With the presentation of the national 2018 budget just two weeks away, this week’s Thursday morning was spent reflecting on the country’s enormous debt and the legacy of a Treasury with a bottomless pit that would be left to the present generation (those aged above 18 years) and those to come.
Government economic planners have repeatedly tried to resurrect the country from a nation of debt to a nation of wealth without any success. Last week, the Central Bank in its weekly economic data release reported that the outstanding national debt is a gigantic Rs. 10.2 trillion as at June 2017. The debt that the present government inherited from huge, unproductive spending by the previous regime is in the region of Rs. 3 trillion.
Debt works in a strange way and also results in a vicious chain. For example, the state-owned Ceylon Petroleum Corporation (CPC) this week said its debt burden is Rs. 300 billion of which Rs. 1 billion is annual bank interest. The debt is not the CPC’s own doing. It’s due to being forced to subsidize fuel pricing to reduce the burden on the poor on one side and on the other, suppliers like the Ceylon Electricity Board and other state agencies not paying the bills for fuel purchases.
Thus, state agencies owe billions of rupees in unpaid bills to the CPC; the state fuel supplier owes the banks and seeks Treasury support; and the Treasury owes the people (resorting to taxes to pay the debt). What a merry-go-round.
While one may argue that subsidies are essential to cushion the poorest of Sri Lanka’s poor, it is also important to consider the viability of such options. A subsidy, unfortunately, benefits even the ‘haves’ (not only the have-nots) and trying to target these subsidies to benefit only those deserving hasn’t worked or won popular support. The previous government tried to target subsides without any success. On the other hand, rather than offering a subsidy, it may be more useful to offer targeted incentives to the underprivileged segments of society with the promise that more productive persons (promoting entrepreneurship) get a higher monthly subsistence income. That could be less of a burden to the population at large. However, such a scheme needs a lot of work and planning.
Another knotty problem in today’s national budget is that promises that are made are not kept. An interesting survey on budget promises has been undertaken by Verite Research, a new kid-on-the-block but a rising-star research body unafraid to challenge the authorities with some ground-breaking surveys on national issues.
Its ‘Budget promises beyond parliament’ tracker shows that in the case of a large majority of the 2017 budget proposals, the public is unaware about its progress. Verite said that the lack of transparency on public finance expenditure enables the Government to make “grand promises” to the public that are “not sensibly formulated”, “the government is not held accountable to” and “they are ultimately not executed”.
The silence of the morning and these reflections on the budget are hastily drowned by Kussi Amma Sera’s noisy conversation with a friendly neighbour walking down the road. Sweeping the garden with vigour but carrying on a conversation at the same time, she asks neighbour Silva, “Mahattayo, mey ratey lakshekata wedi janathawak tax gewanawa neda? Ehenum aei paththare boru kiyanne? Apey puthath than rassawak karanawa. Eyath tax gewanawa.”
She was referring to a story in the newspaper that due to an incompetent Tax Department, there are only 120,000 tax files in the department, meaning that only 120,000 of Sri Lanka’s 21 million people pay income tax.
This figure has been widely used for many years to stress the incompetence of the department to go after mass-scale tax evaders. While to some extent this is true (the tax evasion part), the number of Sri Lankans paying taxes is far higher. For instance, according to the 2015 annual report of the Tax Department, the total number of income tax payers was 690,405 which include 135,170 individuals and 426,496 PAYE employees.
The last category, Pay-As-You-Earn (PAYE), is a tax deduction by the employer per worker. Therefore, more than half a million people (an increase from 559,560 in 2014 and likely to have risen further in 2016 and 2017) are taxpayers and not just 120,000. Why these actual figures are not spoken of in public instead of “120,000 tax files” is a mystery. But Kussi Amma Sera has a point.
Anyway, after that distraction, it is back to the discussion on budgets, debt and promises. The Verite tracker on budget promises strikes a chord with another side of the budget: Unspent funds allocated for projects.
A report in the Business Times today says that around 80 proposals out of 159 in the 2017 budget are yet to be implemented despite money being allocated.
So, while the government fails to implement promises because it simply doesn’t have the money to execute these projects, projects allocated funds are not implemented.
Non-implementation or delayed-implementation of budget proposals has been a recurring problem in the past few years.
In the past two years, however, delays in the execution of budget projects are due to two reasons: A rush to implement which, in one case led to a Supreme Court reprimand for not issuing a gazette notification before a tax is enforced and secondly a reluctance by officials to hasten the process.
The second issue has become a serious bottleneck to the Government. With visions of being hauled to the FCID (financial crimes police) if a wrong decision is made (in the event of a new government), officials are extremely slow in decision-making. The wheels of government have actually ground to a halt as quick decisions, which the government needs desperately to get things moving off the ground, have become a laborious exercise. This is even impacting on President Maithripala Sirisena’s promise to deliver on proposals swiftly.
So while the politicians make promises they cannot keep, the public servant delays even deliverables by following laborious protocols to ensure he or she is covered in case of a change of government.
What a pickle we are in: Politicians make promises in budgets they can’t keep; then even after finding hard-to-get funds, half the projects in a budget are not implemented and finally the wheels of government slow down considerably because of the public servant’s fear of the future.
In this year’s budget, there is unlikely to be any major handouts to cushion the cost of living. That would be left to off-budget pronouncements. What the budget is expected to offer and as newspapers say a “designer budget” considering Finance Minister Mangala Samaraweera’s earlier professional role as a designer, is a policy to incentivise and energise young people to be more productive.
It then remains to be seen whether the budget will be a “nicely, tailored cut” or “cutting the coat according to the cloth”. The proof of the pudding is not in the budget presentation or the first half of 2018 but in the number of deliverables by November next year when the 2019 budget is presented. That would be the real success of the 2018 budget.
Taken from – sundaytimes.lk