The contradictions and the lack of a stronger policy direction in the budget may be due to United National Party (UNP) affiliated think tanks being afraid of a repeat performance of 2004.
“When I talk to some of the think tanks of the UNP, and ask them of some of the contradictions, they said ‘in 2002 we did the right thing. We stopped public sector recruitment, freebies etc. and we got thrown out. So in order put the economy right, we must be there to do it’,” KPMG Sri Lanka Managing Partner Reyaz Mihular said.
Speaking at a forum recently held in Colombo, he said that this had happened despite the country priding itself as a highly literate nation.
In its short lived rule from 2002-2004, the UNP had implemented private sector-driven liberal market policies for rapid growth. However, the population at large was not able to see the benefits trickling down to them, which should have automatically happened according to liberal economic policies while the big businesses flourished.
Therefore, the UNP’s recent claim to power in addition to promises of taking action against the corruption of the past regime was with a social market economic policy, which would provide a safety net for the common man.
However, the budget’s lack of fiscal consolidation through seemingly eased tax burdens which may be seen as positive by the population, will place the common man under risk of further debt to finance government expenditure.
The budget had also outlined heavy intervention into most sectors, while the social market economic theory calls for market forces to determine resource allocation and little intervention.
Mihular said that policy mismatches in the Budget could be seen as a ‘glass half full’ scenario.
“Going with the current context in Sri Lanka, when there is a move, I try to look it as glass half full. While there’s a right direction, there may be a few which are not palatable,” he said.
Social market economics also envision high tax rates to fund the social safety net the government must implement. “I find that in other countries—especially in the west—when you say you’re not a tax payer, they think you’re a blaggard or a rascal. In Sri Lanka, when you’re not a tax payer, that’s a big thing, isn’t it? We need to change this concept,” Mihular said.
He added that when the people request the government to provide them with free services, they must keep in mind that someone has to pay for the benefits. He said that around 500,000 companies and individuals make up 85 percent of the tax revenue.
Meanwhile, the UNP had also promised to create 1 million jobs by 2020, as a response to its failed 2002 policy of efficiency through privatization.
The privatization attempt would have laid off much of the bloated public sector work force in favour of lean-mean organizations. However, public sector servants had protested the move, along with state university students, who had continued to receive guaranteed unproductive employment in the public sector under the previous regime.
The UNP’s new 1 million jobs are to be created in the private sector space, at technological and economic zones whose infrastructure is funded by the government, and will be managed privately. However, with greater budget deficit slippage risks due to contradictory policies, experts say that such infrastructure projects will be the first to get funding cuts when the going gets tough.