The Brewing Crisis Of The Tax State: Stimulus For Prosperity Or Austerity For Sustainability?
July 11, 2012
By W.A. Wijewardena -
Dr. W.A. Wijewardena
The Tale of Two Countries
Two events hit the local and global media separately last week.
The local media event was the release of the Midyear Fiscal Position Report 2012 by the Ministry of Finance and Planning in terms of the requirements of the Fiscal Management (Responsibility) Act of 2003 (available here). The global event was the Keynote address delivered by the newly elected Prime Minister of France, Jean-Marc Ayrault, in French National Assembly outlining the policy framework and strategy of France’s new socialist government (available here).
Both events have been the response of the policy authorities to a brewing crisis in the budgetary outcomes of the two respective countries. Hence, they deserve public discussion, debate and deliberation.
Sri Lanka’s shaky budgetary outcome
Sri Lanka’s Midyear Fiscal Position Report has provided the latest data relating to the country’s government budget for the first four months of 2012. According to the data released, Sri Lanka’s budgetary performance is shaky, off-the track and demonstrative of a brewing crisis in the government’s finances.
The report has not compared the budget’s actual performance with its original budgetary targets and therefore does not provide the full picture relating to the true state of the government’s finances of the country. Instead, the report has provided a comparison with the previous year’s levels which always show an improvement in money terms, given the increase in the country’s total output measured in money terms due to inflation. This has, therefore, concealed the brewing crisis in the government’s budget from public eye.
The revenue of the government, according to the Midyear Report, has increased from Rs 285 billion in the first four months of 2011 to Rs 306 billion during the corresponding four months of 2012. This is an increase of 7 per cent and, hence, an achievement. However, when compared with a pro-rated budget of Rs 369 billion for the first four months, the revenue performance has fallen short by some 17 per cent in this period. Consequently, as a ratio of GDP, when pro-rated, it amounts to a mere 12.1 per cent in 2012. The comparative numbers in 2010 and 2011 were 14.6 per cent and 14.3 per cent respectively. This is clearly a sign of the erosion of the revenue base of the government.
