By Kumar David –
The Budget is remarkable for three reasons; it is ambitious and looks into the future, it cannot function without public-private partnerships (PPP) in new industrial zones, and thirdly if the long-term objectives that embellish the Finance Minister’s vision are to bear fruit the government has to be an active agent and driver. The third consideration is in conflict with what the FM has pronounced at seminars with business organisations and I will deal with this at the end. All over the world budgets promise the moon and fail to light even a candle. Still, if these proposals are read as long-term (as with NM’s approach) to be spread over say five years, they are credible. So when I tease Mangala that he is on steroids, well why not; that’s what we need.
I have to ration words – the Editor is not my godfather – and limit myself to a few topics. My choice today is environmental and sustainable development, the informal and SME sectors, the global nexus, public finance, the revenue gap and our colossal debt burden. I will sign off by voicing concern that the FM’s outlandish comments at business seminars amount to capitulation. Mangala your slip is showing! I have paid you the ultimate compliment for a Lankan finance minister, mention in the same breath as NM, but you despoil a balanced parliamentary presentation with a starkly contradictory stance when addressing captains of capital and dinosaur liberal think-tanks. I say old chap, what’s up; schizophrenia?
Paragraphs 14 to 65, prominent in the early part of the budget presentation, bear the imprint of President Sirisena. It is long section on ambitious environmental objectives and a promise of sustainable development, Sirisena’s pet themes. I believe this is the first time the environment, the surrounding oceans and pollution related concerns have featured prominently in a Sri Lankan budget. Specifics include electric vehicles (cars, buses and three-wheelers), solar-power, drip irrigation, a tax on polythene and carbon emission, waste management, and cleaning river basins which are becoming cesspools. Incentives to encourage solar power, electric car charging stations, agro processing, drip irrigation and the plantation industry have been included. A carbon tax, and a one-time luxury car tax instead of the present tax distributed over seven years, will be levied on petrol and diesel vehicles.
Wildlife conservation and reformatting the Dehiwala Zoo along the ‘Open Cage’ plan finds favourable mention. This is avant-garde thinking, I hope it gets done. Will it bring a smile to the face of Dr Sumith Pilapitiya, and will he, at last, buy me that long promised whisky?
I am happy that the small and medium enterprise sector (SME) has won much attention and promises of support in paras 74 to 84. I would have been happier (and so would my neighbour and friend S. R. de Silva who has much researched the topic) if the FM had paid attention to the informal (unlicensed, undocumented untaxed) sector of hawkers, craftsmen and skilled workers who, below the radar and unaccounted, contribute a goodly amount to the country’s undocumented GDP. Several expenditure proposals to assist SMEs have been introduced, including grants, lower interest rate loans and technical support.
A welcome feature of the budget is that, at last, this or any government has taken note of the need for a special effort to rebuild the war ravaged north and east and has made budgetary provisions in a section entitled Reconciliation. The Finance Minister will win the appreciation of the Tamil and Muslim minorities for taking note of their predicament. On the other hand, this is another reason why the Joint Opposition and its English literate apparatchik, snarl their hatred of the Budget. Mangala, personally, has kept faith with his standing as an advocate of pluralism and cultural modernism.
Paras 85 to 100 are addressed to the local capitalist class. The section promises many goodies such as support for export market activities (Rs 800 million earmarked) and quality, outreach support and intellectual property protection, together Rs 300 million. Incentives are offered for job creation, investments in fixed assets in designated zones, information technology and headquarters relocations. But there are threats! Restrictions on foreign ownership of condominiums below the fourth floor and on ownership of shipping and the freight forwarding businesses will be lifted.
“The para-tariffs applicable on the tariff lines which do not at present carry any Customs duties will be abolished within the next 3 years, in keeping with our policy of liberalizing and globalizing. (W)e will remove almost another 1,200 para tariff”. (Para 85)
“Restrictions on the foreign ownership on the shipping and the freight forwarding agencies will be lifted. This will enable major international shipping lines and logistics operators to base their operations in Sri Lanka”. (Para 97)
‘Cess’ has been removed on hundreds of items. The intention is to end blanket protection for the mudalali class and local capitalists, and expose their products to global competition. Shielding local capitalists has gone on for far too long; the consumer of shoddy, overpriced commodities has been the loser. Shielding nascent domestic industries from global competition is necessary for a period – say 5 to 10 years depending on investment and industry. After that it must be no-holds barred global competition. Why should consumers subsidise grotesque rewards to inefficient blood-sucking capitalists? The allied issue of employment protection can be addressed separately.
In several places the FM stresses the importance of foreign trade, development zones with foreign participation and interaction with the global economy. These initiatives and the aforesaid threats have evoked howls from the blood-suckers. Mouthpieces of the Joint Opposition and Mahinda Rajapaksa are blaring themselves hoarse. They now have one more arrow to add to their arsenal of race-baiting and Muslim-hating. Let’s see if the FM and government are forced to back off – the Achilles’ heel is Sirisena’s SLFP entourage.
The strategic objectives driving the Finance Minister’s vision, as well as numerous specific goals (e-commerce, logistics, robotics, multinational outreach, product design, mechatronics and dedicated industry zones), cannot be reached without the state taking a leading role and driving the process. Surely only a dotard can imagine that Lanka’s private sector, stunted and lacking vision, can blaze this trail unless led by the nose. Should we not learn from South Korea, Taiwan, Vietnam and Modi’s driving energy in India?
There is no change in personal taxes which are already too generous to the rich and superrich. I used a website run by PwC to a make a rough computation of tax on gross personal income and came out with the following: Monthly income Rs 100,000, no tax; monthly income Rs 1,000,000, tax Rs 186, 000; monthly income Rs 10,000,000, tax Rs 2,346,000. This is far too low for a country with large income inequality. Of the expected gross government revenue of Rs 2,200 billion in 2018 only Rs 375 billion is derived from income tax; VAT and Excise Duties contribute Rs 550 billion and Rs 535 billion, respectively. This is grossly lopsided; the rich get away lightly. The proportions remain roughly unchanged till 2021, the point to which budget forecasts extend. If one adds import duties, nation building, CESS (all items passed on to consumers) in 2018 the populace will pay Rs 1,660 billion while the rich (the income tax payers) contribute a measly Rs 375 billion.
Because of feebleness in direct personal and corporate taxation, revenue will fall short of expectations in the next period. Nor is the much-hyped business class going to drive the economy upward and provide the state with enhanced revenue. The hope of reducing the fiscal deficit from 5.4% (2016), to 3.5% by 2020 will not materialise, in part for this reason, and in part because many new initiatives have been introduced on the expenditure side. The FM says that government revenue rose from 11.5% of GDP in 2011 to 14.2% in 2016 and will be held at 15% of GDP for the next three years. But that’s not enough.
My last substantive comment is about debt and debt servicing. This is a big topic and I touch just one crucial aspect. There is no undertaking given that the foreign debt mountain will be trimmed; all that is promised is that its rate of increase will “decelerate”. The incomprehensible gobbledygook is: “As net borrowing is expected to be less than interest payment, the build-up of outstanding debt would decelerate since a part of revenue goes to finance debt servicing, in spite of depending entirely on borrowing”; (figure caption on p.107). Translated into standard English this says: Revenue will be adequate to pay interest, but new debt will be incurred to service principal-repayment and perhaps more borrowing may be needed; so the quantum of foreign debt is likely to keep rising.
Is neoliberalism lurking in the corridors?
Which is the true Mangala? If his talk at an Ernst & Young forum reported in the Financial Times of 13 November and his comments in Economy Next on 15 November are taken literally, one would think the ghost of JR had risen again. “Mr Speaker, while we introduced an open economic policy regime in 1977, in the last decade we have lost momentum, with many of our laws remaining archaic and regressive”. (Budget, para 14). And he told the Ernst & Young forum: “Some Lankans still have a socialist mindset. It is time for Sri Lanka move forward and competes”. It is news to me that Mangala is hostile to socialists, though ironically, he is finance minister of a Democratic Republic which also calls itself Socialist (sic!)
Many people fear that if these remarks are taken at face value, it signals a swing to neoliberalism of Reagan-Thatcher vintage and the 1980s ideology of the IMF and Washington Accord; both now defeated, disgraced and discarded. Either the economic orientation implied in these remarks must be reversed by public intervention and internal forces within the government, or it is a war in which no segment of the left can stand still.
I am not exaggerating; here are a few comments from the Ernst & Young forum summarised in the Financial Times (SL) of 13 November. “Finance Minister justifies case for sweeping liberalisation; laments some still have socialist mindset; assures Govt. support in creating an environment for free enterprise; the thrust of the 2018 Budget is free enterprise, liberalisation and globalisation”.
These comments, within a balanced discourse and limited ambit, are not reprehensible, nor do I wish to make ideological heavy weather about isolated remarks. In the context of the Budget Speech and the written version before me, the FM deserves forgiveness if he was only feigning a split personality to please the assembled moneyed players and petty-bourgeois hoi-polloi. Let him clarify.
Dani Rodik writing in Class & Inequality, 6 November 2017 (Rescuing Economics from Neoliberalism) says the neoliberal experience has been a failure across the world. “Almost all of these countries joined the world economy by violating neoliberal strictures (meaning South Korea, Taiwan and Singapore). Chile’s neoliberal experiment produced the worst economic crisis in all of Latin America. Mexico provides a particularly sad example. The fatal flaw of neoliberalism is that it does not even get the economics right. It must be rejected on its own terms for the simple reason that it is bad economics”.
Mangala, does your government intend to lead from the front, or to abdicate the task to fickle, untrustworthy and unproven chattering classes?
Jim softy / November 26, 2017
Right now Sri lanka has filled it’s roads with old petrol and diesal Vehicles. It says, new roads have built not to help the agricultural areas or to facilitate the removal of manufactured products. Roads have been built just to vehicle moving. I heard, the rich is paying only 17% of their revenue. while the poor is paying 74% as indirect taxes. Sri lanka has a debt burdon of 87.5 billion. and the 2019 debt payment id $ 5 billion. but, 2016 and 2017 alone the country paid extra interest because of the Central bank scandle. Every country is moving towards environmentally sensitive projects. Sri lanka doe snot have anyway to utilize anything from electric cars. They will have to pay money to remove electric cars as well as batteries to recycle. Why Sri lanka can not build eletrified mass transit. Why dumb and corrupt ministers are appointed and mass transit – railway, buses and even air planes remain money losing ?. Remember Sri lanka is a country which can not earn money even from petroleum and hydroelectricity. they lose mony every time. Avamangala Samraweera got big money more than once from american charity ORganizations, one being Millinium challenge corporation (MCC). So, the budget is for MCC, I”MF and world bank. So, they will get most lands, ports, and big chnks of state banks. Sri lankan banks in rupees and not in dollars or euros. Peoples bank is one that had gone bankrupt more than once. Yet Avamangala says they are ready to go to the share market. So, who will have the majority share owner ship.
Don Stanley / November 26, 2017
Get real Dude Kumar!
Please read the report “The Bailout Business” by the Transnational Institute in Amsterdam on the Greek Debt crisis. Sri Lanka is in the global bail out business debt trap run by IMF, KPMG, Deloit, etc.
The single biggest cause for lack of FDI and growth in real economy is Corruption and rent seeking by politicians and their business crony networks – epitomized in Bonds Scam. No FDI and economic growth will materialize despite sale / privatization of all national strategic assets (lands via BOI land bank, ports, labor SOEs, LNG reserves), though so called PPPs due to Corruption.
Until there is transparency, accountability and good people running the finances and economic policy development of the country and corruption reduced, Lanka will continue to sink deep into the global debt trap. DO not be fooled by Managla’s goodies for the northeast,. Those lands will be sold to US hedge funds.
Dodo / November 26, 2017
Kumar seem that you are on steroids!
Bondscam Ranil who has looted the central bank of SL should be impeached before he causes any more damage to the SL economy with his crony networks. CORRUPTION and ensuring policy instability is the single cause of the failure to bring FDI and economic growth to Lanka. Ranil Wickramasinghe is worse that Mahinda Jarapassa brothers and they all most be arrested.
Sirisena should follow the model of Prince Salman of Saudi Arabia who has arrested corrupt princes and cronies and is keeping them in 5 star Hotel until the funds they stole are returned to the State.
Check out this story https://www.theguardian.com/world/2017/nov/09/saudi-arabia-201-people-held-in-100bn-corruption-inquiry
Ranil Wickramasinghe and his Bond scammer network and the Rajapaksa brothers and Sri Lankans named in Panama Papers should ALL be kept under house arrest at the electricity guzzling and glittering GODE, Shangri La that has been hosting all the corrupt politicians in Colombo and their bank accounts frozen until they return the funds they looted from Lanka.
Jim softy / November 26, 2017
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oldcodger / November 26, 2017
I am surprised that Prof. David, Electrical engineer that he is, has not commented on the rose- tinted but impractical proposals in the budget regarding electric vehicles.
Mangala proposes more charging stations, but with current technology, it is not possible to fully charge an EV battery in less than 30 minutes. Are drivers required to hang around charging stations for that long? Those doing long runs (such as electric three-wheelers and buses) will have to top up several times.
The cost of brand new electric vehicles is about double that of conventional ones. Factor in the cost of battery replacement, and the proposition is utterly impractical, as many Electric car owners have recently found to their dismay. This is why the franchise owners are not keen on importing brand new vehicles.
Until batteries can be charged in a minute, AND retain full capacity for 10 years, such proposals will not work.
As to reducing pollution, what is the point of removing CO and smoke emissions from cities and creating even worse Sulphur heavy metal and coal dust emissions in Norochcholai/ Sampur?
edwin rodrigo / November 26, 2017
Renewable Energy: .A 7 kWH Tesla Powerwall battery costs $ 3,000. Grid Electricity in US costs $ 0.1 – 0.2 (Rs 15 to 30) per kWh. In Sri Lanka, the lowest bracket costs Rs 10 per kWh and the second & third (which would be the important one for electric car users) is about Rs 30 – almost the same as the US price.
A good rechargeable battery can be expected to deliver about 1000 charge/discharge cycles before it has to be replaced. Thus the cost of storage of a kWh would be around $ 0.3. The total cost of a kWh would be about Rs 0.3 to 0.4 kWh or (Rs 45 to 60 per kWh).
What this means is that the storage cost (battery cost in the case of vehicles) is high compared to the generation cost. The reason for this is the high capital cost of the batteries. It has to be noted that this will apply to vehicles as well as domestic electricity. Domestic electricity too will need a high level of storage because of the fluctuating nature of renewables.
What about other forms of storage. For utility scale one of the best is ‘Pumped storages’ where hydro turbines would be used as pumps to pump water from a lower to a higher reservoir when renewable energy is available. Then they will run as turbines generating power in the low renewable periods. The capital cost is around $ 100 per kW. Right now this is one of the viable options for us.
Another is to connect with the huge Indian grid. Those countries like Spain who brag that they have managed for record periods with no fossil fuel are interconnected to huge European grids, where they have ample normal and pumped hydro.
Jagath Fernando / November 26, 2017
We have had three policy speeches from PM and three budget speeches from FMs todate. Not much is happening on the ground.
The only substantial projects are the recommencement of the port city project and the hand over of the Hambantota port to the Chinese. Is that good enough economic progress for two years? Not good enough. GSP+ is not going to make a significant impact.
Hope for SL over the next years are the two projects given above.
We are building hotels and airport is too small to bring additional tourists.
Govt policies are inconsistent. Two examples. Electric cars duty reduced and then increased and now reduced again. Beer prices reduced and then increased and now reduced again. Apartments included for VAT and then removed and now included again.
Every year the two soft targets , namely the banks and telcos are taxed more and more. Banks are now paying almost 45% effective tax!!!
How the hell do you do business in this country ??.
None of the governments have consistent policies and that is killing the private sector.
Dinuk / November 26, 2017
KD instead of harping on you whisky, its time to suggest real medicine for the corruption that is the prime cause of Lack of Growth, FDI and the massive debt in Miracle of Modayas.
Time has come for Mangala, Sira and AGs office to follow model of Saudi Crown Prince Salman who has incarcerated his billion dollar relatives and other cronies in the Waldorf Astoria super Lux prison until they pay up their stolen cash and tax $$ to the State.
Mangy and Sira need to instruct capture and incraceration of all the bond thieves and their cronies network and the Mahinda Jarapassa cronies and Avant Guard looters etc. in the glitzy kitsch Chinese style gold embossed Shangri-La until they pay up what they stole so the some of the massive national Debt of Lanka can be paid down, rather than passed on as taxes on the poor.
edwin rodrigo / November 26, 2017
The Budget: The author starts the heading of the article with the words “It’s not a Budget”, which reminds me of the words of George Bush: “It’s clearly a budget. It’s got a lot of numbers in it”. I do not agree with a lot of things that Bush said or did. Working in the Middle East since the early 1980’s I have seen the effects of what he said and did. But in this case I agree with him. Clearly, AKD’s choice of words for the heading is wrong. It is a budget.
I say that because it has passed the acid test of what a budget should look like – simply a lot of numbers. So let us not beat about the Bush. Let us go ahead. The question is what do these numbers mean to us? The answer of course is – nothing. I can take any bet on that. Those numbers will be like the reams and reams of numbers that AKD wrote down on the blackboard when we were his students, which we copied down meticulously. But to this day I did not have any idea of what they represented. But today, with his article, I get some idea about what they were – A Budget. Judging by the number of numbers, it must have been a very good budget – a budget that Bush would have loved – a budget as good as Mangala’s budget.
Of course I still have no idea what that AKD budget was for. But just as the delayed revelation about those numbers that AKD passed down to us in 1964, I am sure it will be revealed in due course just as the meaning of Mangala’s budget would be in the coming years. If you are waiting with bated breath for that, don’t. It is best not to wait for bad news.
SJ / November 26, 2017
AKD could have also emphasized that what he sees as heavier taxing of the poor and neoliberalism lurking in the corridors (where once revolution was round the corner) are part of the reality that we live in a neocolony and our governments are willing to go along with it, and the Budget is not for our benefit but those whose interests that IMF protects.
By the way, AKD complains that Mangala is being anti-socialist despite serving as a minister in a Democratic Republic that also calls itself Socialist.
The idea of a “Democratic Republic that also calls itself Socialist” was JRJ’s brainchild. Was JRJ a friend of Socialism?
China has “Socialism with Chinese Characteristics”. Does it make more socialiost than when it lacked those characteristics?
Rajash / November 26, 2017
Prof Kumar – not only you rationed your words you also carefully chose your words. whats the big idea a Finance Minster on steroids delivering a budget for an economy on aneathetics and gone to long term sleep. The finance minister decided to take the steroids for himself and forgot to deliver a panacea for the econommy.
Jim softy / November 26, 2017
for whose benefit, the mass transit is not promoted instead, electric vehicles are promoted ? What are the environmental impacts of so many electric and magnetic circuits. High voltage wires and mobile phones are known to Cancer – causing. did they think about battery recycling or we have to pay for sending overseas for battery recycling. Because, the metals in the batter is important. but, they say we need money to take this discarded battery.
old codger / November 27, 2017
High voltage wires and cellphones are NOT known to cause cancer, except on some dodgy internet and Youtube sites.
edwin rodrigo / November 27, 2017
old codger, Jim Softy may not be 100% correct. But his concerns are genuine. Overhead power lines produce low frequency (50/60 Hz) electric and magnetic fields. These are suspected to have long term effects on health if exposed for long periods. Those who live close to such lines may therefore be at risk.
Mining of the heavy metals such as Lithium for the production of batteries also cause grave concern. As Jim points out, how we are going to handle the old batteries is also not clear.
Jim softy / November 27, 2017
Sri lankan Economist – Dr. wijewardane said some where. Sri lanka’s growth this year was 0%. world bank says, the next year’s economic growth of sri Lanka will be worse than this year. In 2019, Sri lanka has to pay a debt of $ FIVE billion. What does that means to the country. Avamangala is busy completing the foreign agenda.