Economists and business analysts speaking to the Sunday Observer, expressed views on Budget 2017, and reiterated the need to focus on fiscal consolidation, to position the country on a sound growth trajectory.
Experts said, tax and State Owned Enterprise (SOE) reforms and promoting private public partnerships are crucial to achieving growth targets.
Ceylon Chamber of Commerce Chief Economist Anushka Wijesinha said, the 2017 Budget must strike a clever balance between fiscal consolidation and growth promotion.Expenditure rationalization is critical. However, it should be done without compromising on social sectors such as health and education that have long term growth impacts.
Cutting expenditure on these sectors will have serious political ramifications for the government. But, it must avoid expensive handouts and welfare which the country can ill afford.
“It is vital that steps are taken in the Budget to re-set tax policy, correct the anomalies of the past year following the failure to implement proposals announced in the 2016 budget.
The 2017 budget must set out clearly the next steps on SOE reforms, private public partnerships, reforms to social welfare, promoting innovation and entrepreneurship” Wijesinha said.
He said, the country must move towards a more growth-promoting tax structure, with a focus on exports and FDI. Moving from tax holidays to expenditure based incentives, such as, capital allowances and accelerated depreciation is essential.
No miracles
Ultimately, budgets are about the fiscal position taxation and expenditure. We need to see some concrete steps on fiscal consolidation, otherwise it will derail the IMF program, have negative implications on sovereign ratings, and hurt our standing in international capital markets. Sri Lanka is now exposed to international capital markets than ever before. Therefore, a Budget that supports a sound macroeconomic position is critical.
Professor, Department of Economics, University of Colombo, Sirimal Abeyratne said, the budget cannot do miracles, although many anticipate them. While an annual budget reflects the current status of the economy, it also contributes to medium-term development strategy. A budget not sensitive to these two aspects of the economy is not a coherent one.
The current state of the economy is rather untidy.
Growth that was driven by the public sector and non-tradable expansion has slowed down, while private investment expansion and export growth are yet to be seen. Tax rates are high, but its revenue is weak – it is only sufficient to cover the government’s annual loan instalment (debt service). Any adjustment on the expenditure side seems unpopular and unlikely. As far as the populist economic policies in the past are concerned, there is no headway without a turnaround. The Budget 2017 therefore, should be a tight one, aimed at enhancing fiscal discipline.
How does the Budget help the business sector?
The best way that a government should help the business sector is not with handouts from the budget, but making the businesses easier; which requires the government to undertake regulatory reforms and play a facilitating role. All that go beyond the premises of a Budget.
Meanwhile, the country has a 2-year grace period as the increase in debt service is likely to slow down. However, there’s going to be a massive rise in debt service in 2019. What we do now will determine our economic status in 2019. It is necessary to understand that this grace period is to get ready with fiscal discipline and an economy on track.
Strategies
Chevron Lubricants Lanka PLC Managing Director Kishu Gomes said, every Budget had made reference to policy statements and strategies to promote FDIs. Successive governments have tried to improve our competitiveness as an entity over the years, but with least success. In the recent past we have seen Myanmar, Vietnam, Bangladesh and a few other countries attracting more investment than us. Investors have been mainly complaining about inconsistent policies, corruption, inefficiency in the government system, lack of infrastructure, uncompetitive labour regulations etc. Peace is a given, not a competitive advantage.
Looking back, can we be happy with the measures we have taken to address these concerns?
The reality though is, the decision to impose a super gain tax, increase the rate of VAT with retrospective effect, and the conflicting political views have further discouraged investors. Not only potential investors, but even the existing investors who have been in business are kept in suspense in terms of policy environment.
I believe this budget will not just have the vision of the government clearly articulated, but will make tough decisions in implementing them to get out of the crisis situation we are in. Policies should focus, not on just sharing the existing pie in the market, but bringing in value from the rest of the world to create more wealth for 21 million people in the country
Shippers’ Academy CEO Rohan Masakorala said, the economic challenges locally and externally would continue in the foreseeable future and proper budgetary planning is vital for Sri Lanka to sustain at least a five plus percent economic growth.
We must take advantage of the strengths we have and implement necessary reforms to attract FDIs and boost confidence in business, which is still not up to expectation. Up to now we have not seen the required speed in economic reforms to go into a paradigm shift, as political reforms have overshadowed the process and in that sense, somewhat lost out even to India. The government must have a multipurpose agenda and each one has to run independently so that we do not lag. The country has to a certain extent, lost out on many opportunities as indicated by international indexes, due to political reforms and corruption overshadowing the process of modernization and economic reforms.
“We expect 2017 to be a year of action for development and clear policy spelt out to each sector to reactivate macro-economic goals to achieve targets such as export growth.There is ample scope to expand exports. However, weaknesses in implementing policies has hindered growth. Lack of right people in the right places is also a serious problem. Tourism, trade, shipping, logistics, and education are lagging behind compared to the developed and highly competitive economies and their progressive thinking and strategies.
We expect the next Budget to be policy driven and action oriented. If the country is to be transformed into a strong business centre in South Asia it will need to seek international experts to put the house in order with institutional reforms, which is done by countries such as Dubai and Singapore, who are major shipping, logistics and trade hubs.
Sathosa Motors PLC Managing Director Tilak Gunasekera said, the business community looks forward to a better budget than the 2016 Budget to consolidate the fiscal policies of the government. As regards motor trade, when compared to 2015, there is a 30 percent drop in the overall market mainly due to the high import tax, volatility of exchange rates and loan to value ratio.
We expect the new Budget to cushion the ill effects of the previous budget and bring a better future for the motor industry. Even with the increased taxes the government did not achieve the expected tax revenue. This clearly shows that increasing taxes on vehicles have a limit and does not bring the expected revenue growth to the government. One reason is, the government wanted to control imports to cushion the balance of payment and ease road congestion.
As is done in other countries, we should use the revenue generated from the import taxes from vehicles to develop highways, roads and other infrastructure associated with the motor industry. We expect the government to work closely with the motor industry in implementing tax policies and encourage vehicle assembly plants in Sri Lanka for export purposes. This would bring in additional revenues to the government.