The Sunday Times Economic Analysis

The Sunday Times Economic Analysis By the Economist

Budget 2005: Implement it or perish
The dominant economic issue for 2005 is the implementation of the Budget. It is the responsibility of the government to dispel criticism that it presented a Budget that could not be implemented. The government must now prove that it could implement the Budget proposals effectively. It must gear itself to making 2005 an year of Budget implementation. It should not waste time repeating the merits of the Budget proposals. People would judge the Budget not by what is said about it, but the benefits for themselves and the country.

The implementation has to be both on the side of revenue and expenditure. The revenue side is basic to the capacity to implement the programmes, as well as crucial to ensure fiscal and macroeconomic stability.

On the revenue side the government has to rectify its inability to collect revenue. It has to obtain the expected revenue on the basis of the tax structure and new tax proposals. Direct income taxation and sales taxes have been particularly unsuccessful as revenue measures. Will the government be able to infuse a new efficiency and put in place better mechanisms to collect revenues? Can it achieve the target of increasing government revenue from 15.6 percent to 17.2 of GDP? This is a desirable target to achieve yet recent experience suggests that it is unlikely.

This column pointed out that the tax proposals were not realistic given the administrative structure and the lack of a political will to ensure the collection of taxes. In the interests of the country we hope that there would be a determination by the government to pursue its tax proposals and that those who are liable to pay taxes would be brought to book. If this is not achieved in 2005, it is time to look at a fundamental reform of the tax system to ensure adequate revenue. A system that is certain of collecting the required revenue should be designed. A realistic set of taxes, the simplification of taxes and the capacity to collect should be guiding principles.

There are many programmes announced in the budget that are indeed worthy. The increased expenditure on education and health was much needed. Public health was woefully lacking in funds. The new thrust to fund development of the least developed areas in the country was overdue. The additional expenditure for the least developed areas is a much-needed thrust to help the poorest of the poor on a targeted regional basis.

However, effective implementation of the programmes requires an efficient administration. It is vital that the government utilises the funds it obtains in a cost-effective manner to ensure that the objectives are achieved. These include a better quality education at primary, secondary and tertiary levels and a public health system that delivers good health care. The infrastructure in remote areas must be developed so as to ensure better income generating opportunities.

One has to recognise that inefficient administration, corruption and political interference are among the serious constraints to realising the goals in education and health. There are also needs for fundamental changes in organisation. And above all one requires the human resources to complement the financial resources to make these programmes a success.

There are also the on-going programmes, especially Samurdhi, which requires drastic reform to ensure that the really needy get the assistance. The increase in expenditure in the Budget may contribute to further abuses than to alleviate the conditions of the acute poor who do not appear to receive assistance.

After the third reading of the Budget, the government must concentrate on implementation of the proposals. It must enhance the efficiency of revenue collection to ensure that it obtains the required funds. It must gear the administration to ensure effective implementation. Political interference in implementation must be avoided at all costs. The proof of the Budget is in its implementation. The government must implement it or perish.

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