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It is necessary to increase direct taxes -- DEW
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In terms of the Fiscal Management (Responsibility) Act No. 03 of 2003, the Ministry of Finance is required to present a Mid-year Fiscal Position Report — 2012 to the people through the Parliament.
The purpose of this report is twofold:
1. To provide an updated information on the Government’s performance as per its Fiscal strategy.
2. To provide an opportunity to the Parliament to review mainly the Fiscal and Monetary policies and to assess the macro-economic performance.
Within the time at my disposal, I wish to touch upon only one aspect, i.e. the Government Revenue relating to the Fiscal Policy.
At the outset, we must bear in mind the international factor which profoundly influences our macro-economic stability, i.e. the on-going “Great Economic Recession” which originated in the United States in September 2007 and by now has engulfed the global economy. This is one matter which is conveniently ignored or disregarded by the neo-liberalists of the U.N.P.
Five years have elapsed since the recession commenced. Despite all possible bailouts and stimulus, there are still no signs or indications of early recovery.
The two main Economic blocs of the world economy which dominated the global economy for centuries, from the birth of capitalism in the 15th Century, namely United States and Western Europe, are yet in a state of acute crisis, having exhausted their economic bearings.
Mr. Speaker, the worst economic crisis hitherto recorded in world economic history being the Great Depression of 1929 - 1933 had to be solved through a world war.
The world had to pass through fascism, Nazism and all varieties of military dictatorship. Millions of people perished in this process.
Keynes had to step in with economic solutions to save capitalism. 1/3 of the world opted for alternative strategies of economic and social development, which paved the way for political independence to some of the colonies. It accelerated the collapse of colonialism.
Today, this crisis is taking place historically under a completely different economic environment, in a globalised world economy. It is more a systemic crisis than cyclical crisis.
• Finance capital dominates the global economy.
• Speculative capital is forceful and uncontrollable — Central Banks cannot control it.
• Capital freely traverses through the states piercing the boundaries of nation states with no instruments to control it.
• This unbridled flow of capital has adversely affected the macro-economic stability of independent states.
• Not only developing countries like ours, but even the largest emerging economies -- China, India, Brazil, Russia, and South Africa-- have suffered the impact of this Great Economic Recession.
It is in this background, that we should analyze the Mid-year Fiscal Position Report, and review the macro-economic performance of the Sri Lankan economy. These are factors beyond control. These are the objective factors.
Having recognized the objective factors and factors beyond our control, let us take an insight into the subjective factors, or factors within our control.
The Report acknowledges the decline in Government Revenue, Revenue De1 which was 139.8 billion or 1.9 %of G.D.P. compared to 1.2% in 2011.
This has resulted in an overall Budget Deficit. Normally the deficit is 285.8 billion Rupees which amounts to 3.8% of the G.D.P. as compared with 2.7 in 2011.
The result may be that you will finally end up with the targeted deficit of 6.2% of the G.D.P.
I have been repeating on the floor of this House, year after year that the Revenue that is collectible is not collected. There is potential for increase of tax revenue without disturbing either savings or investments. Sri Lanka has the lowest rate of tax in the world, i.e. 24% - No other developing country, leave alone developed countries, has this type of lowest rate of tax as 24%. I dare say that through such a low rate of tax you only promote or encourage consumption - You encourage the wants of the people at the expense of the needs of the masses.
Secondly, I cannot accept the fact that our tax administration is efficient. In the Tax Administration we have failed to close loopholes for corruption.
Thirdly, Black Money, according to an Australian research of 18 Asia- Pacific States, ever since the 1980s, with the advent of neo-liberalism, our black economy has grown fearlessly and freely. It amounts to about 50% of the Domestic Economy by now. This trend is alarming.
With this ill-gotten wealth a new strata of rich class is emerging which is now tapping at the doors of political power or hanging about in the corridors of political power. This enormous hidden wealth was transparent in the election campaign.
These elements are nothing but products of neo-liberal economy and of the 1978 Constitution.
The Bribery Commission, in my perception is not equipped in skills or intelligence to tackle this problem. This leads to the degeneration of political culture, current state of immorality, indiscipline, crime threat to rule of law, crises within religions. This growing disparity or inequality needs to be addressed with seriousness.
From the point of macro-economics, it is necessary to increase direct taxes, combat tax evasion, streamline tax education, if necessary bring new tax laws, reconsider tax policies. The implications of the Fiscal Policy should be looked at in the context of both economy and society.
This is basically what is echoed in the society by religious leaders, economists, social scientists, intelligentsia, administrators in various forms and terms.
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