Budget Debate - 5th Day

We are footing a very large social service bill
- S.B. Dissanayake

Parliament met at 9.30 a.m. yesterday with Deputy Speaker, Anil Moonesinghe in the chair.

After presentation of petitions and papers and Ministers answered oral questions. House resumed debate on the Appropriation Bill 1999.

S. B. Dissanayake (Minister of Samurdhi, Youth Affairs and Sports) said: I am happy to take part in the debate on the 5th Budget of the People’s Alliance Government.

There were two characteristics in the Budget. One was that the opposition was happy about it. Opposition was happy about it because it was not attractive to the people. We in the government were also happy we were able to introduce a Budget, that recognised the economic realities without upsetting our economy.

The basic issues addressed by the government in presenting the fifth Budget and also our previous Budgets, include reduction of Budget deficit, control inflation, keep interest down, control conversion rate etc.

If we believed in introducing a budget that had attraction but depth, we could have increased the salaries of government employees by Rs. 100 or so and bring down the price of bread by a few cents. We do not believe in tinsel. We wanted to give the people a budget that is sound in the fundamentals.’

According to accepted facts, a country which spends more than three percent of its GDP on defence cannot make much head way economically. But Sri Lanka spends as much as six percent on defence while acquiring remarkable success in every sphere of the economy.

We are footing a very large social service bill. We have a sustained programme to develop housing stock. We also spend adequately for education. There has been an upward trend in our exports.

The Budget, I admit, has no false promises. It is an instrument to drag the economy of the country from quagmire that it has fallen into during the earlier regime.

The subsidies every government gave to the people have made the people dependent on such subsidies. They lost their resolve and independence.

Gamini Athukorale (UNP-Ratnapura District) said: The government’s bankruptcy was shown by its inability to control own party MP last Friday.

Cabinet approved the budget proposals. But you withdrew two proposals. You did this because we objected to them.

The Deputy Finance Minister was received by the government benches by an ovation.

You could have reduced the price of fuel. If you did so you could have brought down the prices of many commodities. You did not do anything by the 5th budget of your government.

The World Bank has advised you to increase the GST. Without increasing he GST you cannot anticipate the revenue.

Indika Goonawardena (Minister of Housing and Urban Development) said: Economic developments as well as economic crisis are happening in the world. The economic direction of our country is clearly evident in this budget. The direction of the world economy is decided by science, technology and companies which hold colossal amounts of resources.

The technological development of the world takes place in developed countries. The PA Government for the past 4 years has gone in this direction and the whole world has commended the policies of the PA. Economic management has been done prudently. The PA during their 4 year rule, through their successive budgets have brought economic stability to the country.

We have been able to avoid the economic crisis and the monetary crisis due to our policies.

We did not present a Christmas or election budget but budget to bring a strong and stable economy to the country.

All the budget proposals are aimed at strengthening science and technology in the country. Tax relief, tax benefits, small scale investments, new investments and vocational training have been introduced.

Electronic goods are priority areas. Five year tax holidays are proposed. Vocational training institutes have been given Rs. 50 million. This is to bring about a technology base as well as human resources base to this country and direct them to bring Sri Lanka to the technological era.

Training software specialists have been introduced and they have been made free of tax.

This is a budget which has been targetted for the future. Computer complexes will be geared to the next millenium. We will introduce tax relief as an incentive till 31st of March in 2000 and give computers 100% tax free. This is to bring this country on par with developed countries in science and technology.

This is the first time the government has been recognised on giving budget relief.

The construction sphere contributes 7% to the GDP. We will grant tax relief to them.

By 1st of April 1999, the income tax which is 35% will be reduced to 15% for the construction trade. Tax relief has been extended to the construction trade in order to strengthen the construction sector.

The development of the construction trade is essential, because they are engaged in infrastructure developments. We have given them the maximum possible benefits. As Minister of Construction I appreciate the benefits which have been given to them.

Rs. 100 million has been allocated as an initial capital for the fund to boost the construction trade. This will also eliminate unemployment in the country.

The agricultural sector has been granted relief for technological development. We have introduced long term steps to improve agriculture.

There are 15,000 families living in shanty areas out of which 55,000 are in Colombo. 50% of the population in Colombo live in shanties. The UNP during their 50 year rule did nothing to solve the problem of shanties, but UNP retained them.

During the past 4 years we have formulated plans to develop these areas. With the housing programmes all the shanties will be eliminated and we will build flats for these families.

When I discussed the shanty problem, with the World Bank they said they should be provided with more facilities. I told them that we must provide them with new houses. The World Bank accepted it and with the assistance of private banks and the people of the area, we will be building them flats.

Rs. 100 million has been allocated for this purpose. This money is not a burden on the treasury. We hope to get the support of the private sector.

Slums and shanties are in an area of 500 acres. We will give if to the private sector and from that money, we will build flats for them.

Not only science and technology and the economic field but we have taken steps ahead to improve the trade market.

We had the strength and the courage to introduce the GST and that was to be on par with the developed countries. We had the courage to get rid of the old taxes.

We have a strong economy. We did not allow the capital to flow away from the country.

Through privatisation we propose to get 800 million. The budget does not say what the enterprises are. Once we identify them, we will discuss them with other parties and we will go ahead with the re-organization.

It is necessary to enlighten the people of privatisation. The Deputy Minister of Finance Prof. Peiris said the EPF and ETF will be invested with the consent of the trade union.

We must get the views of the people and the trade unions before entering on such ventures.

Dr. Neelan Thiruchelvam (TULF-National List) said: In the Westminster model, Parliamentary control over finance has often been regarded as a principle of the highest constitutional importance. In Sri Lanka, the presentation of expenditure estimates, the Appropriations Act, the new fiscal proposals and the committee stage debate form the elements of what we call the Budget Debate. It is often regarded as the high point in the annual legislative business of Parliament often characterised by drama, the clash of ideologies and competing social and economic visions. Sadly the budget debate is being progressively stripped of the drama and excitement which ordinarily accompanied this event. It is increasingly becoming a formal ritual more akin to presentation of the annual report at the Annual Meeting of a large corporation - an event of diminishing political content or of constitutional importance. Budgetary estimates are no longer reliable inevitably revenue projections and expenditures have been significantly modified. The continuing recourse to Supplementary estimates often for defence purposes adds to the loss of credibility of the budget as an exercise in projecting the budgetary deficit and designing fiscal policy measures to bridge this deficit.

One aspect of the budgetary process which remains relevant is that provides us with an opportunity to reflect on the state of the national economy. I have often in this regard consulted and frequently quoted the Annual Report on the State of the Economy published by the Institute of Policy Studies headed by the economist Dr. Saman Kelegama.

The 1998 Report begins with the following paragraph, "Sri Lanka recorded a satisfactory economic performance in 1997 and it seems to have escaped almost unscathed by the collapse in the East Asian economy. Not only did it avoid contagion-there was no panic and no crash - but growth rate of 6.4% was well above 3.8% of the previously drought affected year. The fiscal deficit narrowed significantly, total public debt (as a share of GDP) fell, inflation and interest rate came down, national savings _increased, current account and the external debt situation improved, and a healthy level of foreign reserves was maintained. By and large this good macro economic performance was sustained in the first half of 1998". A similar optimistic assessment was made in the budget speech by Prof. G. L. Peiris when he referred to higher growth, improved fiscal discipline, low inflation and lower unemployment.

The first question that we need to ask ourselves that even if the above assessment of the macro-economic fundamentals is sound, how realistic is the budgetary exercise in its estimate of revenues and expenditure. One of the most important fiscal policy measures that have been introduced by the government has been the replacement of the BTT by GST. There were three bands of BTT which were replaced by a single GST rate of 12.5%. Experts estimated that the rate would have to be 16% if GST was to generate the same revenue that was recovered through the imposition of the BTT. So clearly as it has been pointed out by the Institute of Policy Studies, there would be a revenue shortfall as a consequence of this fiscal measure. During the last budget, proceeds from privatisation were expected to make a significant contribution towards the reduction of the budgetary deficit, but during the past four year period, the amount generated by the divestitude of public enterprises has been significantly less than the projected figures. Nonetheless in 1997, privatisation proceeds enabled the government of Sri Lanka to retire approximately US dollars 170 million of domestic debt. IPS in its report has pointed that with "the privatisation proceeds waning (with only a further 10% stake in the Sri Lanka Telecom on the pipeline for privatisation this year) the government will be hard pressed to find new sources of revenue". However declines in the international price of petroleum should result in significant revenues for the Sri Lankan Petroleum Corporation. The international price of crude oil has dropped from a high of US S27 per barrel to the present price of US $12 per barrel.

(Contd tomorrow)