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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Budget: Like taking Panadol for quick relief

Budget: Like taking Panadol for quick relief

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Quibit


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
To many, it would seem a panel discussion organised by Sri Lanka leading economists on the budget, two weeks after the event, is outdated and would run out of steam.

Not really. The analysis from three eminent panellists and veteran economist Prof. A.D.V.D.S. Indraratne, who chaired the event, threw open many new issues that needs public discussion and debate.

The panellists – Dr. Sumanasiri Liyanage, Senior Lecturer at the University of Peradeniya, Prof. Sirimal Abeyratne, Senior Lecturer at the University of Colombo and Prof. S.S. Colombage, retired central banker and economics professor at the Open University of Sri Lanka – when asked by a member of the audience whether they felt the budget was good or bad, they said in unison that it was a ‘bad’ budget’. Some said both budgets – November 2014 and the January 2015 – were negative. Prof. Abeyratne said the budget is akin to a sick person taking Panadol for quick relief: short term gain with long term repercussions.

Unlike the usual post budget forums conducted by trade chambers or professional associations where the Finance Minister and ruling party politicians are the main course for the day, this event was sans politicians. It was just economists and a retired public servant – also the vice president of the Sri Lanka Economists Association – which along with the Colombo University’s Economics Department organised the event.The speakers shared a common concern – there is no economic policy direction whatsoever in the budget while runaway spending in a low revenue scenario could trigger inflation.

There was another message: This was an election budget after another election budget while another budget was waiting in the wings (in around June when a new government is formed after parliamentary polls). Three budgets in a single year!

It also emerged in the discussion that the welfarist measures in the budget with reduced prices from several commodities and in fuel hasn’t filtered down to the common man. In many cases the prices of goods hasn’t come down while trishaws for example still charge the former rates per kilometer.

Comments by Central Bank Governor Arjuna Mahendran on tax reforms were also not encouraging, according to Prof. Colombage. He says the Central Bank should be concerned more about interest and exchange rates rather than tax reforms, which is not the role of the banking regulator.
The multi-party dimension in the Government with different ideologues and the eagerness of the administration to rope in tax dodgers and the corrupt through budget proposals are also seen as driving away investors. The super gains tax for example, as pointed at the budget discussion by economists, is a tax on profits.

This special, one-off tax is counter-productive as it taxes the very component that drives economic development; profit. Foreign investors are looking for profits when seeking investment locations and if taxing profits becomes a mode of revenue collection, it is sending a wrong signal outside.

Economic development creates more jobs. If 2-billion rupee profitable companies start rolling back their plans to reduce profits in a bid to reduce taxes, then fewer jobs would be available.

Criticism of the budget is not the only issue the new Government is facing these days. The President, Prime Minister and Ministers have been harping over the past few weeks on two points: Outrageously extravagant spending by the previous Government and outrageous corruption by the former regime.

However on both counts the process of bringing to book the culprits is slow and laborious. Acting Cabinet spokesman Lakshman Kiriella, when asked about the delays, on Thursday conceded to journalists that the process was slow.

Kiriella also stumbled a bit when repeatedly asked by journalists on the state of the controversial Colombo Port City. After many probing questions, at one point, he said work on the project had been suspended. However earlier in the week, a high ranking official from the Chinese construction firm involved in the project told a local television station in an interview that ‘work continues and hasn’t stopped’. This comment was made despite an assurance by the Prime Minister that the Environmental Impact Assessment (EIA) process, if there was one, will be re-examined among other measures. Even on Friday work was continuing at the site.

How can a project continue, as confidently stated by the Chinese contractors if the Government is re-examining it? Shouldn’t it have been suspended immediately to coincide with the Government announcement of a full review of the project? What if the Government finds flaws in the EIA that merits further investigation or even cancellation of the project (a promise during the election campaign)?

Contradictory postures continued elsewhere with the JVP firm in its view that the project should be abandoned.

Vacillation is another problem of the Government which to the chagrin of many of its young and dynamic ministers is not moving fast enough to keep up with the 100-day agenda, particularly on corruption issues. It’s very easy to make accusations while in the opposition but hard to prove it while in Government and working in line with the due process of the law.

Having said that, it may be a coincidence but a suggestion made in this column last week calling for a special presidential commission or unit to swiftly deal with corruption cases was in fact proposed and approved by the cabinet on Wednesday.

In last week’s (February 8th) Business Times editorial, this is what was stated: “With corruption being the core issue on which the Government needs to move fast in the face of a painstaking process, it may be useful to examine the suitability of setting up a Special Commission to deal with all these cases with hand-picked staff to quickly dispense justice, recover stolen loot and jail corrupt persons. A few completed cases before April will lift the confidence of the people and confirm that their choice of Maithripala Sirisena was not in vain.”

The Government needs to re-think its strategies in many areas particularly in the consistency of statements and speaking in one voice to the media and the public instead of somewhat confusing and contradictions in certain instances.

There is also a need to focus on two or three key areas like corruption and economic fundamentals. Just like a rugby or football team which is on the losing side, regrouping, rethinking strategy and returning with new direction and vibrancy to win the game, Government planners need to go back to the drawing board and review their strategies. Success is not impossible.

Look at it this way: Disappointment by the public over the slow progress also implies their fear that the corrupt would go scot free and return to destroy the nation once again. People put faith in the Maithri-Ranil administration to make sure that doesn’t happen.

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