CoPF finds Budget lacks accuracy and detail

• Sumanthiran says Budget proposals misleading, lacks detailed estimates
• Notes mismatch of estimates, informational standards and due diligence
• Says it’s a systematic problem running into decades
• Recommends Central Bank to carry out assessment

By Chathuri Dissanayake

The Parliamentary Committee on Public Finance (CoPF) finds the Budget proposal presented in Parliament lacking accuracy, proper estimates, and basis for proposals not being included in the documents presented.

Calling the proposals ‘misleading’ using ambiguous terminology to propose changes Parliamentary CoPF Chairman TNA MP M.A. Sumanthiran said the problem is a systematic issue which runs decades back.

The report titled ‘Committee on Public Finance Report on the Budget 2019’ outlines the issues of the Budget presented in three main points; missing estimates, mismatch of estimates and Informational Standards and Due Diligence raising serious concerns with regard to the internal consistency of data provided and the professionalism and accuracy in the process. 

The report has recorded several case studies extracted from Budget 2019 and has carried out a detailed analysis of the estimates or the lack of such with regards to proposals presented.

“The purpose of this report is to highlight to Parliament the accuracy or otherwise of the assumptions the financial, fiscal and economic assumptions relied on by the proposals. So we are tasked with commenting on the accuracy; what we find is that there is no accuracy at all with regard to this exercise. But worse there are no assumptions at all. During these three years this particular report was presented, what we have highlighted is a systemic issue of how the Ministry of Finance is functioning over several decades, it’s not just yesterday or even last 10 years,” Sumanthiran told Daily FT.

The Report, presented by the Committee last week, outlined issues in Budget proposals presented in the Parliament noting that many lack supporting evidence with many lacking estimates of fiscal consequences of proposals, expenditure or foundation of the assumptions made.

“In the final analysis, if you haven›t worked out the fiscal impact the whole picture as to this is our income, this is our expenses this is the deficit is all absolutely false. I mean Budget finally is entirely that, this is the expected revenue, this is our impending expenditure, this is the deficit and how are we going to fund the deficit, that›s broadly what the Budget is. All those figures are absolutely false. If you don›t do these things… it’s all entirely bogus, nothing real in those figures,” Sumanthiran noted critical of the procedure followed by the officials in Budget preparations.

Sumanthiran also noted that the Parliament has been misled by some of the terminology used in the proposals and the manner in which they have been presented. Taking the example of betting and gaming levy of $ 50 proposed by Budget 2019, he notes that this proposal is actually to reduce an existing tax of $ 100 which has not been collected, but has been presented as a new tax.

“The impact should be that they halved the revenue, but they are showing it as a new proposal which is wrong, levy is revised, so it’s a false picture that has been given,” he says.

“They should have said ‘this is what is in the law, but we are now reducing it’, instead of that they are saying as though they are starting from the base.”

The parliamentarian also said that the Committee has allowed officials enough time to present them with the information asked, giving them notice one month before the Budget was presented in Parliament. Noting that officials would have been required to prepare the details asked when making the Budget proposals, Sumanthiran was critical of the lack of professional practice and cooperation of the officials who were responsible.

The report notes that the Ministry “has not been able to provide further information about the source of its assumptions framework”, stressing that “it is dangerous for public finance management, if the assumptions framework that underlies all aspects of the Budget estimates, is selected in too cavalier a manner, without adequate due diligence and responsibility”.  

Further, the Committee report also notes that revenue consequences of some of the proposals were not calculated although in several proposals there were either reduction or removal of taxes and levies. Further, the revenue is always overstated, while the expenses are always understated, Sumanthiran noted claiming that this was done deliberately to mislead the public.

“Revenue is always overstated, and the expenses are heavily understated. You can allow a margin of error in that, but margins must go both ways, but it doesn›t go both ways at all, revenue is always overstated and expenses are always understated, then it cannot be put down to margins of error; it is with the purpose of actually showing a much lesser deficit, that’s the whole intention, showing a smaller deficit, and the consequence is when you don›t have the revenue you have shown and you have actually have more expenses which you have to meet, for instance foreign debt servicing which has to be met, then the investments that go into capital expenses suffer. So you have these grandiose plans that are announced in the Budget speech but there will be no money to meet that,” he noted.

Further, the report also found that there were “differences/changes in the macroeconomic assumptions used/published, without an attempt to provide reasonable justification, and without making Parliament adequately aware of these very significant changes/differences that might result.”

Taking the GDP growth numbers as an example, the report points out that three different figures has been mentioned in different documents. “The real GDP growth rate projections differ between published and unpublished documents. While the published Budget Speech states that this is projected to be 3.5% in 2019, in the same week, the MOF, in unpublished documents, represented to the Committee, that in formulating the Budget, the number used for GDP growth projections was 4%,” the report notes.

To address the situation, the Committee has recommended that “Central Bank be invited to formally assess and confirm to Parliament the adequacy and validity of the assumptions framework that has been tabled for the current Budget,” until the proposed Budget office which is to work independently is set up by the Government.