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Thoughts on the Budget

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jayaLast week the Government presented its Budget for the year 2016. The Finance Minister's Budget Speech went on for a record time of over four hours. Had he read out the sections he tabled it would have taken him over five hours.

Despite the hype in the preceding days the budget looked the same in its outlook in comparison with previous budgets. In other words it is the same old story of hopes, aspirations, old prescriptions and appeals.

It is, however, the first budget of the UNP-SLFP Government. The fact that their united product is the same as what they have been producing over the years individually or separately is yet another confirmation that these two parties stand for the same policies and programmes of development. Differences between them are mostly tactical and sectarian. It could be seen in the nomenclature too, e.g., Janasaviya and Samurdhi.

During the elections the United National Party made a claim that it has found an elixir for the ills of the Sri Lanka and identified it as a Social Market economy. We, in this column, previously said this so called Social Market economy is nothing but a neo-liberal economy which had to change names due to its unpopularity and obvious weaknesses and failures. Budget 2016 has confirmed our opinion. It has no vision for an independent economic development for the country. The repeated references and eulogy to the previous UNP administrations during the Finance Minister's speech including the fast-tracked reforms of the 1977 Government shows the continuation of this no-liberal policy without any substantial change. In fact the talk is not about a social market but about Third generation reforms of the same old order.

Ensure growth with equity

It is true that the masses have been provided with some relief which, however, pales into insignificance compared with the relief granted to the capitalists both local and foreign. It is like a cake in which the soft icing resembles the concessions to the masses and the more nutritious or relatively hard body of the cake resembles the concessions to the capitalists. Icing by its nature melts and one would not be surprised if the price reductions granted in the budget melt away due either to fluctuations in the world market or a depreciation of our floating Rupee.

Obviously the budget has a focus on development. The fault does not lie there. It is in the way or the strategy for such development that is disturbing, especially the transfer of wealth from the poor to the rich. It is doubtful whether the strategy adapted would ensure growth with equity. Over three and half decades of the open economy with or without a human face has not ensured equity so far. Doubts remain as to the ultimate result of several projects such as the proposed utilization of EPF and ETF funds to form a "Fund of Funds" with public-private partnership to provide venture capital to SMEs and the amalgamation of the EPF and the ETF, the pruning of certain subsidies and the introduction of voucher schemes without pilot projects to ascertain their efficacy and viability. The same goes for Special Purpose Vehicles (SPVs) proposed for projects in the transport and power sectors.

Unlike the sops granted to the masses concessions to the investors and their local counterparts are of a more lasting nature. They include exemptions and substantial reductions of tax for three to five years as well as long-term leasing of state lands. Disturbing also is the proposal to provide tax free ownership of land to foreigners.

Foreign investment

Regressive from the point of view of the working population is the extension of the period of contract labour prior to confirmation in the permanent cadre from six months to one year. It is well known that employers are in the habit of breaking the service of contract labour not allowing them to work 180 days consecutively so that after six months they could again be hired as fresh labour on contract. Contract labour is denied several facilities that permanent labour enjoys and thus this is a method of curtailing workers' rights. The introduction of a contributory pension scheme for new entrants to the public service from January 2016 is also a curtailment of an existing right of public servants which in effect amounts to a reduction in their salaries.

The proof of the pudding is in the eating, says an old adage. Similarly the success of the failure of the budget would be seen in its implementation. It would largely depend on how much foreign investment would flow into the country and on the viability of private-public partnerships (PPPs). Though the Finance Minister has offered so many opportunities to the private sector it is a moot point whether they would reciprocate in a like manner. Traditionally our capitalists have been unable to get over their inertia and have been reluctant to take risks. It would be interesting in this regard to find out how many have made use of the facilities given in earlier budgets for various industries, particularly for agri-business and agro-industries. Thus the success of the budget would depend on a lot of "ifs".

Further there are several proposals which are offered as suggestions to the private sector and thus lack any legal validity. They include appeals for public-private partnerships as well as the proposal for a five day working week. There is also the possibility of abusing the suggestion to introduce part-time work to the detriment of the working people and organized labour.

The efficacy of the utilization of budgetary allocations would depend on several other factors including political and policy decisions in other spheres. For example, the government has increased budgetary allocations for education and health. It is commendable. But much would depend on how they are implemented. It would be a futile effort and waste of funds if the expenditure on education is not accompanied by an improvement of its quality. It means not only what is taught but also how it is taught. Again there is an open door for the private sector to join in the effort to improve education. If this participation is not accompanied by proper regulations it could result in the mushrooming of educational institutions that are sub-standard.

The public sector in Sri Lanka is also noted for its inertia, corruption and inefficiency. If there is no public sector reform addressing these concerns budget implementation would be an uphill task.

Finally one has to emphasize the necessity for the Government to maintain public trust it enjoys. Sad to say that it has been eroded over the last few months especially on account of its slow progress on dealing with corruption, fraud and misuse of private property as well as its apparent co-habitation with personalities tainted with corruption etc. Also the culture of political and personal favouritism still prevails in the appointments to high positions despite the talk to the contrary.

Even with all these defects the budget is a step forward from the former regime. While the former regime had the objective of developing a form of autocratic crony capitalism the present government's objective is for a comparatively more democratic bourgeois development.

 

http://www.dailynews.lk/?q=2015/11/27/features/thoughts-budget