Daily News Editorial

A laudable economic policy framework 

Saturday 07th November 2015

 

One of the key pillars on which the present government was founded is the revitalization of the economy, which had taken a battering under the former regime. Although certain initiatives were taken in this direction in the mini budget presented during the initial 100 days of the Maithripala Sirisena administration, it was only after the people's reaffirmation of that mandate on August 17 that things have truly gathered momentum.

Indeed, rebuilding the economy is no easy task. It cannot be done overnight or even in 100 days. It requires a comprehensive plan backed by a long term vision that can be implemented over the course of several years. However, UNP-led Governments have traditionally fared much better in terms of developing the economy than their SLFP-led counterparts. The economic policies of President J.R. Jayewardene are usually described as the First Generation Economy (the economy was liberalized in 1977) and those of President Ranasinghe Premadasa as the Second Generation Economy (a more social oriented economy but with due place given to industry). Prime Minister Wickremesinghe, presenting the Government's mid-term economic policy framework, noted that the time was now ripe for the Third Generation Economy and announced a series of measures that would lay the groundwork for this revolution.

In this quest for a knowledge based competitive social market economy, it is necessary to focus on a universal approach to education, the empowerment of health sector and social mobilization. Among the goals envisaged therein are the generation of one million employment opportunities, raising income, improvement of rural economy and creating a powerful and broad middle class. These are likely to form the nucleus of many transformational initiatives aimed at making Sri Lanka a financial and economic hub.

Taxation is one of the most controversial issues with regard to our economy. Our economy relies heavily on indirect taxes such as Value Added Tax (VAT) which everyone, rich or poor, have to pay depending on the goods they buy. In fact, indirect taxes bring 80 percent of revenue to Government coffers. On the other hand, only a few thousand people pay direct taxes such as Income Tax. This should really be the other way around for an economy to truly prosper. The Prime Minister has pledged that changes would be made to tax policy under which the focus will be on earning 60 percent of revenue from indirect taxes and the rest through direct taxes as an initial step on the way to becoming a 'low tax State'.

Institutional reform is rightly high on the agenda. Accordingly, the Board of Investment, Export Development Board and Tourism Authority which are now seen as staid Government agencies, will be restructured to become more dynamic entities. In another groundbreaking move, the government plans to amalgamate the Employees Trust Fund and the Employees' Provident Fund to form a National Pension Gratuity Fund. This we feel is a long overdue measure.

Sri Lankan expatriate workers remit around US$ 6 billion back home every year which is an immense boon for the economy. However, apart from a duty free allowance up to US$ 1,750 granted on their return, they hardly get any other concessions. The Prime Minister has proposed that they would be exempted from all taxes and we also hope that they will be given a duty free vehicle permit as well in recognition of their contribution to the nation's economy.

Housing is another vital sector of the economy which will receive attention under the Third Generation Economy programme. It was announced that ownership would be given to those who were living in government houses on rent for more than ten years and to those who are in line rooms in the plantations. The government will implement a project to construct condominiums for middle class people who are without permanent residences. Investors willing to implement such projects will be granted tax relief and state land to build them. The ultimate aim is to build 500,000 housing units. The Prime Minister has also focused attention on sports and education, both of which are vital for the uplift of the country's youth. Thus both sports goods and books will be exempted from taxes and duties, making them more affordable across the board.

In spite of the rhetoric of the previous Government on Per Capita Income et al, the stark reality is that we have a long way to go in terms of economic development. A number of fundamental changes will be required to achieve success in the future. As the Prime Minister so clearly enunciated, this is the last chance to begin that journey. The correct decisions, which will sometimes be painful at first, will have to be taken and followed up to ensure that Sri Lanka becomes a force to reckon with at least by 2023, when it celebrates 75 years of freedom. That freedom will be truly meaningful only if all Sri Lankans can benefit equally from economic and social progress.