PM says country in debt trap, announces changes to govt.’s maiden budget


By Saman Indrajith

Prime Minister Ranil Wickremesinghe yesterday announced changes to the government’s first budget proposals increasing the Value Added Tax (VAT) and removing tax relief given to several sectors. Such action. he said, was essential to ‘maintain GDP at 5.4 per cent and the economic growth rate at 6 per cent in 2016.’

Making a special statement, the Prime Minister said: "I promised this House on Jan 28 that I would make a special statement with regard to the current economic situation in the country in the face of global economic trends and future prospects. I think time has come for me to make that statement.

"We have observed that several persons attempting to create unrest among public by shouting that the country’s economy is in dire straits. Some go abroad and hold seminars to tell Lankans living there that the economy of Sri Lanka has collapsed. That is why I thought of making a statement to the House and state the facts.

"It was I who stated first that there would be a national election in 2015. I said so at the beginning of 2014. In truth, I made my prediction very much ahead Mr Sumanadasa Abeygunawardena made his predictions. Sumanadasa Abeygunawardena made his predictions on the basis of formations of stars and planetary constellations. But I made my predictions after analysing the economic situation in the country. After analyzing the way the Rajapaksa was mismanaging the country’s economy, I realized that there was no future for that government after 2015.

"With the election of Maithripala Sirisena to the Presidency we could turn back the direction the country was being dragged.

We changed the policies that enabled the concentration of all resources around a single family. We provided relief to people under the 100-day government.

"However, it is not an easy task to salvage the economy from where it was. The previous government had taken massive amounts of loans. That government did not follow formal procedures in taking loans. They had obtained loans at their will without worrying how to pay them back. We did not have proper or complete records of the amounts of loans taken at the time we prepared the budget 2016. Some information we received only after the budget. According to the latest documents, the country’s total outstanding loans at the end of year 2015 were Rs 8,475 billions, which amounts to 74.9 percent of the GDP.

"Owing to the economic mismanagement of the Rajapaksa regime, the country is in a debt trap of Rs 9.5 trillion. The challenge before us today is to get out of that trap. The current global economic crisis is another challenge that we should face. World market oil prices are on the decline. Those who demand that the local oil prices be reduced do not see the danger behind it. On the other hand the Ceylon Petroleum Corporation has outstanding loans of Rs 365 billion.

"We have discussed this situation with world economic experts whom we met at the World Economic Forum at Davos last January. We discussed the crisis situation with IMF Managing Director Christine Lagarde, economists such as George Soros, Joseph Stiglitz and Ricardo Hausman and listened to their advice. Their opinion was that it was very difficult to predict the world economic situation and advised us to put more weight on increasing national income with utmost care in spending.

"We will not take loans to settle the loans as the Rajapaksa regime did. We will not be able to solve our economic problems in that manner. To get out of this crisis situation, we should increase the national income. We are just doing that. We have to streamline the tax revenue of the government.

"For that purpose we would like to revise our tax policies that we announced in the 2016 budget proposals. I propose to withhold proposals with regard to corporate taxes and non-corporate taxes for one year and to continue the rates proposed in the budget 2015 for those two taxes.

"Since 1987 Capital Gain Taxes were not levied in Sri Lanka. However there has been a growth in private capital in the country during the last decade. As a result the prices of lands and shares in the stock market increased because there was no levying of the Capital Gain Taxes. We propose that capital gain tax should be imposed again.

"The Nation Building Tax is levied on the basis of turnover. It has been proposed in 2016 budget to increase the NBT from 2 percent to 4 percent. That increase affected all sectors of society. In order to prevent that impact, we propose to maintain the NBT at 2 percent. The proposal to exempt electricity, lubricants and telecommunications would be further continued.

"In budget 2016 it has been proposed to implement two rates of Value Added Taxes as 8 percent and 12.5 percent instead of the 11 percent of single rate. However it seems that it is prudent that we maintain a single rate of 15 percent. We will remove the tax reliefs granted to telecommunication services, private education and private medical care. We will not let the low income groups to suffer due to the increase of VAT. We will not impose the VAT for essential commodities.

"All these moves are aimed at maintaining the GDP at 5.4 percent and the economic growth rate at 6 percent in 2016.

Chief Opposition Whip JVP Leader Anura Dissanayake said the Budget proposals had been changed drastically by the statement made by the Prime Minister and demanded that the statement should be subjected to a debate in the House.

"Prime Minister Wickremesinghe said that the government could permit the demand of the opposition.

"Finance Minister Ravi Karunanayake was not present in the House."

animated gif
Processing Request
Please Wait...