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HOW TO LOSE THE FISCAL WAR

Budget 2017 is a stark reflection of what ails Sri Lanka

There’s at least one person who has unequivocally hailed the budget proposals as being the perfect answer to Sri Lanka’s economic and fiscal woes, and (for the second year in succession) maintained that it has the hallmarks of a ‘revolution.’ He’s pictured presenting Budget 2017 in parliament on 10 November in this edition’s review of the government’s latest fiscal policy statement.

When a ‘minimum price for chicken’ is announced in the early part of a nation’s foremost fiscal strategy pronouncement, the people can be excused for expecting chicken feed for the rest of what was an even longer night than last year. The irony of course is that last year’s record time turned out to be a waste of time, with the now familiar joke that all that was left of it in the end were two words uttered at the very beginning: “Honourable Speaker.”

Photos of parliamentarians who were in the house on 10 November suggest that there was disinterest (some were in a deep slumber, presumably as night fell), amusement (led by the former finance minister and nation’s commander-in-chief, not to anyone’s surprise) and perhaps bewilderment or confusion on the faces of some others.

Far from streamlining Sri Lanka’s convoluted tax system and simplifying its administration, we’re now faced with more taxes and new tax rules. This dichotomy followed the seemingly never-ending rhetoric that preceded the long-awaited fiscal policy brief in what seemed like an avalanche of clichés and promises – including a pledge to simplify our tax system.

Of course, there were tax hikes before budget day, with the most infamous being the hike in Value Added Tax (VAT) that put a lid on what’s been a healthy run for consumption, because the people will soon have far less to dole out on discretionary spending – which means that business will also suffer.

And as is customary in our land like no other, there was also an announcement not long after the budget proposals were done and dusted in the hallowed house  stating that water rates would be raised by a mind-boggling 30 percent – except that it was promptly withdrawn on instruction from the highest in the land. Another way of looking at this is that the status quo prevails vis-à-vis policy direction and implementation – which means that investors will think twice before putting their precious money where our politicians’ mouths are.

As is also the norm in our motherland, businesses and the people continue to be asked to dig deeper into their wallets at every turn whereas those who deem this to be necessary pay themselves more and more.

The most outrageous example of this comes in the form of the Rs. 2.4 billion allocated to some 58 MPs for new vehicles. For argument’s sake, the government could have done away with the proposed PAYE tax revisions (projected revenue – Rs. 2.5 billion) if this expenditure was not on the cards. And to rub more than a little salt into the fiscal wound, there are moves we’re told to award pay hikes to our politicians, irrespective of whether they’re doing any meaningful work, being investigated for corrupt acts or suspected to be the recipients of dirty money – which means that the circus will continue.

No less than the President has reportedly acknowledged that the coalition government has no choice but to tolerate corrupt MPs on its side, so as to ensure a smooth passage for the proposed constitutional reforms that require a two-thirds majority in parliament. Whether the end justifies the means is a million-dollar question.

Sri Lanka’s ruling politicians have for long wasted their time and our money talking shop, with one irony following another like a soap opera. Amid all the talk of corrupt lawmakers being taken to task (unless presumably, they’re in tow with the ruling regime, or where those who aren’t wearing the right colours are being shielded for one reason or the other), Sri Lanka’s lawmakers are to come under a Code of Conduct that will contain inter alia a stipulation that MPs must disclose their business relationships and financial interests (including those of close family members), use of public property and receipt of inducements that would influence their conduct – which must mean that an oath of hypocrisy will be taken by those concerned in the not too distant future.

As for Budget 2017, while some businesspeople and at least one chamber of commerce have hailed some of the bright spots presented on 10 November, others have courageously critiqued several proposals that will make life for the people and business harder than it already is.

The whipping boys of present-day budgets continue to come from within the ranks of Sri Lanka’s highly acclaimed banking and telecom sectors (in addition to the traditional scapegoats – gaming and tobacco), with levies being imposed on financial transactions and even internet services – in this, the digital age! More than a fifth of the incremental revenue proposals (Rs. 32 billion) is to be derived from Corporate Tax revisions – which means that Sri Lanka’s engine of growth will have to slow down in fiscal year 2017/18, as the new corporate tax rates kick in on bottom lines.

There’s also the prospect of Capital Gains Tax coming into play from April Fool’s Day next year; and as is customary, how this will be applied is presently an illusion – which could mean that we’re left in the dark until April 2017 and then told that the new tax will apply retrospectively.

In the meantime, on the expenditure side of the budget ledger, two of a developing nation’s priorities – viz. education and healthcare – continue to be given stepmotherly treatment for reasons known only to the powers that be.

And while ‘fiscal consolidation’ is being cited for some of the unpopular measures in Budget 2017, there’s also a feeling among the public that since the government continues to borrow its way out of financial strife, the burdens that are placed on them are unfair. The truth of course is that we are compelled to borrow from the likes of the International Monetary Fund (IMF) and China because the nation’s debt repayment obligations have reached unmanageable proportions.

While our millennial generation will soon have to pay more to access the internet, they may also begin to wonder whether their country of birth is going backwards rather than forward. A sink rather than swim scenario, if you know what we mean.

Such is the state of hypocrisy in our land that they may choose to seek saner pastures like many of their forefathers have done since the 1980s – which means that the rest of us will be left to lament over the brain drain, and a dearth of quality human resources and talent.

– Editor-in-Chief