Tuesday, November 24, 2015
Secrets of success of the 2015 November Budget
In my considered opinion, the real jonah in the pack is the question of whether the Revenue Estimates and Assumptions thereon will pan out. As only time will tell, and there are so many what ifs that it is hard to predict. I cannot see this happen unless the economy expands and I don’t see anything in the budget that will encourage expansion on productive areas.
We must be cognizant of the fact that there will be a change in Global Interest Rates, that put pressure on the Rupee, if there is money outflows! We also must know of the implications of exchange devaluation, which is most likely to average in the Rs150 to US$ in 2016, and make all assumptions there on.
It is advisable NOT to make any further reductions in the price of fuel, even if the world market falls to US$20, but to tie SL into a forward exchange contract as forward as practical at that rate to guarantee a foreign exchange saving even if prices rise. This can save up to 25% of the import bill, so is a significant point that is not considered, but which can save the Govt.’s bacon!
Then there is the HOPE that there will be a drastic FALL in the import of vehicles, which will make a significant impact on foreign exchange outflows which will help to reduce the exchange rate pressure that will arise upon the increase in Global interest rate rises.
There is a huge shortage of skilled labor to increase both productivity and productions of Industry. It is NOT clear from the new education policies if that will be solved in the medium term, and I suspect NOT at the moment. So it is imperative upon the Govt. to review State Employment, with a view of NOT recruiting for a period of years, so that the private sector can absorb the new entrants into the labor market, together with skills development programs, in a public private partnership to ensure the workforce has the skills needed.
Another important point not mentioned is that the Govt. will lose Billions in NOT receiving duties on vehicles NOT imported! Amounting to Rs30B per annum. Increasing the rates of duties WILL NOT mean there will be a surge in car imports as the slowing economy will have an impact on leasing deals where NON PERFORMING leases will rise to such a large extent banks will HAVE to write off many loans!
This will flood the market with second hand cars that cannot be sold but at a loss! This is a time bomb waiting to happen as the blame MUST be on banks that lent 100% on value of cars as collateral and NOT assisted industry in expansion by giving concessionary loans that would NOT result in default!
Another area is the glaring omission of NOT introducing a unique ID number for all receipts and payments over Rs100K so that those not complying with the reporting of income above 2.5M a year, will be caught. This will without much difficulty reign in a minimum 100,000 new tax payers, who currently don’t pay any tax, with many in the provinces, who are either car dealers or hardware merchants who have increased their wealth thousand fold as they have NOT been paying any tax. In my proposal they could easily have been identified and brought into the TAX FOLD! This would yield at least Rs100B, enabling the PM to go to the 40:60 goals, which this budget fails to do.
Similarly, completely computerizing the customs importing mechanism where there will be NO face to face with ANY customs officials will prevent corruption on imports which is still rampant. All products fall into a code, scanners will check if the products imported conform to the code, and duty will be assessed on the CODE. Any miscoding errors will be penalized so hard, that no one will attempt this and with NO customs officials to officiate in this will raise another close on Rs50B that currently leaks into the hands of the unscrupulous.
There was very little talk on immediately upgrading public transport, where for the MEGAPOLIS MUST move to LNG or electric buses without delay, to reduce the pollution, along with the banning of three wheelers to only electric ones, as their pollution levels are unacceptable. There was really nothing on it, and that is a tragic failure of the budget along with the little emphasis on RAILWAY structural improvements, to get as much passenger and goods traffic into the rail.
I am willing to give the Finance Minister till next year to sort this out. The proposed entry charge to Colombo is long overdue, and will prevent too many vehicles coming in, if a minimum of 4 are permitted without a charge. However before next year’s budget concrete steps MUST be taken to implement transport improvements to speed the movement of people from the outskirts into Colombo.
I will also recommend that the move to Capital City is neither here nor there where land prices will be Rs10M a perch. The MOST important will be the move of the Capital to somewhere like Polonnaruwa, as otherwise having unproductive Govt. servants anywhere near the Megapolis area is a recipe for disaster. This move needs courage, but swift action now will prevent congestion of useless jokers wasting the time of useful jokers in the development race of Sri Lanka.
Time again for considered evaluation of the dream for a new Sri Lanka!