February 2, 2015
How do I call this government? This question did not arise in the past as governments were elected with a specific name; UNP (1977- 1994), Peoples’ Alliance (1994- 2002), UNP (2002- 2004) and UPFA (2005- 2014). Although the present government is practically run by the UNP, it is hardly to say this is a UNP government as the UNP has less than 50 seats in Parliament. This is a government of multifarious organisations with diverse and conflicting objectives in spite of the presence of a common goal of defeating Mahinda Rajapaksa and his regime.
After the event, it has been political power that keeps these organisations united. Since I need some shorthand, I call the present government MR regime taking into account the two key people in the government, President Maithreepala Sirisena and Prime Minister Ranil Wickremesinghe. The word ‘regime’ suits better because so far the MR government has worked arbitrarily even going beyond the constitution. I could not explain the constitutionality of the so-called National Executive Council.
The government has not yet tried even to test that it has the majority in the Parliament. Similarly, the Opposition is hesitant to challenge the government that it does not have the majority in Parliament. In post-presidential election period, the colour of the ‘frogs’ are blurred.
However, the subject of the column this week is not the possible behaviour of the frogs, but the supplementary budget presented to the Parliament by the new Finance Minister, Ravi Karunanayaka. Does the supplementary budget indicate the economic direction of the new MR regime? My submission is that the speech made by the Prime Minister prior to the presentation of the budget together with the supplementary budget presented by the Finance Minister has revealed the economic direction of the government. Let me add. The two speeches have done that in inverse order. What does it mean? I will come to that issue presently.
As The Island reported last Friday, Finance Minister Ravi Karunanayake making a special statement on the 100-day programme of the new government told Parliament the previous day that the government would increase the salaries of public sector workers by Rs. 10,000, the pension payments by Rs. 1,000, and Samurdi payment by Rs. 750. He also suggested the reduction of the price of a domestic gas cylinder by Rs. 300, 400 grams of milk powder by Rs 61 and 400 grams of Sustagen milk powder by Rs 100. The price of a kilo of wheat flour would be reduced by Rs. 12.50. Other price reductions are: price of a kilo of sugar by Rs. 10, a kilo of green gram by Rs. 10, a kilo of sprats by Rs. 15, one liter of kerosene by Rs. 6, price of canned fish by Rs 60, price of Maldives fish by Rs 200, and one kilo of chilli powder by Rs 25.
Making me particularly happy, the Finance Minister announced that the senior citizens would be receiving a higher interest rate of 15% per annum for their savings up to a maximum of one million rupees for funds deposited in commercial banks. As a relief to farmers, loan concession and minimum guaranteed price for selected items were also proposed. Making the MPs happy, he informed that the funds provided to MPs under the decentralised budget would be increased from Rs. 5 million to 10 million each. As a concession to the Colombo City dwellers who had been relocated against their will the Minister said: "Our government will bear the initial advance of Rs. 100,000 per family borne by the relocated and also bear a part of the rental up to Rs. 250 per month over a period of 240 months". In addition so many other ‘goodies’ have been proposed. As a direct outcome of the budget proposals it has been expected that transport cost would be reduced.
As the budget experts have pointed out these goodies will cost an extra burden for public budget. The loan concession to farmers alone, according to Finance Ministerwill cost the government Rs. 2,500 million.
The Finance Minister has not clearly specified how these extra expenses would be financed. Of course he suggested Mansion Tax of Rs. 1 million, Rs. 500,000 for dual citizenship and a few others. However, the income expected from these tax proposals will not be adequate to bridge the gap widened by new expenditure proposals.
Suggestions have already been made to dilute the proposal of the Mansion Tax exempting many large houses from the tax coverage. The explanations given out from government pundits are not at all convincing. Minister Rajitha Senarathna defined this budget as one based on social market model. The notion of social market model was originated in Germany to designate government intervention in providing social services while sticking to private enterprise in the economy.
The system that now adopted in China, Vietnam or some Latin American countries has no affinity with this model. Deputy Minister of Finance and many others have argued that saving money from preventing waste and corruption would be adequate not only to fiancé the budget deficit but also to advance economic development. This is a very weak argument. Of course, if the new MR regime eliminated waste and corruption, that would save money. Nobody knows its magnitude. Assume it is enough to finance new expenditure, can the government continue with those savings? It is once and for all saving and it can be used only once. So, the argument that elimination of waste and corruption is the chief source of funding does not hold much water unless waste and corruption are seen as continuous, never-ending thing.
In my opinion, answer was given by the Prime Minister in his speech to the Parliament. Referring to the speech by the President Maithreepala Sirisena in Polonnaruwa, he said the country and the people should sacrifice in order to build a sound economy and to achieve economic development.
It really means that as we promised we have given this immediate relief and it cannot be continued unless economy was put on a sound basis. This is story of the IMF and World Bank. This is what EU proposed for Greece. People and countries should accept austerity measures if the countries want to come out of recession. A few days ago, the deputy Finance Minister Eran Wickramarathna referred to a slight decline of Sri Lanka’s ranking in economic freedom index in which Hong Kong is on the top. He said that the intention of the government is to advance the status of Sri Lanka this year to reach the rank of 60 in the index. He also said the country should acquire better place in the index soon. What does it mean? What does economic freedom index signify? Does a higher status in the index necessarily mean a high rate of growth? China is far below of Sri Lanka in the index.
If my memory serves me right it is somewhere near 130. What the Deputy Minister has emphasized is that the new government, as its economic policies are completely in the hands of the UNP, will adopt clear new liberal polices in the future and this relief phase is just a passing and ephemeral phase. So, my conclusion is that the economic policies of the new MR regime does not essentially differ from that of old MR regime.
