Finance Minister proposes reducing population weightage in NFC

Finance Minister Muhammad Aurangzeb has called for changes to the National Finance Commission (NFC) award. He wants to reduce the importance of population in the funding formula, which currently gives it 82% weight. Other factors, such as area, poverty, and revenue generation, only get 18%. Aurangzeb highlighted that high population growth is straining healthcare and other essential services. This increase in population also harms the environment and raises the risk of disasters. The current weightage was decided in 2009 during debates between major political parties. Past finance ministers have criticized the current distribution, claiming it prevents the federal government from managing its annual budget effectively. They argue that this has increased national debt. This situation is complicated by the 2010 constitutional amendment, which aimed to transfer responsibilities like education and healthcare to the provinces. The NFC award defines how tax revenues are split between the federal and provincial governments. In recent years, the federal share has fluctuated, but it currently stands at 42.5%. Additionally, the government, under an International Monetary Fund program, plans to cut its workforce and streamline ministries. However, there is pushback from labor unions against these changes. The growing federal spending, including a 21% increase in the 2024-25 budget, is a concern, given the country’s fiscal challenges. This situation has led to efforts to rename certain taxes, like the petroleum levy, to avoid their inclusion in the divisible pool. Overall, Aurangzeb believes there needs to be a faster and clearer devolution of responsibilities to provinces, while also ensuring they are accountable for their revenue and spending.