Financial Times

Budget 2005
Departing from tradition - optimism and hope?
Sunil Karunanayake, our regular columnist on corporate and macro-economic issues, discusses the pros and cons of the budget.

The maiden budget of the new government fell short of the expectations in fears and shocks anticipated, but certainly it has raised optimism. The government was bold enough to propose to remove the diesel subsidy, tax the public servants and also grant a salary rise to public servants without any enhancement to the corporate or personal taxation.

The minister of finance made it very clear that the government has chosen to eliminate hidden subsidies that benefit the rich and not the poor. Addressing a public seminar organized by the Institute of Chartered Accountants, Treasury Secretary Dr P. B. Jayasundera explained the rationale behind the budget which he said was a departure from tradition.

He stoutly defended the proposals to strengthen the public sector, widen the tax net and enhance revenue and public expenditure on infrastructure development. Responding to the public perception of corruption he made a fervent appeal to not corrupt public officials as bribery needs a giver and taker.

Dr Jayasundera was also emphatic on his resolve to generate economic growth beyond the boundaries of the western province as at present macro economic indicators do not make much sense to people living in rural areas.

While there were certain disappointments such as restricting the cascading effect on VAT, lack of relief on ESC to plantations and traditional exports the budget seemed to have responded to the need of the day.

As one business leader pointed out this budget has catered to the voters who elected this government, the coalition partner, public servants and the business community with little regard to the multilateral lending agencies who are also a major stakeholder in the country's progress.

The Government has taken strong note of the important and influencing role played by the Small and Medium Enterprise (SME) sector. The minister of finance in the budget speech clearly identified our economy as predominantly a small and medium enterprise economy with over 50% of the GDP being accounted by this sector through its dominance in tea (65%), apparel and garments (50%), public transportation (70%), tourism (45%) and construction (50%).

This invisible private sector has been identified as the economic backbone which will undoubtedly boost employment and much needed government revenue by way of taxation. Government must also act with caution on midnight regulations as such instantaneous action can kill the enterprise of businessmen.

The desired objectives of the recent controls on motor car imports could certainly have been implemented with more thinking and foresight with lesser turmoil. The entrepreneurs, most of who belong to the SME sector, should be given a chance to shift their resources to another area without shutting them out completely.

The budget built on seven pillars has set a medium term growth target of 6-7% with high expectations from the public sector to achieve the targets. It is hoped these will be realistically addressed in relation to loss making state owned enterprises particularly in the transport sector.

As continuously advocated by this column, and in keeping with a government vision to achieve higher growth through rapid development of the provinces and to implement all good proposals, a strong, efficient and committed public service (which is not devoid of competent personnel) is needed.

It is equally important that public servants from the divisional secretaries (better known as assistant government agents) to ministry secretaries (the permanent secretaries) be freed from political shackles to implement the worthy proposals. Government servants must be adequately empowered with less inhibitions to serve the people and not the politicians.

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