Wednesday, November 24, 2010

A general opinion of the budget, especially as it relates to the rural areas

The pomposity of the presentation, and subsequent smug analyses by the leaders who delivered and the bureaucrats who drafted this development oriented budget knows no bounds. I was an eyewitness to the Treasury Secretary’s own words last afternoon at a well attended seminar of business leaders, where he said it is now 70% over to the private sector to take on board the complete giveaway to them to make it work. In my opinion even the UNP could not have come up with a more capitalist style of free for all budget where the goodies were almost exclusively to the wealthy who already have a tax regime that is probably the most regressive in the world. (the poor share a grossly disproportionate share of the tax burden)

It was unfortunate for an opposition spokesman (an economist with a doctorate no less) to harp on the fact that the stock market indices fell as a consequence. The market’s behavior bears no relation to the budget as all the proposals had already been discounted, the stock market actually being technically far ahead of the game.
What he failed to state was that the majority of the country in the short term will at best see no benefit, and at worse suffer a fall in the standard of living, until the supposed private sector is able to pull the rabbit out of the hat now and perform to expectations, which in the end game will provide high paid jobs, and through it the expected increase in GDP per head of US$4000 by 2016.

It is ironic that the majority of the people, dare I say 99% of those who voted for this government will be worse off in 2011 in terms of purchasing power. The sad thing is they have no clue of this, as they don’t understand the budget. The press has no spine to tell them the truth, for fear of losing patronage and finally the promises made to get elected have been broken, further fooling the electorate.
Reduction of VAT, reduction of Income and Corporate Tax is all for the better off, while the taxes on items like alcohol, cigarettes, potato, sugar, onions, and flour and canned fish to name but a few that comprises a greater share of government revenue that do not even get a mention in the budget, hit the poor and is 100% collectable as it is taxed at point of production or import.

The complete dominance of the Government in parliament, now with a further number of cross-overs, who have duped the electorate who voted them, being further disenfranchised, there is no fear in lying and getting away. The government is free to govern at will for 6 years, hoping that by the end of it their stance would have proven correct. I agree that by the laws of nature, everyone will be better off by then, given our resilience and entrepreneurial ability.

The issue that I am attempting to give credence to is that if the objective is to be fair by the population, and provide some equitable sharing of the pain and gain, then this is not the right way to go about it. Further, I also have my doubts about whether the US$4000 will be achieved in this manner, as I know the maths does not add up here either.

The one thing that is electoral dynamite that the government has not had the courage to tamper is the paddy fertilizer subsidy. On the other hand I feel as written in detail in my agricultural blogs, this is one that should have been completely restructured to achieve the productivity improvements in agriculture that are essential to achieve double digit growth targets. The subsidy I have contended is keeping people in perpetual poverty, not allowing them to be mobile enough to take advantage of the opportunities in the growing economy, which only a mobile labor force can provide.

This budget for all its fanfare is revenue neutral, in that the tax reductions will not mean any loss of income to the government, due to profit growth and income growth, so it was easy to be showy and seem magnanimous. The government has not done anything to make the structural changes needed for growth. The comfort zone of public employment and jobs for the boys has not been tampered with. The inclusion of the tax net to public servants will not affect more than a few hundred at best. This is due to the wage structure at which PAYE tax kicks in.
The most important structural change that must be made is to make bureaucracy less attractive. The government pension at 55 is a huge draw for the skilled workforce, primarily the graduates to leave good productive private sector jobs, and join the govt. service, once their name on the waiting list is called up. I know of so many employers who have spent millions training their staff, only to leave without even a week’s notice, when they are called up for a public sector opening based on their place in the waiting list or worse, political patronage. The budget has made a start in the private sector pension arrangements, and also for self employed to contribute to a pension scheme, but with the acute shortage of workers in Sri Lanka, especially the competent ones, if we are to see an increase in GDP these people have to be released from the Public sector, willfully unemployed sector and agricultural sector as otherwise we will have to import labor.

So instead of wasting time crowing about what a business friendly budget we got, what we need is a real plan to get the trained workers for the businesses if we are to grow. Every business I know is now complaining not only about bureaucracy, but the severe lack of skilled people to grow. No amount of tax cuts will help!!!


Anonymous said...

You have raised some good points in your post.

The pension contribution is another tax. Have they thought of how it will be administered or the costs involved? What will the contributors get back, after deducting administrative costs. The majority of monies in the EPF/ETF are not claimed due to issues with documentation so there will be more of that with the pension.

This government is going be around for a lot more than 6 years. At least 12 more under present leader and then more under his chosen successors.

Anonymous said...

The government will fall before the next election if the poor mans life does not materially improve.

For this we need massive FDI, and transparency coupled with good governance.

FDI this year is less than last year.

The war euphoria is over. The man at the bottom does not even have the purhchasing power he had 3 years ago before inflation became rampant and wages stagnant.

The government popularity has definitely peaked.

rashid1891 said...

The complete dominance of the Government in parliament, now with a further number of cross-overs, who have duped the electorate who voted them, being further disenfranchised, there is no fear in lying and getting away