By Chandeepa Wettasinghe
Despite the retrospective taxes proposed in the revised budget of the new government, the second in command of Sri Lanka’s economy said that the government will have minimum interference in free markets going forward while enhancing social welfare, adopting the Germanmodel of Social Market Economy. “We believe, like everyone here, that markets are the most efficient way to allocate resources. 


That’s our fundamental view. Don’t think we’re a bunch of socialists trying to change what you’ve been doing. Markets must work, markets must deliver,” Policy Planning and Economic Affairs Deputy Minister Dr. Harsha de Silva asserted emphatically to a gathering of top businessmen recently.The Social Market Economy concept was developed by postwar Ge rm a n y ’s first Economic Affairs Minister Ludwig Erhard.


The underlying idea is to protect the freedom of all market participants on both the supply and demand side, while also providing for a strong safety net for a free and open society.Dr. de Silva said that the government will only resort to smart, effective and least disruptive regulation, unlike unregulated markets and crony capitalism, which were promoted and practiced by the previous regime.


He further added that the regulators who were appointed would not engage in vindictive agendas and t hat t he Cabinet would advise t hem on lighttouching regulatory policy stances. “It’s not going to be an era of the regulator fast asleep, three people cornering the market and making enormous profits at the expense of the rest of the players in the market,” Dr. de Silva said.According to him, the motivation behind such a policy is so that more people can participate in growth, enhancing competitiveness and expanding trade and investment, accompanied by political, social and economic justice.


Dr. de Silva recently displayed some unease towards the one-off taxes but upheld that it was the civic duty of the business community to pay taxes, so that everyone may experience inclusive growth and live their life in content.He said that it is different from some people not doing anything and enjoying the dividends of growth.


“For instance, if you take a guy with a hard hat and a jackhammer, working on a highway or a construction site for Rs.800 a day, that’s all he gets. Whereas somebody in the middle, who is trading subcontracts with people who have got contracts, will be benefitting tremendously more than the person who is actually working,” he justified.According to the Housing Income and Expenditure Survey 2012/13, the average real income of households increased only by 0.5 percent annually with a per capita income of Rs.11,500 against the 7.5 percent GDP growth and US $ 4,000 per capita figures quoted by the previous regime.


“The average being 0.5 percent means that some households experienced negative growth,” Dr. de Silva said.Ceylon Chamber of Commerce Chairman Suresh Shah, speaking for the private sector last week said that such retrospective taxes are sometimes necessary for the benefit of society and requested investors not to be fazed by the one-off measures.The government hopes to simplify taxes in order to increase revenue in the long run to keep up social welfare measures.


The retrospective taxes by the new regime are to stimulate the economy with domestic demand in the short term, to buy time for exports to develop.
“Exports fell from 36 percent (of GDP) to 15 percent. Is that development? We want exports to grow to 50 percent and then 100 percent,” Dr. de Silva said.
He said the national government that will be formed following the upcoming Parliamentary elections would focus on sustainable growth, through national policies transcending partisan politics.