Budget 2005: Will the funds be ready on time?
Finance Minister Sarath Amunugama made a telling point this week addressing Ministers and Deputy Ministers. He said the presentation of the Budget would not suffice and that its implementation was the most important. He said that was the responsibility of the Ministers, the Deputy Ministers and the officials. There is however an important issue in that the implementation of the policies requires the availability of adequate financial resources and on time.

Delays in disbursement can be a serious constraint to implementation. Can the Finance Ministry ensure that funds are available on time? Most criticisms of the Budget have centred on the difficulties of implementing the 2005 budget proposals. Such criticisms have two dimensions.

The first relates to the new programmes announced with the expenditure proposals. The second relates to the feasibility of collecting the expected revenue. The two are not unrelated, as the inability to collect adequate revenues would lead to a curtailment of the announced plans and programmes.

In as far as the inability to implement the proposals owing to a weak administrative capacity and a dearth of persons with integrity are concerned, the Finance Minister and his officials can hardly be blamed. The only criticism that one could make of them may be that their vision does not accord with the administrative capacity. The building of capacity for implementation of development programmes and the reform of the public service to make it accountable and performance-oriented is a task that requires a broader thrust of reform measures that have to be be said with respect to the revenue proposals.

It is the responsibility of the Finance Minister and his officials to present a budget where the proposals are realistic and realisable. To say that the anticipated revenue could not be collected owing to the inefficiency of the revenue collection authorities is a poor and unacceptable excuse. The revenue proposals must take into account the revenue collection mechanisms and administrative capacities.

Tax proposals should be designed in a manner that copes with deficiencies of the system and be consistent with the available means of collecting them. The intention of the government to raise revenue from the current 13 to 15 percent of GDP must be accompanied by proposals that make it possible to achieve that level of taxes. Most commentators believe that the proposals do not contain implementable tax revenue proposals that would gather in the specified revenues.

There are even basic flaws. For instance the same quantities of purchases have been estimated with higher prices. The proposal to bring into the tax net tax dodgers on the basis of criteria of expenditure was to please the masses and give the impression of heavy tax burdens on the rich with conspicuous consumption rather than necessarily a pragmatic means of obtaining the required revenue. In a country where direct taxation has failed to collect adequate revenue so far, it is foolhardy to expect that there would be sharp jump in taxes through the proposed methods. Tax dodgers find their own means of evading taxes, no doubt with the help of corrupt officials. A good illustration of this inability is the sharp upward revision for traffic fines. These have no doubt led to a heightened vigilance for traffic offences. Yet motorists are well aware that the fines are in fact collected by police officers for themselves rather than collected by the government. The higher fines make it more attractive to police officers to nab offenders and the offenders in turn find it cheaper and more convenient to pay a fraction of the fine to the officers themselves.

This is likely to be replicated with adaptations by the tax collection authorities. A more pragmatic approach towards revenue collection would have been the collection of taxes at source of payment. All payments should have been liable to taxation at source. Some could have been withholding taxes that could be set-off against personal taxes, if the payment is by a tax payer or else it could be a once and for all payment. One of the reasons why income receivers do not like sending returns is not merely due to the tax liability, but the dislike of filling forms and confronting inquiries of tax officials. There was an implication of harassment by tax officials in the Budget itself in the proposal to set up a separate unit for appeals by taxpayers.

The success of Budget 2005 would depend very much on the ability to gather the budgeted revenue. This appears very improbable. Effective implementation is the other side of the coin that is equally unlikely. At the end of the fiscal year the budgetary out-turn is likely to be very different from Budget expectations, as in the past.

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