Budget 2019: Subsidy-spending hike with eye on polls
Sri Lanka’s subsidy bill will balloon in the run-up to crucial elections next year at the risk of over shooting the 2019 budget deficit targets, reliable official sources revealed.
Treasury officials were preparing a “populist budget” with huge subsidy expenditure amidst falling government revenue, mounting public debt and severe balance of payments difficulties.
Tax options in the 2019 budget include removing remaining VAT exemptions and raising excise rates for fuel, among others.
Measures will be taken to strengthen tax compliance and create space for para-tariff rationalisation by removing another 1200 para- tariffs. The aim is to remove around 3000 such tariffs by 2020.
Moves are underway to remove the withholding tax on small businesses and subcontractors of local industries and the cess on all imported items as a relief for affected sectors, he added.
The 2019 Budget will include contingency budgeting for natural disasters and an automatic pricing mechanism for electricity to contain fiscal risks from droughts, a senior Treasury official told the Business Times adding that it has focused on emergency cash support and infrastructure rehabilitation.
Developing a comprehensive disaster financing framework, including contingency budgeting and disaster-linked social protections, and implementing structural reforms to improve growth potential were among the fiscal measures which will be proposed in the 2019 Budget
The Budget will be prepared in accordance with the medium-term fiscal framework (MTFF) by adopting a Performance-Based Budgeting (PBB) approach, with the aim of increasing government revenue to 17 per cent of GDP by 2021.
It has made financial provision running to millions of rupees which will have to be reimbursed by the Treasury to commercial banks for interest relief for loans being given under Gamperaliya, Enterprise Sri Lanka and the writing off of micro finance loans being given to drought affected women.
Officials are also anticipating a salary increase of at least Rs.5,000 to over 1.3 million public sector officials following recommendations of the special commission on public sector wage revisions.
The Treasury is also burdened with the allocation of a huge sum of money in the 2019 budget to pay Rs 2,500 as another installment of Rs.10,000 salary increase granted earlier by the present regime.
A large sum of money will have to be allocated to pay wages of 15,000 graduates to be recruited for training in the public sector before the year-end.
In view of the upcoming elections, the Finance Minister is said to be under pressure to direct Ministry officials to prepare a populist budget high on subsidies, tax relief and spending focused on rural areas.
The Government has allocated Rs. 60 billion for the ‘Enterprise Sri Lanka’ programme to create 100,000 new entrepreneurs countrywide while implementing 15 development projects under the Gamperaliya, rural development programme with a financial allocation of more than Rs. 45 billion.
In addition, soft loans amounting to Rs.10 billion will be provided for both small and medium enterprises in rural areas to develop their businesses.