Tuesday, 28 October 2014 00:36
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Executive Summary
The 2014 Budget Speech focused on continuity of the Government’s existing policy framework to further improve its fiscal performance while concentrating on providing considerable relief to lower income segment, Government employees and simplifying the tax system. Government plans to historically lower budget deficit to 4.4% during 2015 while the expected Debt to GDP ratio is expected to improve to 75%. Government expects to record a revenue surplus of 1.7% in 2015.
The Budget has put considerable effort to provide relief to the lower income segment and Government employees providing increased grants, salary and allowance increases and settling anomalies that existed among them.
The Government has made significant progress in further simplifying the tax system while making continuous efforts to broad base the tax system includes lowering income tax to 16%, introducing a special tax for vehicles, extending NBT to financial institutions and lowering withholding tax rate. In relation to the capital market, the electricity tariff reduction will be a positive sign for the overall market while strong infrastructure development may assist the construction related companies. Certain concessions to the plantation sector may also be beneficial as well.
1.0 Fiscal strategy
The Government expects to continue its prime objective to support the country’s growth prospects in the medium to long run via further strengthening its fiscal position. The fiscal position is expected to be improved through higher Government revenue and a controlled expenditure management. Government Revenue is expected reach a surplus of 1.7% of GDP in 2015. Budget deficit is anticipated to be reduced to 4.4% with debt to GDP ratio expected to fall to 75.0%.
The Government plans to grow revenue to 14.9% of GDP to Rs. 1,689 b for 2015 with 84% of the revenue expected through taxes, with VAT projecting to take the top slot contributing 5.5% of tax revenue.
Non-tax revenue is forecasted to be 10.3% of the total expected Government revenue.
The total planned expenditure for 2015 is Rs. 2,210 b maintained at 19.3% of GDP, which is slightly below compared to 2014 estimated reach of 19.4% of GDP. Recurrent expenditure is forecasted to be controlled at 69% of total expenditure constituting 12.9% of GDP significantly lower from the 2014 planned figure of 13.8% of GDP mainly driven by the support of the declining interest payments.
Salaries and interest payments are expected to be the largest components of recurrent expenditure amounting to 37% and 28% of recurrent expenditure respectively.
The Government plans to grow public investments to 6.5% of GDP with the largest investment continuing to be for highways where 2.0% of GDP (32% of public investments) is expected to be spent.
