If that's how Eran sees it, whom I thought is one of the better UNP ministers as far as the Economy is concerned, it is crystal clear to me now, that there is no hope for Sri Lankan economy to take off and beat other Asian Nations until the term of this govt ends in 2020. Reduction of the Tax revenue to GDP ratio was yet another key, significant achievement during Mahinda Rajapaksha's Presidency.
When top Indian Economist, B.R. Shenoy, a rebel looked down upon by his own country, was commissioned by JR in 1966 for a detailed study on the ailing economy of the then Ceylon, he pointed out that a revenue to GDP ratio of 22%, prevalent at that time was too high to allow for private individuals to grow business. " Taxation in Ceylon is too high and needs to be scaled down. Any program on increased revenue collection would impinge heavily on national Savings" Shenoy said, aptly pointing out the danger of rulers raising more taxes from the people.
The revenue to GDP ratio shows the ultimate burden of the state on the people, reducing the total share of their earnings people are free to spend or more importantly SAVE to be invested in the creation of future jobs. Any taxes taken from people, will reduce Savings & money will be diverted to state consumption or low return or loss making state enterprises, reducing capital formation for investment and the citizen's own discretionary spending.
He says in his " The Economic Situation & Trends in Ceylon-A Programme for Reform" that, past experience in Ceylon, which is in line with the experience in virtually all parts of the world is that under a democratic set up, political & other pressures are heavily on the side of spending by the government. When revenue increase under the weight of these pressures, expenditure too increases to meet or even exceed revenue collection. " There is real danger that any program for increased revenue collection may be attended by a corresponding increase in the expenditures of govt. and little may be left of the additional revenue to cover Budget Deficit. The problem with raising revenue to GDP is that expenses will keep pace or increase".
Devan Daniel, in January 2015 who wrote in Economy Next on tax complexities in Sri Lanka says it is important not to increase state revenue to GDP if more economic freedom is to be given to people, especially if there are any intentions to create a "social market economy which gave birth to the so called German Economic Miracle".
At the time Shenoy did his report, West Germany Revenue to GDP was 13.7% and Japan 13.9% whilst India's was half of Ceylon.
Sadly SL PM at that time Dudley Senanayake didn't have the courage and foresight to implement the Reform package recommended by Shenoy, but Singapore which adopted a similar reform package produced an economic miracle by becoming a developed nation with just 1 generation
Sri Lanka was fortunate to have such golden opportunities in the past, but sadly was always unfortunate to miss the bus every time. We will miss the bus this time too with the current Driver and Conductor.