Corporates, middle class unhappy over budget:BT poll

The private sector has gone ‘ga-ga’ over the budget as reflected in all the post-budget seminars and comments but this is contrary to what the Business Times (BT) discovered this week through its post-budget poll in which both corporate sector workers and the middle class consumer said they were unhappy with the proposals.

According to the BT poll conducted in collaboration with the Colombo-based Research Consultancy Bureau (RCB), a market and social research agency, more than 82 % of the respondents said the budget didn’t provide relief to middle class consumers. They were asked whether the ‘… 2011 budget provides sufficient relief for middle-income earners against inflationary prices of consumer goods’.

To the question ‘Would the new tax regime boost local and foreign investment?’ a majority (74 %) said N (No). The other question in the poll was: “Is the wage increase in the budget sufficient?” which also drew a negative response with nearly 90% saying N (No). (See Page 1 for a graphic representation of the poll)
The poll which covered more than 500 respondents representing corporate executives, academics, economists, teachers, graduates and housewives among others, also included men/women on the street through street interviews by RCB in the suburbs of Colombo. This is the second collaborative effort between the Business Times and RCB on polling the people on important social, economic and political issues.

Here are some of the comments expressed during the poll.

(Question 1) On the impact to the middle class consumer:
n Middle income earners are exempt from income tax up to Rs.50,000 a month or a total yearly income of Rs.500,000. A family with two to three children living in a rented house within the city or suburbs needs a minimum of Rs. 75,000 to Rs. 100,000 considering food, clothing, travel, school fees and other payments, health care, etc.

• If you consider the 5 % salary increase even a person earning Rs. 100,000 a month gets only Rs. 5000.This is the high end of the relief and others will get anything less than this amount. Accordingly with the high cost of living compounded by increases in food prices, clothing, health, etc it is inevitable that middle income earners will not be able to meet ends meet without any savings for a rainy day. It was reported earlier this year that a large amount of gold jewellery was pawned mostly by middle income earners.
• Yes, there is a benefit keeping in mind the government is unable to control global food prices. The only relief they could provide is large tax breaks, which they have. The tax exemption upto Rs 50,000 is welcome.
• There is no relief as there is no effort to reduce the expenditure of the government. The various give aways and a culture of hesitating to pay taxes as a protest against ostentation, waste and corruption will have an unfavourable effect on revenue. Debt servicing will continue to exceed revenue To make matters worse there is no definite plan to increase domestic food production to reduce prices. Most farms are too small and unviable and therefore cannot reduce unit costs or increase earnings.

(Question 2) On the question of a sufficient wage increase:

• This doesn’t help, however anything more is unaffordable. More increases could be given only if the number of public servants is reduced.]
• If this wage hike refers to public servants, then there is benefit. However increasing the public service wage bill is not a good idea in the long term. It’s much better to increase funds for hospitals, education and infrastructure to be shared by all.
• Wage hikes, however, small will increase government expenditure, especially since a large number of graduates are also to be recruited. These wage increases will worsen inflation. Revenue is not sufficient to offer any wage increase.

(Question 3) On the taxes to boost investment:

• The reduced rate in company taxes will be offset by an increase in fees for share transactions from 2 to 3 %. The uncertainty of tax holidays and the re-application to BOI on dormant projects will discourage investors. Investors also want to have an effective one stop-shop and will not take the trouble to seek individual clearances from the relevant government entities.The constant closure of the Fort area which is the business centre and the long list of national holidays also distracts the investor for whom time means money.
• Trading in precious metals as proposed by the Securities & Exchange Commission will not be of much benefit as Sri Lankans will not speculate and the local market for gold is not significant as in India.
• Investments will happen as a grudging routine but won’t result in any sharp rise.
• My view is that FDI will rise but it would also depend on other matters including as to how fast reforms are implemented.
• This won’t happen. Certainly firms will pay less tax. But still , pension payments will have to be made and procedures and documentation which are already numerous and cumbersome may increase as firms have to contend with a larger number of ministries and agencies. Foreign investors may still have to run around getting their other permits unless the BOI becomes a one-stop- shop. Basic requirements such as cheap and uninterrupted power, expressways connecting main towns and skilled workers will take a long time to appear. There is also a question mark over law and order in the absence of an independent judiciary and a police service.
• The higher cess on exports of products in unprocessed form ( eg. tea) will make them uncompetitive. The over valued rupee will not encourage exports.
  n The liberalization of exchange controls and the reduction of tax rates should help to induce at least the smaller foreign investors to come in.
  General comments:
• My view is that the budget has rapidly become a noisy boast, deviating from professional finance and economic planning as a nation. The problem in our country is uneven wealth and opportunity distribution which leads to poor quality of life for the masses that creates hatred, unrest, lawlessness, violence and subsequent terrorism. The people are not leading a happy life today (personally or as families), irrespective of whom they voted for. Not only with this regime but under all regimes of all colours, politicians and their friends never suffered. The simple message in the budget for the commoner seems to be 'guns and bullets’ instead of ‘bread and rice'.
• The question of relief implies that the objective of a budget is to give relief. In my opinion when the budget is in structural deficit it is not possible to give relief to one section of the people without heaping the burden on other sections of the people. The manner of such a shift depends on how the budget deficit is funded. If it is funded by borrowings from the public the burden is put on the future generations by way of higher debt servicing charges. If the borrowings are from banks then new money is created and the present generation pays for it by way of higher inflation. If it is through taxation - indirect tax rates being raised - then again the prices of goods rises and the burden is on the people.