Finance Ministry officials were taken completely by surprise with the government’s announcement on Friday of delaying budget 2010 till July and presenting a second vote-on-account, informed sources said. Earlier a budget was expected to be presented in May/June.
Officials were preparing for the budget, even on Friday morning at the same time as former Minister Nimal Siripala de Silva told journalists at a UPFA press conference that a ‘mini’ budget will be presented in July. The same officials later confirmed that a second vote-on-account to cover three months spending will be presented in the next few weeks following by the budget in July.
The earlier vote-on-account presented in November 2009 amounting to Rs.362 billion as spending for the first four months of 2010 has already been exhausted. One third of the funds already approved by Parliament as supplementary estimates during the current financial year have been included on the vote-on-account. The opposition United National Party had objected to the vote-on-account saying it is against a fiscal management responsibility law, which is in effect from 2003.
There are two ways in the government can seek funds, outside a budget. One approach is through the Consolidated Fund in which Parliament must pass a resolution or a law, granting a specific sum of money for a specified public service to be spent in the current financial year. The other way is by the President being empowered to authorise expenditure for the maintenance of public services for a period of three months from the date on which the Parliament is scheduled to meet again, the official said.
However this practice has not been adopted in Sri Lanka before. Departments and public agencies are allocated funds to the extent that services essential to the community have to be maintained, he said.
Meanwhile the government is exploring ways of bringing public servants into the tax net
through new and innovative ways, and this would be included in the 2010 budget proposals, other official sources said. The President’s consent for these proposals is being sought, the sources said.
Public servants have been exempted from income tax since 1979 on a proposal made by the then Minister of Finance, Ronnie De Mel. This was done because after opening up the economy in 1977 public sector wages could not keep up with the increasing private sector wages. The tax relief was meant to be a temporary relief measure.
Sri Lanka is the only country in the world where public servants are exempted from taxes, the sources added.
They pointed out that the principle of excluding state workers from tax may have been valid before, but with recent across-the-board pay revisions in the public sector, the pay gap (except at higher levels) between public and private sector employees has narrowed. If a suitable income threshold is set, then there should be no reason to exclude public employees from tax liabilities, but such a dramatic policy shift will have to be managed well owing to its political sensitivity, sources said.
Public sector employees constitute around 1.2 million of Sri Lanka’s 7 million strong labour force and it is argued that they utilise public services as much as everyone else and should pay for these services.