More on the budget
13 November 2016
The first straw in the budget wind is already aloft. Mr. Gemunu
Wijeratne, president of the Lanka Private Bus Operators’ Association has
threatened a general strike of his membership if the proposal to
enhance the minimum fine for traffic offences to Rs. 2,500 is not
amended and/or removed. He is certainly not going to mobilize public
opinion around his cause. Bus drivers, and mainly those driving private
buses, are not top of the pops among road users. Competition among
themselves to pick up passengers at the next bus halt results in their
breaking all manner of road rules. Speeding is not their only offence.
They pick up and drop passengers outside designated halts. Which
motorists have not endured the bullying hectoring of their extra loud
horns as they thunder down the roads?
To be fair to
Wijeratne and his drivers, they do already face more than a fair degree
of harassment from traffic cops looking for a quick buck. The
conditions of our roads and the congestion thereon are not happy
prospects for those condemned to drive huge, unwieldy vehicles sometimes
for 10 and 12 hours and more a day to earn a living. Motorists and
pedestrians are likely to ask themselves why a threat of a strike
should intimidate a government to backpedal on a proposal that would
impose more discipline not only on bus drivers but also the many others
with scant regard for road rules. Enhancing minimum fines for traffic
offences will hopefully be a deterrent to the anarchy on our roads
which is all too visible. Offenders don’t only break road rules; they
also corrupt the police by offering bribes to let them off the hook
after being detected. There are also those with influence who call
police higher-ups and get their driving licenses back after being
fairly copped by the constabulary.
Gemunu Wijeratne is not
the only arm twister. Pressure is mounting on the budget proposal to
offer student loans to fund university education. A powerful lobby of
academics does not want those admitted to private universities to be
entitled to the interest free loans of up to a maximum Rs. 800,000 that
the finance minister wants to extend to 15,000 students to follow
courses in selected subjects. Such selections will be based on Z scores
and the courses to be followed must cater to market demand in UGC
approved non-State degree awarding institutions. Predictably, the
opposition is alleging that the proposal is a part of a plan to
undermine the state education system. Given the potential of the
proposal to gather opposition from state university students hostile to
fee paying private higher education, Karunanayake is likely to be
pushed to abandon his plan of allocating Rs. 300 million next year for
these interest free loans. Although students in state universities do
not pay tuition and get Mahapola funding support, they too would value
such interest free loans to help meet living costs. Extending the
scheme to the state universities too may be a possible compromise to
blunt opposition. But such assistance to only those following selected
courses in state universities assured of employment after their studies
(and therefore the ability to repay the loans) would create other
problems.
The decision to remove the tax exemption on
interest earned on listed corporate debt securities is sensible. The
tax exemption made these debentures high demand instruments
particularly for corporate entities that would otherwise have paid a
tax of 27% on their interest earnings. Most investors hold them till
maturity and they are seldom if ever traded on the market. Nearly every
one of such listed debenture offer is closed over-subscribed on
opening day. Given that they are so easily marketable, more and more
such listings have been coming up as their tax free status far
outstrips the slight element of attendant risk. Although listed
debentures have been snapped-up avidly, the numbers investing in them
are few. Banks, corporates (mostly unlisted), insurance companies and
most likely, the EPF, were among those who subscribed. Those who
invested in the early issues three or four years ago have done very
nicely. With the tax benefit withdrawn, later investors, including
those who took up offers that came up a few days before the budget will
not be doing as well. A source of easy fund raising for banks and
companies will now shrink; and so also the taxes that the government
can collect from them in the future.
We report on our
business pages today that the Regional Plantation Companies (RPCs) are
unsure yet of what the minister meant when he indicated that no stand
alone RPC will be permitted to hold more than 5,000 acres of land. None
of the 20 RPCs have been consulted on the proposal. As it is, they
hold an average 10,000 acres each. Does the government want more
plantation management companies to be floated to look after these
estates which have 30 more years of their leases to run? There is no
doubt that these companies, especially with poor commodity prices and
unsustainable wages heaped on their backs, are in bad shape at present.
While small investors in many of them have got few or no dividends,
the controlling shareholders – inevitably corporate fat cats – have
done very nicely by ripping off tidy "management fees," often a
percentage of turnover. The government, through single ‘golden shares’
in each RPC, has wide powers which it has by and large not exercised.
One example of this is the management fees drawn by the controlling
shareholders, who admittedly paid more for their stakes in the companies
than other investors, have collected.
As the debate goes
on, more clarity on these matters will no doubt emerge. One bit of
delicious irony in the budget speech was the finance minister’s
announcement that the Ceylon Tobacco Company will be requested to gift
the Presidential Secretariat Rs. 500 million to be spent on an
anti-smoking campaign! The man who fell off the tree is being gored by
the proverbial bull! Karunanayake did not say whether there is a right
of refusal; nor has the company said it will grin and bear this newest
travail. We will know presently. Such a ‘request’ must surely be a
first in budgeting history.
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