Budget: Beware, old wine in new bottles

The joys of victory and pangs of defeat of the Local Government elections made the presentation of the first budget of the United National Front almost a non-event.

Finance Minister Mr. K.N. Choksy made an elegant courtroom presentation that was devoid of histrionics or dramatic flourishes that go to make a political presentation. It was a difficult budget to criticise - the critics now being in the opposition and responsible for the state of the economy, which Mr.Choksy described as having reached a state of paralysis. He did not need strong words to rub in the salt. Plain statistics were sufficient. Economic growth which was at 5.6 per cent in 1994 had dropped to 0.0 in 2001 and now stood at -1.3 per cent. Agriculture growth had dropped by 2.3 per cent and industrial growth by 3.7 per cent. The budget deficit stood at 10.8 per cent and the debt burden that each citizen had to carry was Rs 77,500.

But Mr. Choksy had nothing cheerful for the government benches to be thumped. The only three development projects on the boards were: Commencement of the Southern Highway, the implementation of the Upper Kothmale Hyrdropower project and the combined cycle power plant at Keralawalapitiya.

Thus, the budget debate has been placid and lacks the usual fire. Only the newly introduced Value Added Tax (VAT) appears to be drawing fire. The VAT has replaced the GST (Goods and Services Tax), which some critics, when it was introduced called the Gona Saha Tanakola tax (Bull and Grass tax) and the National Security Levy (NSL). Economists sounded lyrical when they introduced the GST some years ago, which they said was far better than what existed before, the Business Turnover Tax (BTT). Now the VAT is supposed to meet the deficiencies of the GST. The main reason for replacement of the GST with the VAT is attributed to the GST not collecting enough revenue. This implies that this tax, which will be imposed on every consumer item, will increase prices further.

A wag says that the average layman and even most politicians will not understand the differences between BTT, GST, VAT and even the LTTE. These are all worked out in the fertile brains of the whiz kids in the Treasury and Central Bank, and we laymen have to believe it all as some divine truth. That is why the GST was called the Gona and Tanakola tax - the public being the bull that has no option but to chew the grass presented. What Prime Minister Ranil Wickremasinghe, Mr. Choksy and others have to keep in mind is that the authors of the VAT are the same as the authors of the BTT, GST and NSL. What went wrong precisely is not known or told, but we the public and even the politicians have to take the old wine in new bottles and hope for the best. This is the case not only with the VAT, but most budget proposals which have been recycled and presented in the past decade, courtesy the IMF. It will be good for Finance Ministers to remember that Finance Ministers come and go, but their mandarins, blessed by the IMF, go on and on for quite a while.

Even the most virulent of critics of this government could not have hoped for far- reaching concessions to ease the tremendous increase in inflation. But it has to be pointed out that absolutely essential commodities are getting beyond the reach of the people, especially the poor. The scene at pharmacies of the poor being dumb struck when told of the prices of drugs they have been prescribed and turning away in silent anger is an indicator of the state of affairs in the country. The poor being deprived of basic commodities could be one of those reasons for the definitive verdict at the polls last week.

Mr Choksy did not indicate of any additional cushioning being provided for the most economically vulnerable sections. Such assistance is a dire necessity.

The middle class, too, is leading a hand-to-mouth existence, while those in employment manage to keep their heads above water with much difficulty. The pensioners, unless they are supported by their near and dear, will have to lie down and die. This is particularly applicable to those who had worked in the private sector and have to live off the interest of their meagre savings instead of the monthly pensions, which state employees are entiteld to. Interest rates in the past few years have hit an all-time low. Now it appears that Mr. Choksy intends taxing interest rates from such savings as well. ( See letter of a tax consultant published on this page). This is a crucial matter which needs immediate attention.

The situation is undoubtedly not one where the people can be helped much by the state. The budget proposals are those of prudent financial and fiscal measures that can rescue the economy and place it on a stable footing. This, by itself is no easy task considering the international economic trends and the internal economy. But the vulnerable sections of the community need immediate assistance.

The government should also ponder in attempting to break out of the beaten track and following the advice and dictates of our international money lenders and their Sri Lankan acolytes, who are our financial and economic advisors. There is a huge and thriving black economy with vast resources to be tapped. Not only the casinos and bookies seem to betreated with kid gloves - only Rs 12 million per annum per casino! The Kassipu trade which is undoubtedly the biggest going industry in the country could yield billions in taxes.

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