Move to resolve looming crisis

By A.D.V. de S. Indraratna

A warning was sounded about this “looming crisis” (Sunday Observer, 6 March) since October last year, when in my presidential address at the Annual Sessions of the Sri Lanka Economic Association (SLEA), titled ‘Living Beyond Means,’ the urgent need was highlighted to raise the Government revenue and the need to contain the debt. This appeared in the print media. 

There were also a few others who referred to the revenue crisis. The Premier also in his Policy Statement before the Budget referred to some of these issues and had proposed several remedial measures. 

However, despite these, it was surprising that the Finance Minister (FM) introduced several populist measures, among which were several tax revenue reducing, instead of tax revenue increasing measures, entailing an increase in the already unsustainable budget deficit. In my comments on the Budget, which were again in the media, it was pointed out among my comments, that the Budget was incompatible with the Premier’s Policy Statement.

We should be very pleased and the Premier deserves our congratulations, that even though a little belated, he has now moved “to resolve the looming crisis” by getting the Cabinet approval for the reversal of most of the tax revenue reducing measures of the Budget, as well as introducing a few new tax revenue increasing measures, such as the Capital Gains Tax (CGT).

It would be better if he had pushed even a little harder by proposing an increase in our personal income tax rates from the present rates of 4% to 24% to 8% to 28%, increase for every slab by another four percentage points, keeping the threshold income at the same level as before. 

I also would propose a temporary reduction of the public investment (a little too ambitious 6.9% in the 2016 Budget), in this and next year, that is until the fiscal consolidation is complete and debt burden is brought under sustainable level by withholding the construction of non-essential, directly not-productive buildings. In regard to the newly-proposed CGT, it is advisable to exempt from it the transactions in the Colombo Stock Exchange.

My Presidential Address, which contained my views, awaiting publication in the forthcoming ‘Policy Reforms for Sustained Growth’ of SLEA may be obtained by contacting [email protected].