The Appropriation Bill presented in parliament on October 20 has led to much discussion on whether the Finance Minister’s budget targets are too ambitious to achieve by the end of 2017. The main targets of Budget 2017 is to bring down the budget deficit from the provisional figure of 5.4 per cent of GDP in 2015 to 4.7 per cent of GDP in 2017, and to increase government revenue from the provisional level of 13 per cent in 2015 to 14.2 per cent in 2017.
Revenue figures have been declining in recent years, except for the slight rise to 13 per cent of GDP in 2015 from 11.4 per cent of GDP in 2014. However, if tax revenue is considered alone, the trend does not seem to be one of consistently increasing (except for the higher figure in 2015 when compared to 2014), even though per capita income are rising continuously. Reasons for this could be the inefficient tax administration, too many tax exemptions, tax avoidance and tax evasions. Nonetheless, the increase in the provisional figure for 2015 is perhaps indicative of an improvement in the above-mentioned reasons. Moreover, the growth in GDP during recent years is mainly due to investments in infrastructure which are in turn non-taxable.
The allotted expenses for Defence, Healthcare and Education are low in the 2017 Appropriation Bill. There is a decline in Defence expenditure, though marginal, from Rs. 306.6 billion in 2016 to 284.04 billion in 2017. This is a positive sign since one of the largest expenditures has been for Defence for many years. However, defence expenditure continues to be high even though the 30-year-war ended in 2009. Meanwhile, the allocations for Education and Healthcare have also been reduced from Rs. 185.97 billion in 2016 to Rs. 76.94 billion in 2017, and from Rs. 174.077 billion in 2016 to Rs. 160.97 billion, respectively. In contrast to these reductions in social expenditure, funds for the President and Prime Minister have been increased quite significantly.
The estimated expenditure for 2017 is Rs. 1,819 billion, where total recurrent expenditure accounts for Rs. 1,208 billion and total capital expenditure amounts to Rs. 610 billion. Even though there has been reductions in other allocations, the Defence Ministry still gets the highest allocation of around Rs. 284 billion. However, these figures are subject to change in the days to come.
The revenue and expenditure targets would be fictitious if there isn’t the right fiscal discipline. Appropriate fiscal measures should be in place to increase tax revenue as a proportion of GDP. Regressive taxation, wasteful expenses and losses in public enterprises should be reduced and unproductive government assets should be disposed of to find the fiscal space for developmental expenditure and qualitative improvements in education and health.
According to the government, the 2017 budget focuses on a fast track approach to development. The main targets of the budget are to create employment, mend loss making public infrastructure (Hambantota Port and SriLankan Airlines being two prominent examples), and settle the already massive debt burden. There is hope for recovery with the agreements with IMF and World Bank regarding debt payments, and also gaining back GSP plus concession.
A lower budget deficit is vital to achieve macroeconomic stability in Sri Lanka. Effective tax collection and efficient tax administration are essential to increase the revenue targets. Increased revenues are essential to carry out developmental work which determines long-term development of the country. Expenditure should be curtailed, except for the most necessary expenses. The current debt burden should not be allowed to aggravate.
Over the years, the outturns of budgets in Sri Lanka have been a contrast to the estimates. Government and other authorities should not let this happen this year, too. Prime Minister mentioning the government’s intent to disallow supplementary estimates of ministries is a good sign with regard to this. The government should adhere to an austerity programme in the budget as all government revenue is used to settle debt. Therefore consumption expenditure should be curtailed as much as possible. However, the question is whether this is practical in the country’s political context.