Budget expectations

Thursday, 10 November 2016 00:00 - - {{hitsCtrl.values.hits}}

All eyes will be on Finance Minister Ravi Karunanayake today when he presents the second Budget of President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe’s Government for 2017 to Parliament.

Everyone, especially the private sector will be hoping that the Government has managed to formulate a platform for consistent policies that can face a challenging local and international environment.

Budget 2016 proved to be a host of complicated policies that were frequently amended with some of the tax policies going unimplemented. The latest Budget comes when the Government has had time to get a firmer grasp of the changes it needs to make and has spent considerable time, expense and expertise in understanding key reforms that are needed to encourage exports, investment and spur job creation. It is now time to put these months of planning into action and the public is hoping the Government has finally managed to get their priorities in a straight line.

The World Bank ease of doing business rankings released several weeks ago raised a red flag for the Government showing that, despite Sri Lanka essentially retaining its score, other countries are leapfrogging ahead in the reform process. This means Sri Lanka needs to have a streamlined set of priorities outlined in the Budget and an administrative framework capable of implementing them without the back and forth that dominated the 2016 edition of the Budget.

The International Monetary Fund (IMF) in its September review backed clear, simplified and coherent taxes that would also lean more on direct taxes. The latter has been a long neglected aspect of Sri Lanka’s tax policy and with stronger funding cuts in this Budget, as indicated by the Appropriation Bill the Government would have to bank more on internal revenue sources to meet the ambitious 4.7% deficit.

Raising public revenue would have to depend more on direct taxes to reduce the disproportionate impact on poorer people. But the Government would have to balance out this concern with support to businesses to expand and grow locally to create one million jobs as pledged by the UNP when it came to power.

For the average Sri Lankan, Budgets have become handout catalysts where each year the Government has to allocate expenditure for social development. The Appropriation Bill has already made steep cuts into education, as much as 40%, and other welfare nets could be cut as the year rolls on, creating even more need for economic development to be broad based and filter to rural areas. For people focused on fiscal consolidation the spectre of handouts looms large given strong indications of Local Government elections next year and a possible referendum on the new Constitution.

With the world reeling from the unexpected President-elect Donald Trump and a possible Fed rate hike in December , on top of Brexit, global uncertainty will make attracting Foreign Direct Investment (FDI) even harder for the Sri Lankan Government.

No one envies the job of the Finance Minister during Budget time. The Prime Minister has set the stage with his five-year policy framework declaration to Parliament last month and it is now time to perform.