Development budget to elevate a shattered economy: PM

Prime Minister Mahinda Rajapaksa, in his capacity as the Finance Minister, read out the budget speech envisaging the new government’s development priorities and policies aimed at reviving the shattered economy.  

The policies have been designed for boosting local manufacturing and reducing import dependency.  
The budget, the first fully-fledged one after President Gotabaya Rajapaksa’s ascendancy to office in November, last year, has been designed to achieve what he promised in the run-up to the election.   

In the execution of its policy in developing international trade, the government has paid attention to its geographical location in the region.   

“We are at a time when many countries have realised the geopolitical significance of our country. I believe that our neighbouring India will be a powerful economy in the world in the next decade. I also believe China together with several other Asian countries will be amongst the five most powerful economies in the world. The high growth neighbouring Asian Market which accounts for 60 percent of the global population and emerging economic zone. We should formulate our national policies with a long-term strategic vision, protecting our sovereignty, to exploit the development opportunities that arise as a central hub, in the new economic order of the world, to both the conventional western advanced economies and the powerful emerging eastern economies. We must develop the Hambantota and Colombo Ports together with the Airports to be a centre in the international commercial processes, expanding the domestic economic opportunities, within a broad national vision,” the Prime Minister said in his speech.  

The government has also focused on the budget for rural economic development while ironing out disparities between the urban and village areas.  

Huge cost on debt servicing appears to be a constraint for the government in realisation of its development goals.  
While observing the increase of the foreign debt component and debt servicing, the Prime Minister said the number of programmes, implemented annually with foreign financing, had grown exponentially over the years.   
“However, a significant number of projects worth more than USD 6,000 million shows slow progress. The main deficiencies identified, in monitoring of project planning, feasibility, implementation are deviation of the projects from national requirements, and frequent cost and time escalations resulting in low returns. As such, an increase in the foreign loans as well as the increase in debt services could be observed. Due to these expenditures, productive investments which could have been implemented at a lower cost are not adequately financed, adversely affecting the treasury operations,” he said.  

Commenting on the tax policy, he said it should remain unchanged at least for five years.  

He also outlined measures for streamlining tax collection.   

“I propose to improve the efficiency of tax collection through the introduction of an online – managed single Special Goods and Service Tax in place of the various goods and service taxes and levies, imposed under multiple laws and institutions on alcohol, cigarettes, Telecommunication, betting and gaming and vehicles, which accounts for 50 percent of the income from taxes and levies,” he said.  

Prime Minister Mahinda called it a development budget for the year 2021 which is aimed at elevating the shattered Sri Lankan economy.   

“This is a development budget presented to elevate an economy that has been shattered. It covers all sectors under a macroeconomic vision aimed at fulfilling the “Vistas of Prosperity and Splendour”. This is a budget that will open up numerous special investment opportunities to our business community for production of local goods and services under the competitive setting of the global economy. Producers of all scales should strive during the next three years to allow local economy to competitively enter the global economy. The public sector should provide the necessary support in this regard,” the Prime Minister said.   

“For the benefit of the country, I request all entrepreneurs to utilise the funds hidden locally or internationally in order to evade laws relating to taxes and foreign exchange. It is expected to make legal provisions to provide a tax pardon to entrepreneurs thus utilising funds for any investment facilitated by this budget under the payment of taxes amounting to one percent,” he added.   

Prime Minister said the estimated Government Revenue for 2021 will be Rs. 1,961 billion while the total Government expenditure is Rs. 3,525 billion and as such the difference between the revenue and the expenditure is Rs.1,564 billion. “It is planned to maintain the budget gap at nine percent of the GDP since the private investments which amounted to 32.3 percent of the GDP in 2014 has decreased up to 27.6 percent in 2019 and since it is required to provide a robust start by the government to revive the economic growth which had stagnated recently,” he said.   

Expanding the retirement age for both men and women to 60 years was a salient feature of the budget 2021. The compulsory retirement age for the public sector is 60 years, whereas it is 50 years for the private sector. “It is further lower for females. Contrary to this, life expectancy for females is 76.6 years and life expectancy for males is 72 years. Therefore, based on the life expectancy, it was proposed to amend the Employees’ Provident Fund Act to expand the retirement age for both men and women,” the Premier said.

Reintroduction of a contributory pension scheme was another feature of today’s budget. “There is no pension scheme or a employees’ provident fund mechanism for a majority of those employed in production sectors and services such as agriculture, fisheries, small enterprises and those self-employed and employed in apparel, tourism, plantation sectors and are employed overseas earning foreign exchange. This is why I proposed a contributory pension scheme for them in 2012. Therefore, I propose to introduce a contributory pension scheme to be made available at the end of 65 years of age,” he said in this regard.   

Prime Minister Rajapaksa also stressed that the government will focus on environment preservation, prevention and eradication of pandemics and other non-committal diseases.   

Special COVID insurance scheme for COVID effected employees, banning usage of single use polythene and plastics with effect from January 01 2021, loan scheme for public servants to obtain solar powered electricity, granting of permission for non executive officer employees of public service to engage in other jobs outside office hours, two year leave for those who seek foreign employment, allowing the public enterprises to function with the private sector management freedom and to enhance the market competition and consumer welfare with the intervention of the state sector, legal sector reforms with more allocation for developing judicial sector, establishing a deposit fund in the Central Bank to help depositors of fallen financial institutions, reducing the import taxes on vehicle spare parts, getting the Sri Lankan diplomats abroad to practice economic diplomacy to optimise opportunities for exports, tourism, foreign employment and investment in our country under the dynamic world economic conditions, allowing the importation of high technology and equipment of developed countries as well as unique raw materials and intermediate products that cannot be manufactured in the country, formulating a balanced trade policy yielding long-term returns so as to increase the export earnings, 50 percent income tax exemption for companies who are registered with CSE before December 31 2021 were the main highlights of the budget for the next year. (Kelum Bandara, Yohan Perera and Ajith Siriwardana)