At Penpoint Now that the federal and provincial budgets have been presented, the nation can see for itself the first fruit of the National Finance Commission, and see what has become of the Value Added Tax (VAT) due to be introduced. The VAT drama has not started, as the federal budget did not cancel it, merely postponed it, by three months. That the whole budget presentation exercise is complete should not disguise the fact that there is much debating within the assemblies to be gone through before the budgets are passed by the Houses. Of what the Finance Ministers presented, the Houses will only vote on the demands for grants, which are actually upper limits for spending set under a particular head, while the actual expenditures which have been made in the financial year just drawing to a close are placed on the table of the House, and can be debated, but are otherwise not subject to scrutiny by the House. It is in the budget that the strength of the government is supposed to rest. Because it is in its ability to pass the budget that it possesses the right to rule. Any grouping which could provide funds for the expenditures of government, particularly for the head of state, was obviously one which could command a majority in the legislature, and thus had the right to form the government. It is thus that the defeat of the government is taken as a resigning matter, because it would imply that the government in office did not have enough legislative support to pass legislation, nor the budget, and thus could not provide the head of state the revenues for survival, let alone so the government could be carried out in his (or her) name. Incidentally, the expenses of the President, the Governors and the High Courts are constitutionally deemed charged expenditure, and thus are not voted on, but are tabled in the House and subject to discussion. Charged expenditure means that that expenditure does not form part of any of the grants which are voted on, but the money will be spent nonetheless. The debates show why the government regards the budget as more important than anything else in the parliamentary calendar, even more than the Presidents speech, which is basically supposed to be a statement of the legislation the government plans over the coming year. The budget debates provide an opportunity to shed a light on every aspect of government, as members try to examine why official money is being spent on purposes which (according to their claim) are dicey. This is the reason that when the time comes for cut motions, the government is supposed to stand or fall according to whether the House passes a motion reducing the demand for grant by a mere rupee. Though there is a distinction made between policy cuts and token cuts, the amount of the cut is symbolic, and what is supposed to be at stake is the survival of the government. Actually, that is all symbolic, because the reality is that no government exists without being able to defeat any cut motions that might be moved. This is yet another way in which the elected representatives act merely as public relations agents for the permanent government, or rather the bureaucracy, which actually prepares the budget, especially its spending side. This PR function is important, for it explains why the budget is so easily controlled by such outside organisations as the IMF. This is done because the bureaucracy believes that the outside prescriptions are useful. This not only makes them easier to control, but also makes them likelier to present to their political masters, whom they have convinced of their possession of particular expertise, foreign solutions to local problems. One of those solutions has been the imposition of a VAT. This tax on consumption is not so much proposed as promised to the IMF, and with the Finance Ministers emphasis on Pakistan meeting its international commitments, the main implication of the VAT would not be so much its imposition, as the fact that this would mean a mini-budget. Since the budget was once all-intrusive, instead of now staying out of certain areas, like postal and fuel rates, a mini-budget was once a very serious matter. However, the VAT would also be a very serious matter, and would be better postponed, or perhaps foregone entirely, instead of being imposed. The Finance Minister, however, has only obtained a postponement on the VAT, until October 1, and he is trying to sell it as a reform of the sales tax, which was first introduced in the 1987-8 budget, as a Defence Tax, which was then postponed in return for several economy measures to be carried out on the armed forces, including drastically cutting the size of vehicles; while there was a rollback of the relief afforded on the income tax. One can see the persistence of the IMF and other lending agencies, which have targeted this tax for over two decades, in the belief that it would help Pakistan do in a time of global crunch what the developed economies could not do in more prosperous times - balance the budget. It is supposed to do this without cutting expenditures. However, not just does the business community oppose the proposed VAT, but after the National Finance Commission Award, combined with the 18th Amendment, the exact boundaries of federal and provincial taxation powers are not clear, and the VAT on services, is the subject of a dispute. In fact, it was not so much the opposition by the business community, as the provinces and the federal government needing for both to be on the same page, which led to the postponement. The VAT on services is an important way for the taxation authorities to check other declarations of revenue to be used by other tax collectors. Conceivably there could be information sharing between taxation departments, but the mechanisms are not at the moment in place, thus making it a non-starter, which is probably why the IMF agreed to a postponement. However, the postponement left the provincial budgets to include revenue from the tax on services, and while this has allowed the provinces to both increase the development and non-development budgets, and match the federal governments increase in employee salaries. The provinces have not only decided the dispute with the federal government in their own favour, but have also made it virtually impossible for it to draw that revenue away from them. The first budgets after the NFC Award have shown signs of accepting what has been prescribed for them all. The VAT has been accepted by all, and even shows up in the provincial budgets. Though there have been cuts made in official spending, there have not been real cuts, only against increases in the budget. Real cuts must be made, and the budget balanced, not because some foreign experts have prescribed it, but because it is right for the country. However, for that there must be a genuine concern about the fate of the country, something the present leadership has still to show. The writer is a former Secretary Interior.