This article, published to mark the 44th death anniversary of former Finance Minister Dr. N.M. Perera on August 14, is based on his public speeches.
What was the financial situation in the country when I assumed the title of Minister of Finance? We were facing a huge budget gap. The Exchequer lacked funds to meet even day-to-day financial obligations. In order to bring the country’s economic body as well as national wealth to a strong and healthy state, the firm measures taken with strong determination caused the displeasure of the people but were essential for the long-term welfare of the country. Unlike the Governments that were giving concessions to the capitalist class without burdening them with taxes, taxes were imposed on the class that could afford it.
An emphasis was started to expand investment in local production. A small developing country with limited human and material resources cannot progress without foreign aid. We should try to use this aid only for development purposes. Deploying foreign aid for consumer goods is like mortgaging the future with no hope of relief.
One of the main tasks I took on in my first budget was to prevent money from going down the drain. It is a well-known fact that many capitalists who lived lavish lives paid little in taxes. It was they who encouraged and exacerbated the rise in prices of all consumer goods. Therefore, it was necessary to bring out the money they had hidden and give it to the country for the development of the country’s resources.
Accordingly, in my first Budget document, the Rs.500 and Rs.100 notes that were valid at that time were annulled and new notes were issued. Accordingly, a lot of money that was hidden came out. It taught many fruitful lessons to the people of this country. The fact that embezzlement is an act of social treason was revealed. Money should be available for the development of the country.
Money is not meant to be used only for consumption. The importance of using banks to deposit surplus money was further understood due to this process. This not only ensured the safety of funds, but also ensured a fair income from the savings. More importantly, the banks were able to provide this money for the development of the country’s wealth.
Compulsory saving system
A compulsory saving system was started. Every person with an annual income of more than Rs.6,000 per year was made to pay a percentage of his annual income to the Government. Those earning between Rs. 6,000 and Rs. 12,000 per annum paid two percent of the total income. Those earning between Rs.60,000 and Rs.140,000 have to pay 10 percent. This is an attempt to divert money from consumption to investment. Gradually the savings scheme was relaxed. It was restricted to very high income earners. It was also moved to a spending cap proposal. The net amount acquired in this way is Rs.10,000 million. I proposed to use this amount to establish a National Development Bank (NDB) to finance public sector enterprises.
Both these proposals affected the rich and wealthy classes of the country. Until now, this was a class pampered by the Government. This class was hit harder than this by the capital tax imposed on high-income stocks. This is in addition to wealth tax. When a person’s wealth exceeds Rs.200,000, the capital tax starts to apply. Such a person will pay three percent of his wealth in Capital Gains Tax. Five percent was charged on the next slab of Rs. 200,000, 10 percent on the next Rs. 200,000 and 15 percent on the next Rs. 200,000. Although I proposed to implement this capital tax almost immediately, it could not be implemented until 1974 due to the requests of the Prime Minister. This was possible only after some changes were made to give more concessions to capitalists. The capitalist class was further hit by revising the business sales tax and raising the prices of luxury goods.
The new system of income tax collection was integrated with this. A Pay-As-You-Earn (PAYE) system was instituted. Due to this, income tax collection increased significantly in the next few years, and for the first time in 1974, the amount of income tax collected exceeded Rs.1,000 million. The Savings Bank of Sri Lanka, Postal Department Savings Bank and National Savings Movement, took a bold step towards saving filings by merging. This country cannot be developed without significant savings.
We have always said that the yardstick for measuring the economic growth of a country should not be the fixed figures of the Gross National Product (GNP), but by finding out whether there will be social progress to match economic growth. We have realised in advance that this situation will arise and we changed Government policies in a big way.
In 1973, we decided not to import additional food items such as chilies, green beans, green beans, etc. which are easily grown in Sri Lanka. It seems that many people look at the food crisis from various points of view and criticise it, which is likely to have good results in the long run, even if they have to face difficulties in the short term. It is fair to say that it will not only end injustice to the rural people, but also bring about a new trend in the entire economy due to several factors.
Food crisis
Due to the policy adopted to solve the acute food crisis, there are signs of a revolution in the rural economy on a large scale. In order to face the challenge of the food crisis faced due to the acute shortage of foreign currency and a world food shortage, we reduced rice rationing and increased the price of flour so that there is some diversity of the staple food until self-sufficiency is achieved first.
Efforts are being made to introduce food crops such as cassava, sweet potato, yams, millet, corn and rural nutritious crops such as soybeans which are compatible with our environment into the rural economy as quick solutions. Rural people are the backbone of our economy. It is clear that the spine that has been broken and lifeless has now been given a chance to be straightened again. It will also give a new life to our economy. The development of the rural people, who represent the majority of the population, is akin to the development of the country. All should ensure that the new growth that has taken place in the rural sector is maintained.
The value of the rural sector and the dangers of neglecting it, are now visible to everyone. It is reasonable to say that through the actions taken by the Government to solve the food crisis, there will be a big upheaval in the economy and thus the country’s economy will progress.
As a result of restricting the imports of salt, chillies and potatoes when the foreign exchange deficit has been gradually worsening in the past, our farmers got a lot of income due to the cultivation of those crops and the rural farmer also got a wider market. The improvement of the living standards of the rural people, who represent a large part of the population, is a major improvement.
In the past, when the foreign exchange shortage was gradually worsening, as a result of restricting the import of bell peppers and potatoes, our farmers were able to get a lot of income due to the cultivation of those crops.
At the same time, with the development of a program of using domestic products instead of exports in the agricultural sector, it has been possible to use a large amount of foreign exchange previously used for that purpose in the manufacturing and construction sectors. As a result, it will be possible to utilise more potential in those sectors, provide more jobs, and thereby contribute to national productivity. Considering all these facts, it is hoped that economic growth will proceed more quickly in the coming years.