A fiscal advisor to the Ministry of Finance says all budgets encouragingly proposed development programmes but they could not be implemented because the development expenditures, or capital expenditures, are the casualties of high budget deficits.

"Government revenues have been static and expenditures are going up so there is an expenditure overrun. So where is the adjustment made?" he asked, addressing a post budget seminar organized by the National Chamber of Commerce of Sri Lanka last Tuesday.

"Governments do not cut down on recurrent expenditures because they include salaries, interest payments and subsidies. So a reduction is made in the development expenditure, which is the capital account," Tax Consultant and Fiscal Advisor to the Ministry of Finance, Former Deputy Commissioner of the Department of Inland Revenue, P. Guruge said.

Guruge said the capital expenditure had always been reduced from budgeted estimates.

In 2006, the budget estimated about Rs. 203 billion but the actual was about Rs. 177 billion. In 2007, about Rs. 240 billion was estimated in the budget and the actual was about Rs. 229 billion.

The 2008 budget estimated capital expenditure to amount to about Rs. 335.6 billion but the revised figure shows a decline in development expenditure at Rs. 278.1 billion.

Guruge says the problem is that revenues are always over estimated while expenditure has always exceeded the budgetary limits and this has resulted in the budget deficit always exceeding estimates.

Total expenditure was estimated at Rs. 710 billion in 2006 and the actual expenditure amounted to Rs.730 billion.

In 2007, total expenditure estimated amounted to Rs. 834.8 billion but actual amounted to Rs. 841.6O.

The budget deficits estimated for 2007 and 2008 was Rs. 235 billion and 293.4 billion respectively but the actual for 2007 was Rs. 276.55 billion and the revised deficit for this year is 307 billion.

In 2007, the budget estimated a current account surplus of Rs. 3.6 billion but actually recorded a current account deficit of Rs. 57.71 billion. In 2008, a revenue surplus of Rs. 37.8 billion was estimated but the revised estimate shows a deficit of Rs. 34 billion.

The budget for 2009 estimates a current account surplus of Rs. 31.49 billion and analysts are skeptical this can be achieved if at all a surplus is achieved. The budget deficit is estimated at Rs. 336.67 billion.

"After every budget is proposed we think we are doing well but half way through it does not become possible. We are consistently finding ourselves back to square one," Guruge said.

Guruge said the 2009 budget did not address the burning issues of high inflation and interest rates and provided no solutions for bigger social problems, without which the impact of the budget will not be encouraging.

"Most people were jubilant after the budget, but wait and see. The hidden impact of the budget will increase prices and normal consumers will be the most effected," he said.

Many analysts, and business chambers, while praising the budget on one hand for imposing levies and cesses in a bid to boost domestic industries by discouraging imports, warn the new levies and cesses could lead to escalating prices as domestic industries have neither the capacity nor the ability to meet domestic demand (see Island 8, 10 and 11 November).

Guruge said the government hopes to raise an additional Rs. 30 billion through new taxes.

The Nation Building Levy (NBL) is hoped to rake in an additional Rs. 15 billion and the government says it is a temporary tax which will be charged over eight quarters.

The NBL is justified as it is for the development of the country, especially the Northern and Eastern provinces.

However, analysts say similar taxes have been imposed before, such as the National Security Levy and National Defense Levy.

Guruge says there should be a law to disallow temporary taxes from being extended.

"They will say the country is not developed, that the nation is not yet built," he said.

Guruge was not being unpatriotic rather, he was skeptical, like most of us are, that a government of this country could finally deliver on its promises.

Guruge says that by the first quarter of next year the government would have collected Rs. 4 billion and asks whether the government has a plan to use these funds.

Government officials who have spoken at many post budget seminars have been passionate about the NBL, but the question is, will it be put to good use?

The Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) praised the budget but said the NBL would hurt SMEs.

FCCISL said it would make its reservations known to the government together with reservations about the government’s plan to revive Mihin Lanka at a time when funds are needed in other priority sectors.