With formidable challenges ahead...

Sense of balance in budget is preserved - Prof. G. L.

Excerpts of the speech by Export Development and International Trade Minister Prof. G. L. Peiris in Parliament on 15.11.2008

Mr. Presiding Member, the Hon. Sajith Premadasa, opening the Debate on behalf of the Opposition this morning, made the criticism that this was not a budget that addressed the issue of social equity. I think that is the opposite of the truth, Mr. Presiding Member.

It is conceded by everyone that this budget has been introduced under exceedingly difficult circumstances which have been brought about principally by developments which have occurred with regard to the global economy. In that situation the essential ingredient of the budget, I would suggest, is a sense of balance.

It is necessary to take into account the different priorities which should govern the formulation of monetary and fiscal policy in this country and to endeavour to strike a balance among these different components.

If you ask me, Sir, what I regard as the central theme underpinning this Budget, I would say that it is an emphasis on development, on production but not as an absolute objective, but it has been tempered at every point by reference to welfare measures and issues that have to do with social equity.

Production today undoubtedly is the need of the hour, and the central feature of this budget is the emphasis that it has given to the development of local industry, local agriculture and the stimulation of local production.

This has been attempted by a variety of methods. One of the means employed has been the tariffs and duties that have been imposed on imported items like wheat flour, furniture, sugar, salt and so on. The levies have been increased. This does not mean that there is a total ban on these goods; they simply become more expensive, in the sense that there is a disincentive.

The principal criticism which has been levelled against this measure by the Opposition is that it would lead to an increase in the cost of living. The Opposition has said that these measures will be appropriate only after a very high threshold has been reached in respect of the development of local agriculture, local industry and local manufacturing.

In other words the Opposition is saying, “You do that first. You achieve this very high level of development, and it is only at that point that it would be justifiable to consider the imposition of these import tariffs and levies.”

I would like to say that that is a totally impractical policy. If we are to wait until that happens, then we would have to wait for ever. If foreign goods are allowed to come into this country without restriction, if they are freely available, then there is no incentive for local production.

If there has to be local production at the level that we desire, then there has to be substantial investment. Local entrepreneurs must be enthused. They must be motivated to contribute to the increase of local production in a substantial manner. That will not happen until and unless some measures are taken in order to impose disincentives with regard to the inflow of foreign goods.

I would like, Sir, with your permission, to give you an example from my own experience not in politics but in academic life as a teacher of law.

When I returned with my doctorate from the University of Oxford in 1971 and I was a junior lecturer in the Faculty of Law of the University of Colombo, a decision was made by the then government headed by Prime Minister, Sirimavo Bandaranaike to begin, for the first time, teaching in the Faculty of Law in Sinhala and Tamil.

Analog

Up to that time, instruction in the Faculty of Law was available only in English. It was during the period of the late Prime Minister, Mrs. Sirimavo Bandaranaike,that the decision was made to switch over to Sinhala and Tamil. My very distinguished predecessor in the post of Professor of Law in that University, the late Prof. T. Nadaraja, went before the then government together with the senior staff and made a very fervent appeal to the government not to implement this decision immediately. The argument was that there would inevitably be a decline in standards if instruction was begun in the Sinhala and Tamil languages, without sufficient literature being available to students in those media.

Professor Nadaraja very strongly argued, “Produce the literature first. Let there be enough books on the laws of this country in Sinhala and Tamil, and it is only when this literature is available that the University should begin teaching law in the Sinhala and Tamil languages.”

The Hon. Badiuddin Mahamud, the Minister of Education in that government rejected that argument. He explained that would not be a practical way of setting about it. The then government told the Faculty of Law that necessity is the mother of invention. You begin teaching in Sinhala, you begin teaching in Tamil and the literature will appear. But, if you say that you will make the switch over only after the literature has appeared, then there will never be a sufficient stimulus for the production of literature in the national languages.

Hardest Hit

But I think that some of the hardest hit sections of the community today are, for example, pensioners and those who live on interest income. This budget provides very substantial relief to as many as five hundred thousand pensioners, and those who live on interest income are also benefited to a very considerable extent because the concessionary rate of 2.5 per cent tax which was available up to now, only up to the threshold of Rs.600,000 a year as annual income, has been increased to Rs.1 million.

These are measures which reflect a certain spirit of social empathy, that is one of the ingredients of the budget.

Practical policy

There cannot be a mechanical application of a formula, which is based upon the prevailing world price and the exchange rate. You cannot have only one half of the argument. In that case, if there is a drastic decline in the prices, then, you hand over that benefit to the consumer, equally, if the world market price rises to very exorbitant levels, then that burden also has to fall upon the consumer. That is simply not a practical policy.

That is why, Mr. Presiding Member, the Government has adopted a balanced approach to this matter, providing a cushion to the community at a time when that is needed. In accordance with that policy, the price of diesel comes down from Rs.110 to Rs.80, the price of petrol comes down from Rs.157 to Rs.142 and the price of kerosene comes down from Rs.80 to Rs.60.

There is yet another measure which has been immensely beneficial to local industry.

That is the reduction of the price of furnace oil. I am personally aware how much of a benefit this will confer particularly on sectors like the apparel sector and the ceramic sector which make use of very large quantities of furnace oil. The reduction in the price of furnace oil will enable the companies that are engaged in these spheres to sell their product at a much lower price. This is because their cost of production will be reduced drastically. It means that these industries will be competitive in an exceedingly hostile global environment, and the consumer benefits to the extent that there would be a reduction in the price of the commodity that is produced. The point I am making in short, Mr. Presiding Member, is that the Budget looks at all these different facets and endeavours to do justice to each of these areas in a balanced way.

I think in a country like Sri Lanka social development is very essential and there are several features of the Budget which require emphasis from that point of view. For example, there has been the provision of almost Rs.1,000 million - the exact figure is Rs.950 million has been provided for the improvement of facilities in universities outside Colombo, universities like Peradeniya and Colombo are already sufficiently developed but, there is a need to bring up the other universities situated in the remoter regions of the country in order to ensure equality of opportunity for all.

I think, today, as we confront the formidable challenges that face Sri Lanka at this particular juncture in our contemporary history, there is an overwhelming need for consensus, for all men and women of goodwill who love their country to try to discover common ground to face together the challenges of the future, and to that end I humbly request the co-operation of all Members of Parliament irrespective of social or political prejudice and bias. On that note, Sir, I would like to commend this Budget to the House.