Budget 2013 is geared towards making the rich super rich and making the silent majority of Sri Lanka totally and absolutely downtrodden, notes Deputy Leader of the United National Party (UNP) Sajith Premadasa. Following are excerpts of an
Q: How would you describe Budget 2013?
A: There are many contradictions and misstatements in this Budget. That points towards a lack of comprehension about the economic fundamentals of our country. I think the principles of ‘disjointed implementalism’ have dictated as to how the decision makers have arrived at this kind of a budget.
The Government has structured the Budget in such a manner that it is of minimal value to the people in our country. Huge expectations are generated, especially on political stages, in times of elections. A lot of people have a multiplicity of expectations. But soon after the elections all those expectations are dampened by these types of useless budgets.
The distinct feature of this Budget is that there is a great emphasis of indirect taxes. What this Government has done is that they have focused on regressive taxes for obtaining revenues for them. This I consider to be extremely unfair. It is something that cannot be justified at all. It is an unfair imposition on the economic rights of the common man and woman of Sri Lanka.
This regressive tax has a direct impact on the savings and investment levels. These regressive taxes have a dampening effect on a person’s savings and income. This directly contributes to economic growth rates. Therefore, Government’s emphasis on regressive taxes as a way of generating income is bad economics.
In the US elections we saw that a greater mandate was given for middle class tax cuts. More tax benefits were given to the lower runs of the society rather than the rich. That is because Americans rejected the neoliberal theory of strengthening the rich. Barack Obama was expounding this idea of offering tax cuts to the middle class whereas Romney was much keener on giving tax breaks to the rich. Romney’s defeat clearly proves that America has rejected his theory. America has also emphasised the importance of a progressive tax scheme.
The rich in society have a greater responsibility of contributing to the wellbeing of society as a whole. They have to take a greater burden in terms of footing the bill, supporting the needs and wants of society. The rich in the society have a moral obligation to pay more of their dues in terms of serving the country. This is why I am emphasising on the importance of imposing progressive taxes as a source of revenue for the Government.
Another feature is that while they have emphasised on an indirect taxation system to raise revenues, they have not stipulated any proposal at all to ensure that those who have managed to escape the tax net will pay their taxes. If we take the figures 31 December 2011 taxes that have not been paid have been amounted to 94 billion rupees. In addition to the amount the penalties also amount to 34.5 billion rupees.
Sajith on party politics
Q: What are the latest developments on the UNP’s internal rift?
A: We have various strands of opinions within the party. There are various thought processes at work. But at the end of the day we will strive to formulate a winning strategy as far as the party is concerned. It is an arduous process but we will strive to achieve that.
Q: What are your views about the recent changes that have taken place in Sarath Fonseka’s party?
A: I would rather stick to issues within our party for the moment and try to strengthen our political posture. Let other political parties resolve their own internal issues; we will focus on strengthening our party.
Q: Do you still want Sarath Fonseka to join the UNP?
A: Certainly. Not only Sarath Fonseka but everyone else, even the President, can join the UNP.
Q: You have been describing the President as a failure and commending his bad governance and bad economic policies. So why do you want him to join your party?
A: I would love to have the President under my leadership. If I invite he will come under my tutorage. Every individual in this country must be given a chance of reforming themselves.
The Government has not stipulated a scheme to ensure that this issue is addressed. There is a huge revenue loss here. While ignoring that aspect, the Government has gone on a binge of imposing indirect taxes that is highly regressive and highly inimical to the interest of the common woman and man in the streets.
When you look at the tax framework, there is undue emphasis on providing relief to the well-off. I don’t understand for what Godforsaken reason various reductions and deductions in terms of taxes are being given for the import of racing vehicles, whereas the rich who will benefit from this concession should be made to pay more to ensure that the less fortunate in the society are taken care of.
The Government claims the move was taken to stimulate sports economy. But when you give concessions, there should be a set of national priorities. I believe this comes very much below in the hierarchy of national priorities. This move must be to encourage a ‘private’ sports economy that is not universally beneficial. This may be beneficial to a particular social and economic elite; it is not beneficial to the totality of the country. There around six million homeless people in the country. Are they saying that encouraging a sporting economy has a greater importance than addressing a homeless issue?
Kumaran Pathmanathan has accumulated a lot of assets which were LTTE financial assets. That is available for fulfilling the development goals in our country. That is basically a windfall for the Sri Lankan Treasury. What I hear is that there are billions and billions of dollars. These are sources of income that will not impact detrimentally on the lives of the Sri Lankan people. These sources of income can be used to promote the national economic and social goals of our country.
If we take expenditure, there are serious shortfalls in our economic fundamentals. There is a huge bias in favour of allocating greater funds for recurrent expenditure rather than capital expenditure. It is a universally accepted norm in economics that the greater investment in capital expenditure, the greater benefit to the long-term wellbeing of a country. When you have a highly skewed proportion in favour of recurrent expenditure and a smaller proportion allocated to capital expenditure, that leaves a lot to be desired as far as the country is concerned.
In the 2011, 71.8% was spent on recurrent whereas 29% was spent on capital expenditure. In 2012, 72% was spent on recurrent and 28% on capital. In 2013, 70.9% on recurrent and 29.6% on capital expenditure. Even in these large proportions that have been allocated to recurrent expenditure, more than one-third of it is allocated for payment of interest. In 2011, interest payments consisted of 34.5%, in 2012 35% and in 2013 it is 35.5%. If establishing a strong and vibrant economy is this Government’s goal, a greater proportion of GDP has to be spent on capital rather than recurrent expenditure.
Q: What are your views about the budget deficit?
A: As a percentage of GDP of course the budget deficit has come down. The Government is talking very highly about their economic achievements in terms of lowering the budget deficit as a percentage of GDP. My argument is that the Government can boast about a lower budget deficit as a proportion of GDP when they allocate less to fulfil the promises they gave on stage.
For example, the benefits that are given to Samurdhi beneficiaries have not been enhanced. The fertiliser subsidy has not been enhanced; those who suffered from the drought were given only a minuscule amount. The Mahapola Scholarships have not been enhanced. The salaries, which have a direct impact on pension, have not been enhanced. The pension anomalies have not been addressed. It is no big deal talking about a lower budget deficit in terms of GDP when the Government has failed to fulfil the promises.
Q: Why can’t the Opposition accept the plus points such as low inflation and bringing down unemployment rates?
A: There are various types of inflation. The Government boasts that inflation has gone through a precipitous decline. Inflation that was 22.6% in 2008 miraculously came down to 3.4% in 2009. That is an 84.9% reduction. One may be bamboozled by the figures the Government has exhibited, but when you examine the specifics and the circumstances under which these inflation figures have been tabulated, I would like to call it a mathematical manipulation.
In 2007 the Government changed the base year from 1952 to 2002 in terms of tabulating inflation. In 2011 they changed the base year once again from 2002 to 2006/7. For the very first time in history, the base year was changed twice during a short period of time.
The food basket was totally changed. Liquor and tobacco was taken off from the food basket. That makes it an extremely unrealistic tabulation of inflation. Even though the Government says inflation rates are 8% to 9%, I would like to argue the fact there is hidden inflation, which is inconspicuous to the Government’s system of tabulating inflation.
We do see an improvement in the lowering of the unemployment rates. In 2005 unemployment was 7.2% but it has come down to 4.9% in 2010. Even though the national unemployment rates are low, when you look at specifically youth unemployment, it is very high. In the 15-24 age group we have an unemployment rate of 17.2%. Unemployment among the educated is 9%. What we lack in our country is a focused national program to address the unemployment problem.
The various mega projects the Government has embarked upon do not have a local economic multiplier. From the pen to the skilled and unskilled labour used for those mega projects, all of it is from abroad.
If we look at the composition of employment in our country, in 2011 there were 14% Government workers, 31% self-employed, 40% private sector and 11% unpaid female workers. Nearly 71.8% employed in our country are in self-employment and private enterprises. Now what has the Government done in terms supporting the self-employed in our country? What has the Government done in terms of helping the private sector to encourage businesses, enlarge their workforce, or to support their business ventures?
Q: What are the other shortfalls of this Budget?
A: GDP does not reveal the intricate details through its basic figures. When we take economic growth rates, we should not just look at nominal growth rates. It is important to look at the Gross Domestic Product deflator. When we look at the GDP deflator figures from 2005 to 1012, there has been some steadiness. If we look at the 2009/10 household income and expenditure survey, 54.1% of the national income of our country is concentrated in the hands of the richest 20%, whereas the poorest 20% have 4% share of the national income. There we see the disparity that exists between the affluent and the less fortunate in our society. This Government has embarked on a policy of making the rich super rich and making the downtrodden even more desperate.
Let’s take the trade balance another important feature of the Budget. The trade balance paints a very sorry picture. In 2010 we had a minus 9.7 trade balance as a percentage of GDP. That has worsened minus 16.4 by 2011. It is a 70% increase in the trade imbalance.
What is the Export Development Board doing in terms of promoting the exports? We don’t have a focussed strategy of winning export markets. The President is talking about export market diversification. But how can we talk about export market diversification when our unit cost is extremely high? The worst thing is that the precipitous devaluation of our currency has impacted detrimentally on the raw material cost of our exports. Our exports have become non-competitive in international markets.
If we take the garment sector, we had US$ 2,982 million as export income in 2000. By 2011 it has improved to US$ 4,191 million. That’s a 40.5% improvement within the 11-year range. In the Budget speech the President stated that within the next three years we are going to achieve the US$ 5,000 million mark. That means we have to have a 19.3% improvement. Can we achieve this within three years? I doubt it very much.
Let’s look at imports. Between 2000 and 2011, consumer durables have gone up by 255%. Expenditure on food and drinks has increased by 177% within the same time period. The Government has a series of patriotic nationalistic slogans such as ‘Api Wawamu – Rata Nagamu’ promoting self-sufficiency but the figures show that those tasks are not being achieved.
Meanwhile, the Government has gone into the markets to obtain commercial loans. This has resulted in the interest rates going up and interest expenditures going up. Thereby the Government going into the commercial market and obtaining loans at commercial rates of interest has used up the commercial borrowings and it has dried up the resource base for private businesses to obtain loans. Commercial bank loans obtained by the Government between 2002 and 2011 have risen by 262.6%. This is why I say Government borrowings have crowded out opportunities for private enterprises to go into the commercial lending market.
Between 2006 and 2011, per capita debt has gone up by 89.2%. In 2006 each and every citizen in our country owed Rs. 130,003 and this rose to Rs. 235,930 by 2011. What has actually happened is that Government policies have ensured that we have mortgaged the future generation and taken them into total darkness and total indebtedness for their lifetime purely through short-term borrowing for short existence and attaining short-term political goals.
The Government talks about achieving US$ 4,000 per capita income by 2016. In 2004 it was US$ 1,062. The President in his Budget speech has stated that in 2010 we had a per capita income of US$ 2,800. That is numerically false. Because the Central Bank report states that the figure is US$ 2,400. When the President in his Budget speech contradicts the Central Bank report, it leads a lot of people to think where we are heading.
To increase per capita income from US$ 2,836 in 2011 to US$ 4,000 in 2016 means we have to do a 41% enhancement. In order to do that, investment levels have to be at 35%. This is stated in the speech of the President. If we look at the investment rates from 2005 to 2011, from the 26.5% in 2005, we have increased to 29.9% in 2005. It is a mere 3.4% increase. To reach that 35% target of investment levels in order to enhance the per capita income by 41% is a huge job.
There is a huge savings and investment gap in our country. To maintain this 8% growth rate we have to somehow triple our savings rates or at least double it in the short term.