The wide range of comments, criticisms and appraisals of the 2017 budget have been mostly motivated by political agendas, ideological biases and based on economic ignorance. The budget has been viewed mostly from the point of view of one’s own self interest and benefits it confers rather than the nation’s long term economic interest. Constructive [...]

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Budget 2017: Critical assessments, plaudits and ideological prejudices

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The wide range of comments, criticisms and appraisals of the 2017 budget have been mostly motivated by political agendas, ideological biases and based on economic ignorance. The budget has been viewed mostly from the point of view of one’s own self interest and benefits it confers rather than the nation’s long term economic interest.

Constructive comments
In this plethora of misguided criticisms one bright spot of constructive comment was from Mr. D.E.W. Gunasekera’s who characterised the budget as one having progressive steps. It was an outstanding instance of an objective assessment based on an understanding of the dire state of the country’s public finances and the need to increase revenue to achieve fiscal consolidation. Opposition MP Sumanthiran’s statement exposed the budget’s lack of understanding the real needs and priorities of people, despite the Finance Minister’s loud boast of consulting people and making it a “People’s budget”.

Noteworthy feature
The most noteworthy feature of the budget was its objective of containing the fiscal deficit and move towards fiscal consolidation by 2020. Regrettably this important feature was hardly commented on despite fiscal consolidation being imperative for macroeconomic stability, investment and sustained economic growth.

Former Minister, Chairman of the Committee on Public Enterprises (COPE) and General Secretary of the Communist Party, Mr. D.E.W. Gunasekera commended Minister Karunanayake’s revision of the income tax system to pave the way for a simpler income tax regime with minimum tax exemptions and to increase the direct tax component towards 40 per cent from around 20 per cent at present and to gradually decrease indirect taxes to about 60 per cent.

PAYE
Gunasekera praised Finance Minister Ravi Karunanayake’s move to stop state institutions from paying (Pay As You Earn) tax on behalf of their employees and instead for PAYE taxes of all state enterprises and other government institutions to be deducted from employees’ emoluments. A very large number of state enterprises, including the state banks pay the PAYE taxes of employees and these amount to perhaps about Rs. 3,000 million. He considered this as one of the most progressive budget proposals.

Gunasekera emphasised that the economy was in such a perilous state that the government could no longer allow a special status for some workers. This move would improve the finances of state enterprises and increase revenue. Gunasekera urged trade unions affiliated to political parties not to intervene in this matter and for political parties to take a common stand on this issue.

TNA criticisms
The Tamil National Alliance made significant criticisms of the Budget. TNA MP Sumanthiran criticised the lesser expenditure allocation for education, agriculture and fisheries and pointed out the distortion in priorities in spending for the North and East. He told Parliament that the government ignored proposals by Tamil representatives for North-East livelihood allocations. This was surprising as the Finance Minister claimed that he had listened to the people all over the country.

Prioritisation
Most significant was MP Sumanthiran’s critique of priorities and methods of expending funds in the North and East. He pointed out that the budget allocated Rs. 1 billion for a “vertical building” with office space and an entertainment area in the North. He asked “Who wants that? The people didn’t ask for it.” He queried why the Minister did not consult representatives of the people of the North and East when he drafted these proposals.

Not only infrastructure
The Opposition MP contended that infrastructure alone will not rebuild the lives of people, and noted that the previous government had come in for criticism for its predominant focus on infrastructure while neglecting other aspects of uplifting the war ravaged regions. He urged the government “to move away from these fancy ideas of putting up towers that are not useful for the people living there”

Social exclusion
Sumanthiran argued that many of the budget proposals would lead to social exclusion and inequality even though the budget was titled “Accelerating Growth and Social Inclusion.” He pointed out that the allocation for education was lower than the previous year, while several other sectors had also been neglected in the spending proposals and allocations. Expenditure for agriculture and fisheries he argued were insufficient.
He contended that the government’s priorities lie elsewhere as for instance the Rs.15 billion allocated for digitising the economy and Rs.1 billion for marketing campaigns for foreign direct investments and Rs.1 billion for free trade zones, while the allocation for agriculture was only Rs.450 million.
Steel houses
A very valid criticism of the TNA was of the government proposal to build 65,000 prefabricated steel houses in the North and East. The TNA tabled a new proposal in Parliament to build the same number of homes in the war-ravaged regions at less than half the cost. While the steel houses would cost Rs. 2.1 million per unit, the new proposal would cost Rs. 800,000 per house. If the proposal is to include a community centre, parks and other facilities for the village, the cost per unit would be about Rs 1 million, less than half the cost of the Government’s proposal. Apart from the lesser cost these houses would be more suitable in the warm weather in the area. There is no reason whatsoever why this proposal should not be accepted.
Privatisation
Like many other opposition and government parliamentarians, Sumanthiran was opposed to the privatisation of state enterprises. This is an ideological rather than a pragmatic economic approach. The huge losses of many state owned business enterprises are a serious drain on government revenue, a setback to fiscal consolidation and finding resources for development expenditure.
It’s a vain impractical expectation to find remedies to deal with inefficiency and lethargy in state enterprises. Yet the opposition to privatisation will continue to be a severe constraint to the government’s capacity to invest in education, health, infrastructure and other essential developmental expenditure as these enterprises absorb a very large proportion of government revenue.
Political and ideological prejudices
Much of the discussion on the budget has been based on political and ideological prejudices. The criticism that the government is pursuing the advice of the IMF is without any understanding of either the current critical state of the economy or the economic rationale of the remedies suggested by the IMF.
Surely increasing government revenue from its record low; reducing the fiscal deficit in order to reduce the public debt and debt servicing costs that absorb about the entirety of government revenue; reducing the huge losses in state enterprises that the public has to bear; and increasing of development expenditure for sustained growth are sound economic policies?

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