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| Tuesday, 23 November 2004 |
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Commendable budget Budget 2005 was eagerly awaited, being the maiden budget of the United People's Freedom Alliance Government. The business community in particular was anxious to get hold of the budget proposals, as fears had been expressed in some quarters that it would not be a very pro-business budget. These fears were not altogether unjustifiable, as the Government had to fulfil the expectations of the masses for relief measures to contain the cost-of-living. Many analysts had voiced concern that the private sector would be heavily taxed to fund some of these measures. However, Finance Minister Dr. Sarath Amunugama and Treasury officials led by Secretary P.B. Jayasundera have managed to please both the common man and the corporate sector through a meticulously drafted, home-grown budget. The first budget prepared after 1977 without World Bank/IMF input has succeeded in addressing the concerns of the masses without necessarily stifling the growth of the private sector, widely regarded as the engine of the economy. Dr. Amunugama said the Budget was built on "seven pillars" which included enhancing effectiveness of public financial management, improving infrastructure at provincial/national levels to attract public and private investment, reducing poverty through rural sector development and employment creation. As Dr. Amunugama explained, the Government faced several major challenges in the form of the unprecedented oil price rise and the almost islandwide drought. The oil crisis triggered a foreign exchange crunch in many countries and Sri Lanka was no exception. The drought also adversely affected agriculture, leading to a loss of revenue from this sector. Formulating a budget of this nature amid these constraints is indeed commendable. The Budget focuses heavily on the development of agriculture, local industries, dairy industry, floriculture, fisheries, plantations, construction industry, human resources and skills development, software development, exports, alternative energy development and measures to raise Government revenue. All these sectors are vital for national development and to limit our dependency on imports. Many incentives have been announced for these sectors from Budget 2005. The Small and Medium Industries sector has the potential to become the driving force of the economy. With the right incentives, this sector can rejuvenate the rural economy through the creation of more employment opportunities and exports. The establishment of a SMI bank with a capital base of Rs.5,000 million is thus a step in the right direction. The textile industry has not been forgotten. As mentioned by Dr. Amunugama, local textiles manufacturers successfully took up the challenge of producing uniform material for 4.5 million schoolchildren within the specified timeframe. This has saved a considerable amount of foreign exchange, as the textiles were earlier sourced from China. The smaller textiles operators will also be eligible to concessions from the SMI Bank. The ordinary man will welcome the reduction of VAT on essential items and the raising of same for not-so-essential items. However, the tri-band rate system must be implemented properly to realise the full revenue potential. The oil price rise has also led to much discussion on fuel subsidies. No Government can bear the additional cost of fuel subsidies. Such expenditure can be utilised for more productive ventures. The Government has now signalled its intention to eventually do away with the fuel subsidies, which in any case are out of place in a true open economy. The private sector in general and trade chambers must work closely with the monetary authorities to ensure that the budget benefits all strata of society, including the business community. |
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