Financial Times

Budget delivers peace dividend
The budget for 2004 has generally been welcomed in most quarters and many must be feeling relieved that it did not impose too many burdens on ordinary people. In a sense this budget can be seen as one in which the first real signs of the peace dividend are visible. The fruits of the efforts of the past two years to stabilise the economy are now being reaped.

Although there has been much hype about the public sector pay hike, with it being described as the biggest in a decade, in reality it does not amount to much, as the labour unions have pointed out, and is about the bare minimum the government could have given. The value of the rupee today is not the same as 10 years ago while prices have increased many times over. Pensioners have got some long overdue relief with a 10 percent increase in pension payments and special deposit schemes with higher interests for senior citizens.

A welcome change from previous budgets of recent times is the huge allocation for capital expenditure with the aim of improving creaking infrastructure that has long been neglected and in many cases is on the verge of breaking down. Good infrastructure, along with affordable power, is essential to attract foreign investments and tourists.

In previous budgets, governments were forced to cut capital expenditure as a way of curtailing spending and reining in the budget deficit so that the money thus saved could be used for other, more essential and urgent requirements. Now that the ceasefire and the massive dollop of foreign aid that has been pledged, along with the prudent economic management that has helped to put the economy back on the rails, has given the government some breathing space, it can afford to allocate more money on capital expenditure.

The tax on profits from the sale of shares has predictably been opposed by stock brokers and investors who have warned that it could discourage investors at a time when the market was taking off. Even if the government accedes to requests from brokers and withdraws this tax, it is certainly not unjustified because of the super-profits being made on the stock market in recent months. The government also needs to raise revenue, having forgone revenue in the much-maligned tax amnesty, which to some extent helped draw funds into the stock market and sent share prices soaring to dizzy heights.

The private sector chambers, which have generally praised the budget, have complained about the negative impact of certain proposals but concede that even these are more bearable given the much improved macro-economic conditions. The corporate sector has been reporting some fantastic profits in recent quarters and it is only fair that they shoulder their fair share of the burden - a burden which for long was borne by ordinary people as the government set about getting the macro-economic fundamentals right for the private sector to show results.

The more conciliatory tone adopted by both President Chandrika Kumaratunga and Prime Minister Ranil Wickremesinghe in relation to the political crisis augurs well for the future. Some sort of workable formula appears to be in sight as a way out of the current impasse. The UNF government has now offered to sign a memorandum of understanding with the People's Alliance and is talking about the need for a national consensus on the peace process and economic policy.

It is also now saying there is a role for the opposition in its negotiations with the LTTE. The move towards reconciliation between the government and the president is indeed welcome to the private sector, which has been pushing for such accommodation for a long time.

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