Saturday, 23 November 2013 00:00
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Budgets come with buckets of expectations and censure. The 2014 edition was no different, with attempts being made to reconcile populist handouts with a development-oriented framework.
Political pundits who predict early elections for next year will find plenty to justify their speculations in the Budget that was presented to Parliament by President Mahinda Rajapaksa for a record ninth time. The increase in the Cost of Living allowance to State employees, pensions to farmers and incentives for 10,000 Divi Neguma families are just some of the examples that can be trotted out as evidence of more polls in the offing, even though the Opposition has already fired off a shot at the Government for failing to allocate funds for the latter.
The Government has maintained that it is a pro-development Budget that aims to keep Sri Lanka out of the middle income trap and catapult it to sustained 8% growth through to 2016. They have argued that increase on taxes is countered by allocations to healthcare, education and housing that will promote equitable development. They also insist that inflation will remain at the single digit level and exports will increase to 12.5% while the budget deficit will reduce from 5.8% in 2013 to 5.2% in 2014.
Critics are of course not impressed, with the UNP and JVP absenting themselves from Parliament during the reading. Opposition Parliamentarians have already lashed out at what they see as a pro-rich Budget with prices of all imported food and beverages to increase due to tax, while designer pens and ties get exemptions. Prices of reconditioned vehicles, always a sore point with the middle class, are to increase by at least Rs. 300,000 while all fixed and mobile phones will increase by 5%. The supermarket tax to rake in an addition Rs. 15 billion from the retailers in the coming year will also be unpopular among the masses.
Practical-minded people will accept that a reasonable amount of taxes are necessary to bridge the budget deficit. According to Budget 2014 presented to Parliament, the Government expects total deficit financing at Rs. 516.1 billion next year. Foreign financing is expected to reach Rs. 235.5 billion, while domestic financing would be Rs. 280.6 billion.
The foreign gross borrowings according to 2014 Budget estimates will reach Rs. 331.5 billion next year, up from Rs. 247.1 billion this year, which could cause more worries for economists already concerned over the Rajapaksa regime’s high debt. The Government will borrow 234 billion from foreign funds and 97.5 billion foreign commercials. The Central Bank is already busy electing managers to raise US$ 1.5 billion through Government guaranteed international bonds next year, partially to fulfil a Budget promise of building 50,000 houses in the estate sector.
Even as it imposes taxes and sets the bar for growth, the Government must persist with fiscal prudence and sound macro-economic management, as promised. The International Monetary Fund (IMF) has pointed out many times that Sri Lanka’s tax collection framework desperately needs to be improved as 1% imposed here nets far less than the same rate imposed elsewhere due to corrupt, complicated and lax collection systems. Simply burdening the honest taxpayer is like killing the goose that lays golden eggs. It also needs to widen the tax base so that going forward tax rates could be lowered, and reduce the burden on essential items, especially food.
On a broader perspective the Government has to tackle corruption and mismanagement via reforms, especially in turning around their State-Owned Enterprises and minimising massive wastage of public funds. It is only then that Budget 2014 will see tangible results and save the country from the middle income trap.
