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The 2010 budget was partially appropriated before being presented to parliament

Jul 13, 2010 9:30:35 PM- transcurrents.com

by Eran Wickramaratne

Parliamentary oversight on Finance

Article 148 of the Constitution gives Parliament full control over public finance. Since President Wijetunga retained the finance portfolio the authority of the Parliament over finance has been usurped, and created a conflict between the powers of the legislature and the Executive.

Even though Article 44(2) of the Constitution provides that the President may retain any subject or function it transgresses the spirit of the Constitution when taken as a whole. As a result the peoples control over public finances has diminished. The present Presidential family controls over 63% of budgeted public expenditure. It is a further erosion of the principle of public accountability through people’s representatives. Checks and balances are possible only when the President and the Finance Minister are two different persons with the latter responsible to Parliament.

Reliability of Financial Data

The budget debate is predicated on the financial data that is provided. The data provided is unreliable. The accounting financial data and the economic information cannot be deciphered from the information provided. The financials provided for Ministries does not have a breakdown by institutions and therefore cannot be constructively critiqued. While the economic data cannot be compiled easily for a sector such as, education as the information is listed under different Ministries. Understandably, there are also errors made in providing information hurriedly and haphazardly.

To improve the quality of the debate an “Office of the Budget” should be created where independent reliable data is available to all legislators from the same data base.

The one thing that is certain about this budget is that revenue is over estimated and costs are underestimated. This has been the case over many years. The budget deficit was estimated at 7.5% of GDP, but the out turn was 9.8% in 2009. Then what is the purpose of the exercise? Is it to intentionally mislead Parliament and thereby the Country? Is it to please the International lending Organisations? Or are those preparing these estimates, incompetent?

I conclude (from my long interaction with government officials) that some of the cleverest and most educated comprise the bureaucrats in our country. If so what? Government officials do not have space and freedom to do their work professionally without fear or favour. I appeal to them to act impartially and professionally in discharging their responsibility, which will make their children and grandchildren proud of their courageous achievement.

Critique of the Development Model of the Government

In the post conflict year that has passed, the Government has focussed on investing in infrastructure. While not denying the need for roads, bridges and waterways, it raises the question of priority in investment. We live in a country with the absence of war but a peace that’s yet to be won and consolidated. A proud country with nationalities that would not bow down to external interferences, and also not bow down to each other, but seek to be equals. The political question needs urgent attention before the goodwill that prevails dissipates. The government’s establishment of a Reconciliation and Lessons Learnt Commission was laudable, but little progress is yet evident.

It is my considered view that the political question needs to be addressed along with the humanitarian and economic issues. However, it appears that the government is proceeding on a path of economic development through hard infrastructure investments over investing in people. This approach strengthens the powerful over the powerless.

It is clear from the budget speech that the peace dividend which should have come from reductions in defence spending, and waste and expanded economic opportunities and which should have been distributed to the people, is instead diverted elsewhere. There was no immediate relief to the poor, to the small entrepreneur or the “Maw – Piya” shop in the village square. President Premadasa’s development doctrine was in contrast to that of the present government. He once said “There is no point in any development that keeps the people in hunger”, and “we have got used to treating the poor as a set of worthless beings”.

Governments like large lumpy investments; infrastructure projects are visible, involve large sums of money, and makes it easy to siphons large commissions.. We live in a country that slashes duties on luxury vehicles but increases taxes on essential food items. A country which spends more than Rs.7.3 billion on the Presidential office, which is more than the subsidies on school text books, transportation, and nourishment for its 3 million students. A student recently asked in a essay “A developed country for a malnourished people - is this not insanity?” We need a people centred development philosophy. In peacetime, even the threat of future terrorism is more likely to diminish by political and socio-economic initiatives. Increased expenditure on education, health and Social Services for the poor and displaced will discourage the seeds of terror both in the North-East and the South.

Debt Trap : Financing Infrastructure Through Expensive Borrowing

Every year since 2005, the government has been planning to spend at least 40% more than they earn. Those are the budgets presented to parliament. Actually, the government has always spent at least 50% more than they earn Last year it spent 70% more than revenue.

Studying the trend in the past 5 years reveals that actual Recurrent Expenditure is always about 5% more than estimated, never less than the estimate. Actual Revenue is on average 10% less than the estimates, It is never more. Estimates can deviate from the actual randomly. But these estimates deviate in a very predictable way, and in a way that misleads parliament, and does not provide the right information for decision making.

Last year, the actual revenue was 22% less than what was given to parliament as the estimate. A budget debate must be based on some belief in the credibility of the numbers it entails. The debate becomes meaningless when the figures that are being debated can deviate so profoundly from the truth.

This year parliament has been asked to approve a budget where the government plans to spend 57% more than it earns. Going by past trends, the actual overspend is then likely to be at least 75% more than earnings. Is this sustainable spending behaviour? If any individual was spending this way, their family and friends would intervene to stop them, and banks would stop lending to them. If an institution was spending this way the auditors would declare it insolvent. Countries can't last long this way either. The behaviour is unsustainable, and designed to precipitate the government into a debt trap.

After 57 years of independence, the total accumulated debt burden of the government was 2.1 trillion. In the last 5 years, the present government has borrowed as much as all governments put-together borrowed in the last 55 years, and doubled the countries debt burden to 4.2 trillion.

The practice of borrowing so much and at commercial interest rates is very costly for the country. Half the tax revenue comes from Income tax (about 171 billion) and VAT/GST (about 138 billion). The total of that – 309 billion – is what the government now pays just to service the interest component of these borrowings.

The accounting treatment, also helps conceal the total debt. Pension obligations to government servants are debt obligation of the government. It is wrongly classified with welfare payments in government accounts. No government servant thinks his pension is a welfare payment like Samurdhi. Pensions are an entitlement based on their employment contracts. Last year, the government faced a pension bill of 93 billion. If we consider this as the interest payment on a debt obligation, which it effectively is, that implies an additional debt of over 1.2 trillion to past and present government employees to finance their future pensions.

Every year this keeps growing. The government promises salaries and higher pensions, which is a good thing, but it does not find the money to pay those bills. The government cannot go on like this without creating a crisis for the future. For the children who can't escape to foreign countries, there will be terrible consequences from this irresponsible management of finances.

Secret Privatisation and Misappropriation of Public Assets

This government’s declared policy is not to privatise government assets. Hon. Basil Rajapakse the Minister of Economic Development criticised a former government’s privatisation of the Buhari Hotel in Colombo which sold deliciously cooked Buriyani.

The government has constantly said it is against privatisation, But it is constantly engaged in secret privatisation. Some privatisations are the sale of intangible assets, such as licenses to operate radio, television channels, satellite broadcasting, mobile operations and broadband. In other countries including in India these licenses are sold through public auctions and fetch significant revenues.

In Sri Lanka these licenses are distributed secretly amongst government supporters, who in turn sell these to private companies and put public money in their pocket. Will the government declare the number of radio, TV, satellite, mobile operations and broadband licences issued since 2005? The fees recovered for each licence? If they do, we can tell you the value of the public property that has been stolen .

The 2010 budget has already partially been appropriated even before presentation to Parliament. The Government needs to work on a more transparent process as it prepares to present its 2011 budget in November. If not it will be another exercise in futility.

(Eran Wickramaratne, Member of Parliament and former CEO National Development Bank speaks on some aspects of the budget)