poor. Large segments of civil society, particularly the rich remain inadequately taxed. The new budget will not bring any cheerful news to most of Pakistans toiling masses. The power rates have already gone up and will increase in the months ahead. Gas prices are slated to rise; it may also be denied to domestic consumers this winter. Exemption of tax on agricultural incomes and capital gains is likely to continue. Further, the bulk of taxes will be generated iniquitously through indirect taxes which are regressive. In Pakistan, the tax incidence on the upper strata of incomes is 4.5 percent and on the lowest, 10.3 percent. The over reliance on trade taxes has resulted in smuggling to the detriment of local production. Multiple tax rates, a plethora of exemptions and disharmony in federal, provincial and local taxes has encouraged tax dodging and discouraged production. To compound the discouragement of industry is the large regime of input taxes. Incomes are treated non-uniformly. For instance, in Pakistan, direct taxation of agriculture contributed only 4 percent to the direct tax revenues of federal and provincial governments. Though value added in the sector accounts for 26 percent of GDP, it is argued that agriculture was taxed through the control over prices. These have now been deregulated and the case for not taxing agricultural income is no longer valid. Income from black and informal economies are also tax exempt, even though they are as large as agriculture or industry. Poor governance encourages and breeds corruption in a number of ways. Posting of chosen officers at lucrative jobs is continuing. The former Chairman of Pakistan Steel, who is in jail these days, was appointed to the job in a completely non-transparent manner. So, have been many others. There is a long list of public servants against whom bribery and extortion has been established, yet no tangible action has been taken. Poor governance reduces the efficiency on which an economy depends and by increasing the cost of investment, it lowers the potential return. It also reduces the governments resources and hence its capacity for investment. Remedial measures will require political sagacity in spades; this is not in evidence at present. The short-term costs of action against a privileged minority will result, in the long-run, in immense economic benefits and political goodwill. However, it is for the politicians themselves to answer, which is in their eventual benefit - the short-term gain of approval by a minority, and therefore, being held hostage to their whims - or the long-term blessings of the people of Pakistan leading to political stability and their possible longevity in office? Parliament should ensure that Pakistan redirects its priorities. The federal budget would be an excellent instrument to achieve this goal. Improved governance will soften the blow that is about to be administered to the people of Pakistan. n The writer is a member of the former Civil Service of Pakistan. Email: