By Chandeepa Wettasinghe
Blanket incentives and subsidies will not appear in the upcoming budget, Finance Minister Ravi Karunanayake said while speaking at a forum organised by the Ceylon Chamber of Commerce’s Malaysia Business Council.
“Incentives are going to be basically targeted. Subsidies in this country, on which we spend almost Rs.400 billion, sometimes one third of that is not targeted at all,” Karunanayake said.
Despite being a low-middle income country, Sri Lanka is considered to be a welfare state with welfare payments given to the poor and a wide-ranging subsidy scheme for businesses, which has created a protectionist mindset.
Economists say that these incentives trap the population in non-productive sectors and smother the creation of a productive and innovative export sector, which could bring in much-needed foreign exchange.
Interestingly, Karunanayake’s interim budget in January had further increased such subsidy and welfare measures by Rs.80.3 billion, and only recently was able to legislate the Rs.95.45 billion in controversial taxes required to fund them.
The budget deficit is projected to reach 6.9 percent of the gross domestic product this year compared to 4.4 percent envisioned in the interim budget, while the government revenue is inadequate to fund even the recurrent expenditure, forcing the government to go for additional foreign borrowings.
The interim budget was brought in to fulfil most election promises made for the new regime to come into power.
Singapore’s Lee Kuan Yew had famously said that Sri Lanka’s democracy is an auctioning of non-existing resources, while senior economist Dr. Indrajit Coomaraswamy had said that the budget is a party, and the resulting budget deficit and balance of payment crises are the hangover.
The people of the country are equally to blame for entertaining such a democratic system, Dr. Coomaraswamy had said.
Karunanayake admitted that even the high income brackets in the country fall under incentive schemes, which will have to be eliminated.
“Even we also enter part of those subsidies. Sometimes it’s stupid to even think so. We need to ensure the needy gets it, and not for the sake of giving,” he added.