Budget: CCC cautions on over-emphasis on subsidies and welfare
View(s):The Ceylon Chamber of Commerce (CCC), following the current practice where all chambers have welcomed the budget, has said that the proposals must be complemented with measures that help achieve the economic transformation envisaged by the government in its ‘Vision 2020’ and ‘Five Hubs’ strategies.
“Overall, while acknowledging that any budget must be seen in a policy continuum, and is one in a series of ongoing measures to reach national economic goals, the Chamber observes that the proposals contained in the Budget 2015 must be complemented with measures that help achieve the economic transformation envisaged by the government in its ‘Vision 2020’ and ‘Five Hubs’ strategies. To achieve this transformation it is also important to avoid the current over-emphasis on subsidies and welfare transfers that have the unintended consequence of keeping people in low productivity and low income-generating economic activities,” it said in a media statement.
The CCC said it welcomed the projected lowering of the deficit to 4.6 per cent which is supportive of macroeconomic stability. Whilst there is a proposed 15 per cent increase in government expenditure, given the slack in demand in the market recently, a degree of fiscal stimulus can be accommodated without substantial over-heating of the economy.
“However, the Chamber encourages the authorities to act quickly and decisively if there are signs of significant deviation from the government’s commendable targets for inflation and the current account of the balance of payments.”
It said it was encouraging to note the gradual shift in the nature of tax incentives away from blanket, long-term tax holidays towards alternatives that are more targeted, such as accelerated depreciation, tax holidays with defined time horizons, and tax concessions that are directly linked to the amount and type of new investments undertaken.
The Chamber said it was recommending the implementation of a transparent and market-reflective energy pricing mechanism, rather than ad-hoc adjustments. “We also recommend that attention is placed on addressing the quality of electricity supply, particularly issues of power brown-outs and fluctuations, and efficiently meeting the emerging needs of industries.”
Given the changing demography of Sri Lanka’s population and the associated challenges in expanding social safety nets, the Chamber recognises the need for introducing pension schemes as envisaged in recent budgets including Budget 2015.
“However, the Chamber cautions against pension systems that are non-contributory and that are occupation-specific, as they could lead to fragmented schemes that experience difficulty in making steady payments, and are expensive and unwieldy to administer. A pension scheme that is professionally managed and sufficiently robust to meet the financial obligations of an ageing population is desired. While recognising the hardships faced by senior citizens in a low interest environment, we urge the authorities to exercise caution in implementing the proposal for offering a 12 per cent interest on deposits in state banks, to avoid creating distortions that could have a negative impact on the financial sector.
Moving forward, the financial needs of senior citizens should be addressed through the development of pension products,”: it said.