ISLAMABAD The federal cabinet on Friday approved 2.7 trillion federal budget for 2011-12 with Rs 730 billion allocation for PSDP including the provincial allocations. The cabinet meeting chaired by Prime Minister Yousuf Raza Gilani discussed in length agriculture tax, increase in salaries of government employees and other matters. Sources said a proposal regarding collecting agriculture tax was floated in the cabinet meeting but most of the members went against it saying it was the domain of provinces and after abolishing the concurrent list this tax comes under provinces for the collection. The proposal about agriculture tax was strongly supported by the members of MQM saying that all income generating sectors must be taxed. After thorough discussion on it the proposal to tax agri sector was deferred and it was decided to take it up in the provincial governments, said the sources. Discussing the important issue about the salaries of government employees, the sources said it was proposed to increase the salaries keeping in view the inflation rate in the country. The idea was negated by some PPP members saying last year 50 per cent salary was increased which was enough and there was no need to increase more. The idea regarding adhoc relief be given to employees as 2008 and 2009 should be merged with their basic salaries was also discussed. The sources said the prime minister intervened and said 15 per cent raise should be judicious and the cabinet approved his proposal. The cabinet also approved the merger of previous adhoc relief in the basic pay of the employees. Earlier, in his opening remarks, the prime minister said the economy was devastated by unprecedented floods causing damages to the tune of Rs 800 billion as per independent estimates. We saw prolonged power outages which resulted in income losses for house holds, businesses and industry impeding GDP growth. Deteriorating security situation imposed further costs on the economy in the shape of increased security spending and re-settlement of the internally displaced persons. Rising inflation due to 45 per cent rise in global commodities prices index and consequent financing costs of fiscal deficit compounded both core inflation and consumer price index (CPI), he added. He said the government achieved record exports and home remittances at $24 billion and $12 billion during the current fiscal which have cushioned the economy against high oil and commodities prices. This would help to ease the balance of payments and also support our foreign reserves which are at an all time high of $17 billion. While we have suffered major declines in production of rice and cotton by 30 per cent and 11 per cent respectively, the record wheat production has given us breathing space. For the first time in the 10 years we are now exporting wheat. However, the high inflation has prevented any relaxation of the monetary policy, he said, adding the governments economic team and its ministries would pro-actively work in the next year in core areas of power sector reform, revitalising tax machinery to improve tax to GDP ratio, fast track development of hydel projects and better governance in the bleeding public sector corporations. I would specifically monitor the progress in the core areas that I have identified and expect tangible progress from the ministries. This is essential if we have to achieve sustainable GDP growth and reduce fiscal deficit. While formulating this years PSDP, I have specifically asked the planning commission to consolidate ongoing projects, rather than throwing money after projects, which eventually turns into a wasteland of development. I would expect budgetary proposals to be pro-poor and enhance investment in social protection programmes.