CHOGM over, prepare for a tough budget
The Government, as the dust settles down on the conclusion of the Commonwealth Summit (CHOGM), is preparing a tough budget aimed at reducing the deficit to 5.2 per cent from 5.8 per cent of GDP amidst plans to raise more revenue from taxes.
No new salary hike is envisaged in the budget to be presented on Thursday, November 21 by President and Finance Minister Mahinda Rajapaksa.
These measures would include accommodating available long term financing at relatively low rates from foreign development partners and domestic sources while creating increased space for private borrowing, official sources said.
The sources also noted that an economic growth in excess of 6 per cent with a fiscal deficit reduction towards 5 per cent from the current level is conducive to bring the debt to GDP level down to 70 per cent by 2015 and to below 6 per cent by 2020. The Government is expected to borrow Rs. 1.1 trillion to bridge the budget deficit in 2014, the sources said adding that in the 2014 budget revenue efforts will be made through improvements in profits and dividends in State Owned Business Enterprises in addition to applicable income taxes and new taxes to raise non tax revenue.
In the meantime, the proposed wealth tax aimed at netting Sri Lanka’s rich population is yet to get the green-light of the President though proposed by the Finance Ministry.
While the public presently pays 17 direct and indirect taxes (knowingly or unknowingly) a further tax burden is anticipated in the budget which seeks to impose austerity measures to tackle the balance of payment and heavy government expenditure.
The budget will also address the challenge of narrowing the budget deficit by improving tax efficiency and widening the tax base as well as introducing new taxes.
Sri Lanka’s economic growth is expected to recover gradually to 7.2 per cent in 2014 from 6.8 per cent in 2013, the sources said. The Treasury is grappling to tackle the huge public sector salary bill and pension payments.
Sri Lanka’s exports are projected to grow at a slow pace of 5 per cent in 2014 while imports are projected to grow by 10 per cent in 2014 without widening the current account share of GDP.
Sri Lanka needs a further 2 per cent increase in GDP or about a Rs. 250 billion cut in expenditure over the next two years in its efforts to raise revenue or allow recurrent expenditure growth to moderate by that amount or a combination of both, a senior government official said