Budget challenges

Tuesday, 27 September 2016 00:01 -     - {{hitsCtrl.values.hits}}

AS the days tick down to Budget 2017 and expectations grow for the main policy document of the Government, a clear list of priorities is emerging. Last week the International Monetary Fund (IMF) strove to put these expectations in perspective by recommending that a high quality tax policy would have to encompass a greater quota of direct taxes and the overall structure would have to include more transparency. 


Since the Government has already stated its intention to pass the 15% VAT increase before the Budget, it would be apparent to any fair-minded citizen that it is time attention shifted to increasing revenue through additional means. Indirect taxes have held priority for too long with about 84% of taxes being generated by a policy that hits poorer communities harder. It is time for their well-heeled counterparts to take responsibility for public revenue as well and while this has to be balanced with growth concerns it is evident that Sri Lanka cannot allow for its tax net to be ridden with holes.

The large number of exemptions given to private and public corporations and limitations on income tax have to be relooked at and a policy to systematically increase direct taxes will have to be started with this Budget. Last November Prime Minister Ranil Wickremesinghe outlined the Government’s economic policy to much applause, only to have part of it included in the subsequent Budget. 



Even those policies were mostly hollowed out by subsequent wrangling and a lack of political will. Inconsistency will remain the key private sector grouse for most of the subsequent months as the Government grappled with key economic proposals and largely failed to win confidence. Even the crucial VAT increase has taken far longer than initially expected and endangered revenue targets as well as the smooth functioning of the Government’s fiscal consolidation program. The IMF’s cash to boost reserves may not be critical but deviating from the program could mean that Sri Lanka is hit with higher interest rates when it reaches out to international financial markets in 2017 for the next round of debt financing, an unavoidable reality for the Government.

In Budget 2017 hopes remain muted that the Government will be able to put aside its conflicting policies and political considerations. As Local Government elections loom there is justified fear political handouts will take precedence over fiscal consolidation. Wide ranging reforms to boost investment and offload loss-making enterprises while improving oversight still remain largely unimplemented in a meaningful sense. 


Budget transparency, which has been in decline since 2010, will also need to resurge in Budget 2017. According to the Open Budget Survey published in September 2015 (OBS), Sri Lanka gets a low score of 39 where the island is the second to last performer on Budget Transparency in South Asia.  Citizens have minimal budget information and the legislature provides limited oversight during the planning stage of the budget cycle and weak oversight during the implementation stage. Strong revenue allocation and expenditure lists are imperative if Sri Lanka is to make a better impression. With so many considerations one thing Budget 2017 is not short of is challenges.