Balancing debt burdens with social need | Sunday Observer

Balancing debt burdens with social need

Poorer Sri Lankans on tenterhooks over possible living cost hikes are breathing easier, while big spenders must resign themselves to a slightly higher cost of lifestyle after Finance Minister Mangala Samaraweera’s maiden Budget announcements, last week. Clearly, the National Unity Government’s third annual Budget aims to deal with our immense economic challenges gradually, rather than with strong doses of the bitter medicine of all-round tax burdens and a rake-off on profits.

Big business, too, looks forward to the next financial year with some confidence now that the Government, in its Budget 2018, has focussed more on boosting production rather than drastically taxing it to meet the country’s enormous debt burden.

No doubt, in crafting this Budget, the government is sensitive to vote bank interests given the looming local government elections early next year, and other, broader political needs, such as, constitutional reform. But then, that is what citizens expect of a democratic regime of governance by elected representatives. Such socio-political sensitivity is an essential part of pragmatic governance that must deal with current social need while pushing through difficult measures to ensure economic stability and growth.

The enormous debt burden the country has had to bear since the era of nepotistic extravaganza of the last regime, has been addressed in the Budget with various ‘mini-taxes’ that apply to services rather than essential consumer goods. Thus, the poorer social layers have not been affected too much. Whereas, those benefiting most from our newly achieved ‘middle-income country’ status, have been affected by various forms of taxes on services and luxury and semi-luxury goods. In effect, those who are spending more, anyway, will now have to pay more for activity at their level of relative affluence.

Finance Minister Samaraweera described his Budget 2018 as a ‘Blue-Green’ budget not simply as a reflection of the current unique coalition government of the two, traditionally rival, principal democratic political parties in the country - the SLFP and UNP. Rather, as the cluster of incentives and new policies announced by the Minister in his Budget Speech in Parliament last week indicate, Budget 2018 will take the country into new territory – the beginnings of a holistic, eco-friendly, national economic development policy and framework.

Some Opposition political factions, in their approach to national economics, may yet focus purely on the old mechanics of social welfare and market protectionism. Budget 2018, however, has gone beyond, into 21st century economic strategy that embeds production growth in an overall framework that marries new sectoral diversification with directions of economic growth that reverses ecological damage rather than worsen it.

Budget 2018 emphasizes incentives for the expansion of economic sectors with high value addition and those that take the Sri Lankan economy to the next level of new technology-based production. Thus, small businesses have been awarded several incentives as various points in value chains that will encourage more and more Sri Lankans to take up a modern economic lifestyle of entrepreneurship rather than merely that of wage labour and social welfare dependency.

On the other hand, a series of new policy commitments have been made for reform in traditional sectors of production, such as, food agriculture and agri-exports. Regulations and old statutes are to be revised and streamlined to enable greater entrepreneurship and private investment on a bigger scale in these sectors.

No doubt, the government will engage in a stage of broad consultation with these sectors in proceeding with this reform.

Equally importantly, industry and manufacturing will benefit from the new regulatory adjustments and incentive packages proposed that will encourage private investment, including foreign direct investment for the expansion of these sectors.

The country’s booming real estate and housing construction sectors, for example, will benefit from the proposed changes in current old statutes and regulations. These reforms will open up these sectors to both foreign investors as well as overseas customers, both foreign and Sri Lankan diaspora. It is a timely intervention in a hugely expanding area in which the rapid growth had also brought fears of a ‘bubble effect’ that could have negative results.

Most significant has been the adoption of a clear-cut, long term strategy that places this country, for the first time, firmly on the track of Earth-friendly economics. This must be applauded by all Sri Lankans as a long overdue, quintessential, strategy shift in economic management that is crucial for the survival of human society on this island and in the Indian Ocean, and, on the planet as a whole.

Too often, people perceive the issue of damage to the environment as one that hurts the Earth. Contrary to this naïve human mis-perception, environmental degradation results not in the destruction of the Earth, but rather, in the destruction of the environment in which humans can live.

With Budget 2018, Sri Lanka enters this new dimension of human development: for the first time we have a cap on a major form of modern transportation and a renewal of that transportation with new technology. The Budget proposes an end to fossil fuel-based road transport by 2040. Instead, electric road vehicles are given priority. At the same time, carbon production will also be capped with new regulations to be designed in consultation with the relevant sectors.

The Finance Minister’s challenge now is to push through these reforms and new policies with the cooperation of all sectors and the patience of the citizenry. Discipline on the part of the ruling politicians and determination on the part of entrepreneurs will be key elements of the way forward.