Tuesday, June 29, 2010

Sri Lanka restrains state wages, presents policy budget

Sri Lanka presented a broad policy budget outlining a commitment to cut deficits over the medium term, bring down interest rates and inflation and also held a state salary hike until next year. Deputy finance minister Sarath Amunugama presenting a budget in parliament said a state salary hike would come in 2011.

The 2010 budget was delayed till June due to two elections in January and April.

Salaries, which cannot be delayed is usually the item that puts the greatest pressure on state cash flows and triggers money printing leading to inflation when enough taxes cannot be raised from the people.

Planned current expenditure would only go up 5.6 percent to 928.3 billion rupees.

The minister did not unveil new revenue proposals but said an upturn in the economy which was already expanding activity including imports would provide 817.7 billion rupees in revenue in 2010 up 16.9 percent from 2009.

The government cut taxes on cars and electronic good before the budget, which is expected boost revenues and also raised taxes on cigarettes and liquor.

The government is planning an 8.0 percent of gross domestic product budget gap (8.4 percent after grants) with a revenue deficit of 2.0 percent of GDP.

Sri Lanka has not had a surplus in the revenue account of the budget since 1987, but incredible claims of a revenue surplus had been made in recent years. A revenue deficit indicates state dis-saving which brings down that national savings rate.

Though the gap is high it is lower than the 9.9 percent (10.4 percent with grants) of GDP gap last year.

"We consider that the historically high budget deficit in this country must be phased out in order to reduce the debt burden and strengthen the financial situation so that our people will have better access to finance from our financial institutions," Amunugama said.

"We believe that such adjustment should be done through the improvement in the quality of government spending, by putting state assets to productive use and collecting revenue through a broad based and low tax regime."

Amunugama said they would not privatize state institutions or cut down public investments. Last year seven state entities lost more than 50 billion rupees or over one percent of gross domestic product.

He said ad hoc tax incentives given under the Board of Investment, the state investment promotion agency, would be phased out.

"The government also proposes in the medium term to bring down excessive tax rates on personal and corporate income as well as banking and financial institutions and do away with ad hoc and unproductive tax concessions offered by the Board of Investment and in terms of income tax laws," Amunugama said.

"The dichotomy between the BOI and non-BOI regimes will be corrected to create a level playing field."

He said some proposals from a presidential tax commission have already been implemented and a final report was due in August.

This year's budget gap of 438.8 billion rupees (without grants) would be plugged with 123.5 billion rupees in foreign financing (83.9 billion rupees in 2009) and 315.3 billion rupees in domestic financing (392.4 billion rupees in 2009).

The government would continue to invest in roads, post-war reconstruction and power.

Amunugama said the government wanted to push economic growth to over 8.0 percent a year and into double digits in the medium term by raising investments to 40 percent of GDP.

But the government also said it would 'protect' some sections of agriculture with heavy import duties as well as fertilizer subsidies, but would also reform and increase spending on education.

The government also hoped regulate and bring private sector into higher education, Amunugama said.

Earlier on Tuesday, the International Monetary Fund disbursed a 400 million US dollar tranche under a 2.4 billion US dollar bailout package signed in 2009 which was delayed pending the budget.

© Lanka Business Online

Bookmark and Share

No comments:

Post a Comment

© 2009 - 2014 Journalists for Democracy in Sri Lanka

  © Blogger template 'Fly Away' by Ourblogtemplates.com 2008

Back to TOP