A wage rise of Rs. 2,500 for the state sector in two stages of Rs. 1,300 and Rs. 1,200 is expected to be a highlight of the budget that President Mahinda Rajapaksa will present in Parliament tomorrow as Minister of Finance.
|The President putting the finishing touches to the Budget with P.B. Jayasundera at Temple Trees yesterday.
Reforms of the taxation system and a cut in interest rates are also expected according to official sources.
The government is to announce a three-year, 2011-2013 development strategy along with the much awaited tax reforms addressing key economic issues, in the 2011 budget which will target a reduction in the budget deficit to 8% of GDP next year and 5% by 2012. The debt ratio is to be reduced to 70 % of the GDP from the current 80%.
A senior official of the Finance Ministry said the budget would focus on major areas such as speedy implementation of ongoing development programmes and improving living conditions of the people, and restoration of economic activities through accelerated resettlement, rehabilitation and reconstruction programmes in the North and East.
The setting up of an Employees' Pension Fund for the benefit of all private and state sector employees who are not now covered by any form of pension would be among the budget proposals, he said.
Drawing on the work of the Presidential Tax Commission, the government intended to simplify the tax system, broaden the tax base and improve tax administration and collection he said.
The official revealed that the 2011 Budget would be supportive of domestic capital formation which was essential for economic growth. The country’s tax system is not conducive for business and investments and tax reforms are vital to create a good business environment. Tax revenue was expected to increase from 13.4% to 15.3% of GDP while non tax revenue was likely to come down from 21.9% to 21.7% of GDP in 2011. Strong growth in remittances and income from exports of services would neutralize the deficits in the trade account and hence contribute to a lower current account deficit, he added.
Data for the year revealed the economic expansion to be broadly based, with agriculture, industry and services registering significant growth. Inflation was moderate at below 6%. Near-term external financing risks had receded and the capacity to cope with external shocks had improved. The current account deficit, which declined to 0.5% of GDP in 2009, was expected to return to the level of 4%-5% in 2010-11, reflecting recoveries in domestic demand and international commodity prices; while inflows of private and official capital were expected to keep the overall balance of payments in surplus, he added.
The government’s ability to pursue its own policies and support socioeconomic development was restricted due to a heavy debt service, with interest payments alone absorbing 40% of budget revenue. The abatement in external economic pressures and increase in domestic political stability had provided the authorities with breathing space to focus on much needed economic reforms, particularly fiscal.
The President would also announce the continuation of the paddy fertilizer subsidy given to farmers for another year, government sources said.
“This will be a relief and development oriented budget,” a cabinet minister said.
The Budget proposals would also include a six year plan to strengthen the people economically with concessions for local entrepreneurs as well as plans to simplify the existing taxation system which would increase the number of tax payers and in turn increase the tax revenue of the country.
The largest chunk allocated in the Appropriation Bill, 2011 is for the Ministry of Defence amounting to over Rs. 215 billion while the Economic Development Ministry will get Rs. 75.24 Billion and the health sector Rs. 62.25 Billion.
Meanwhile Chief Government Whip Dinesh Gunawardena has informed all government members to be present in Parliament tomorrow for the Budget presentation.