New economic team justifies Interim Budget

Monday, 2 February 2015 00:46 -     - {{hitsCtrl.values.hits}}

Ceylon Chamber of Commerce Chairman Suresh Shah (centre) gestures after the conclusion of a forum on Friday on the new Government’s interim budget. Finance Minister Ravi Karunanayake and Policy Planning and Economic Affairs Deputy Minister Harsha de Silva are also present - Pic by Lasantha Kumara     By Channa Fernandopulle The new Government's top economic policymakers including Minister of Finance, Ravi Karunanayake, Central Bank Governor Arjuna Mahendran and Deputy Minister of Policy Planning and Economic Development, Dr. Harsha De Siva on Friday justified the Interim Budget as critical to address immediate socio-economic issues in the country. Other members of the panel included CCC Chairman, Suresh Shah, Secretary to the Treasury, Dr. D.H.S. Smarathunga and prominent economist Dr. Indrajith Coomaraswamy. Explaining the rationale behind some of the more controversial aspects of the Interim Budget, including the Super Gain tax, Mansion Tax and other one-off levies, Karunanayake reiterated that the objective of these revenue collection measures is targeted solely at clearing inherited debts and ill-gotten gains flowing from the previous regime. “Let me be clear that when we say one-off levy we really mean one-off. We are only using these measures to clear off the dead past because this is what we have inherited. If we could write off everything that was done by the previous regime, then we wouldn’t have to impose this super tax. “We have added on about Rs. 230 billion to expenditure while cutting Rs. 188 billion in expenditure so the gap is narrowed and we have added about Rs. 80-90 billion in revenue proposals. We have been very responsible in adding the goodies we promised on the political stage, because after all you have to run the economy now and we can’t keep blaming the past but this is the economy we inherited,” he emphasised. Karunanayake illustrated his point with the example of public debt which was said to be within the range of Rs. 6.9 trillion during the previous regime, but according to last week’s Interim Budget, is closer to Rs. 8.8 trillion. “If you look at the previous reports that were coming out of the Central Bank, I’m sure that even the Americans would have wanted to borrow from us but in truth we inherited a budget deficit that was supposed to be Rs. 521 billion or 4.5% of GDP. After doing everything, we have reduced the deficit to Rs. 494 billion or 4% GDP. That has stunned the present Opposition but we have not just done an arithmetic gimmick, we cut down capital costs that were corrupt in nature.” Meanwhile, responding to queries from the audience on the nature and scope of the Mansion tax, Karunanayake gave assurances that the tax would not be applied arbitrarily. “The Mansion Tax was not imposed as a punitive measure. In certain instances we can see that wealth has clearly been shown and we just want to tax an element of this wealth in order to be socially responsible. I assure you that we will be very humane in this regard.” He further clarified that apartments with a value above Rs. 100 million would not fall within the scope of the tax however noting that penthouses may not receive such an exemption. Meanwhile, responding to a query from the Daily FT with regards to the possibility of a reduction in defence spending, Karunanayake confirmed that steps would be taken in the future to re-purpose such expenditure. “In the run-up to the election, we faced a huge problem on the question of whether we would be reducing defence expenditure and we didn’t reduce a single cent on what we inherited in this Interim Budget. “If you look at defence spending in 2008, it was around Rs. 155 billion, the next year it was Rs. 168 billion and after winning the war, it went up to Rs. 209 billion so we just don’t understand what this defence expenditure really was. However, if we reduced it in this particular movement, they would have said that we are playing around with national security. So certainly the answer is yes. Once we have taken the Government over at the next election, we will show that there is stability and after the National Security Council gives us the approval, we will certainly bring it into better use.” Assurances were also given by Dr. Harsha De Silva that development of infrastructure would continue under this Government. “Development is going to continue, we just don’t need to spend so much to build infrastructure. There are independent people who have shown that you don’t have to spend the amounts that have been budgeted and spent to get infrastructure going so we can do more roads with a lesser amount being spent on them. Just because we cut costs and infrastructure, it’s not going to mean less roads or ports.”