Budget 2024: Long-term interests vs short-term gains

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Next week’s Budget 2024 is on the legislative cards and what’s on the Finance Minister’s menu card is what is at stake. It is an unenviable task to find the money for the country to stay afloat and at the same time ensure its citizens stay afloat.

Trade unions and even professional bodies are baying for the Minister’s blood as fiscal reforms at the insistence of the International Monetary Fund (IMF) continue to bite the ordinary people and make their day-to-day life, and those of small and medium businesses, a matter of sheer survival.

A one-time Cabinet Secretary, B.P. Peiris, in his interesting memoirs published after his demise, related a gripping account of the 1962 Budget. The country was facing an economic crisis even then. Negotiations for foreign aid were given priority. Foreign reserves were in a critical state. The country was, in fact, facing bankruptcy. The then Finance Minister Felix R. Dias Bandaranaike proposed a cut of half a measure from the free rice ration which was eating into the national Budget. Some Cabinet Ministers and the Government Parliamentary Group were up in arms as an election was around the corner. The long-term interests of the country were sacrificed at the altar of short-term political gain of a few.

The Finance Minister resigned in protest that his proposal was not adopted. His successor increased the maximum statutory limit of Treasury Bills (Government borrowings) from Rs. 1 billion by a further Rs. 150 million – princely sums then. He still couldn’t raise the money to balance his Budget. It resulted in further taxation on a public already taxed to the limit.

Sounds familiar? Here is a country still bankrupt, unable to pay back the foreign loans it has taken; a government increasing its domestic borrowings through Treasury Bills to balance rising expenses with income shortfalls; taxation of the public already squeezed to their limits, and beyond; a Finance Minister trying to implement unpopular reforms for the future good – and a Government Parliamentary Group that is afraid of losing at the next elections. Not much has changed in 61 years.

Indeed, the going is tough. Not only is the President determined to see through fiscal reforms that will ensure the country emerges from the hellhole of bankruptcy it fell into only last year, but he has to face an election himself next year. Not only do the people have short memories, so too the ruling coalition MPs who barely survived with their lives for bringing the country not just to the doorstep but inside the house of bankruptcy. They want an election-friendly budget. Our Page 1 story refers to a Social Protection and Welfare Budget coming up.

The Central Bank may say that they have succeeded in bringing down the soaring inflation from a record 70 percent to single digits. This does not translate to prices at the shop or the pola. Food prices compounded with consumer bills remain little comfort for poor and middle-income families.

In a widely acclaimed address at the Central Bank’s 73rd anniversary, Sharmini Cooray, one of the advisors to the President on debt restructuring, put the finger on governance as one of the basic issues that need fixing to fix the economy. She spoke of the need for political will to ensure the few with vested interests and oligarchs are not served by poor governance at the expense of the rest of the country.

She, no doubt, outlined several other economic fundamentals that needed to be implemented. On taxation, for instance, she critiqued the numerous tax holidays, especially granted by the Port City Act, and likened it to the Government giving the prospective investor money to invest.

She, however, struck a positive and encouraging note that the road to recovery is possible if adequate measures are taken to re-calibrate a broken economy. Having gone 17 times to the IMF and never fulfilled its reforms completely, she asked if Sri Lanka is going to falter again and face the same fate that befell the country in 2022.

The President is clearly hamstrung with a team that is not of his choice and whose backing he nevertheless needs for Parliamentary support. Unlike a US President, he can’t be giving Executive Orders above Parliament, nor can he pick a Cabinet from outside it. He can give commands and instructions, and he can appoint committees and commissions.

For instance, he recently called on the Inland Revenue, Customs and Excise Departments to catch tax dodgers. Easier said than done. These places are reeking with bribery. Officers are openly soliciting, unafraid of repercussions. The IMF and World Bank have already identified this as a major problem the Government has in raising revenue. Part of tax evasion is also linked to bribery. Heads of those departments are helpless.

How can a Government raise revenue when statistics speak for themselves? The total number of individual taxpayers last year was 437,547 whereas the previous year it was 507,095 – a significant drop, and that for a population of 22 million. The result is regular increases of indirect taxes and harassment of those who have tax files. The two affect the poor and the law abiding. That is why there is a cry for fairness and a demand for anti-graft action.

The media and numerous Parliamentary oversight committees are weekly unearthing corruption in State-Owned Enterprises (SOEs). That is apart from wastage and inefficiency, the burden of which the citizen must carry through a very high rate of indirect taxes and increased water, electricity and other bills. These revelations make the headlines only raising the discontent among the public as nothing happens thereafter. The discontent turns into an ‘Aragalaya’.

The closest, and most recent analogy may be the local cricket scene. When the players perform poorly, the focus of public outrage gravitated from the playing field to the corruption and abuse of office of those in power over the game at the Cricket Board.

Now, it has jumped from the Cricket Board to the Government, the Minister, and even the President for inaction. The buck stops there, eventually.