A GREAT deal of confusion is being stirred around the question of provincial allocations under the National Finance Commission award. A couple of things must be borne in mind when advancing suggestions or ideas about how the NFC ought to be changed. First, the funds being divided up under the NFC award do not belong to the federal government. They belong to the federation as a whole, which includes the federal government as well as the provinces. This is important because some people seem to think that the funds are the property of the federal government which is giving these to the provincial governments. This is not the case.

Second, the relationship between the centre and province in a federation is not that of a senior and junior partner. It is a relationship of equals. This is important because some people seem to think that the federal government should ask the provincial governments to explain what they are doing with the funds that are ‘given’ to them, and perhaps develop known performance metrics to measure outcomes and link future disbursements to success. The provincial governments, in a federation, are not accountable to the centre for anything. They are accountable to their voters.

To understand this better, it is important to go into a bit of history. Pakistan’s fiscal federalism was born out of the Government of India Act, 1935, which gave the provinces the right to collect all taxes on incomes, sales and production within their territory. The central government was to sustain itself on taxes on foreign trade and non-tax collections only. This was fairly standard practice in federations........

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