Navigating the Budget tests government unity

Budget’s double challenge: fixing the economy and easing socio-economic burdens:

Joint Opposition looks for political mileage:

No Confidence motion against Ravi goes to Speaker:

Finance Minister: can concur with the Opposition if there is a rationale in their argument:

We live in a world where finding fault in others seems to be the favourite blood sport. It has long been the basis of political campaign strategy. It is the theme of much television programming across the world. It sells newspapers. Whenever we meet anyone, our first, almost unconscious reaction may be to look for imperfections. - Henry B. Eyring

It is an arduous task for any Finance Minister to present a perfect Budget that makes every segment of society happy. In short, it is a painstaking job to put the economy in proper order while easing the burden on the people.

Nevertheless, the expectations of the people were very high when the National Unity government presented its maiden Budget under the banner “a revolutionary budget that would stun many across the political spectrum of the country”.

People who are familiar with such political rhetoric were, however, optimistic with the Finance Minister’s preamble to his maiden Budget while it was being worked out.

More than anything else, people have had faith in the capacity of the UNP, the main constituent party in the Unity government, to turn around a negative economy as it did in 2001-2003 during the government headed by Prime Minister Ranil Wickremesinghe.

There is the general belief that the UNP would find rational solutions to the problems faced by the people, especially the middle and the lower middle classes who most helped topple the Rajapaksa juggernaut in the January 8 ‘silent revolution’.

The Budget includes many proposals to give economic stability to the lower middle class and daily wage earners, but the middle class, comprising mainly professionals, is not fully satisfied with the way economic relief has been granted.

For instance, though the move to rescind duty-free car permits from politicians downwards has been described as ‘positive’, it is also true that all Members of Parliament who were elected at the August General Elections may have received import permits that would not fall within the ambit of the Finance Minister’s new directive.

The unhappiness of the professionals and the bureaucratic class with regard to their loss of ‘car permits’ is somewhat understandable since this concession may have served as an incentive for them to remain in the country rather than seeking greener pastures elsewhere in the world.

Simultaneously, the middle class is quite perturbed by the fact that the prices of smaller cars had been pushed up, pushing their long cherished dream of a car down the drain. The surge in pre-Budget sales statistics of automobile agents and leasing companies show how people anticipated the worst in terms of car import duties. On top of all this, the government is also set to remove the tax on luxury and semi-luxury cars from April 1, 2016.

While many politicians have held Finance Minister Ravi Karunanayake responsible for deficiencies they perceive in Budget 2016, the Minister told Parliament that he is flexible and willing to go along with those in the Opposition who are picking holes in the budget - if there is a rationale in their argument.

Political tangle

Amid all this hullaballoo, Finance Minister Ravi Karunanayake was in for a rude shock last Thursday morning when, unknown to the Minister, President Maithripala Sirisena suddenly reversed the Budget decision to reduce tax for beer with 5 percent or lower alcohol content. The Minister was, unfortunately, not consulted before the Presidential move. The President had issued the revising directive which was sent to all media outlets. Karunanayake got to know about the move only through the news media.

The new Budget increased the taxes on all alcohol products, but reduced the tax rate for beer with 5% or less alcohol content. The only logic to this differentiation is that this was done to channel consumers away from hard liquor to soft liquor.

But this selectively targeted taxation went against President Sirisena’s vision presented in his Manifesto which strongly advocates a country devoid of liquor, cigarettes and drugs. The view of the President appeared to be that more women had begun consuming beer and hence it was more than appropriate to maintain the tax on a par with other similar beverages.

How did this policy tangle occur? It was not as if the President and his Finance Minister did not have the opportunity to discuss the Budget before it was presented in Parliament. There was a special Cabinet meeting on Friday, November 20, to discuss the Budget proposals.

No concerns were raised regarding the matter at that meeting and the Budget proceeded. However, on the following Wednesday night, the office of the President suddenly issued a statement nullifying the proposed tax reduction.

This disagreement is the latest of a growing number of decision-making reversals between the SLFP-led Presidency and the UNP-led Government. The differences of ideology and strategy or tactics seem to be becoming more pronounced than before.

It was the President who intervened in the Avant Garde controversy to direct the Navy to take over the security services performed by Avant Garde, while some leading UNP MPs publicly defended that company. It is easy to sit on a pedestal and reverse decisions rather than actually going through the merits and de-merits of any case.

In relation to Avant Garde, it was the plea of former Law and Order Minister Tilak Marapone to go by the posture of the Attorney General, Marapone himself being a former Attorney General and a top lawyer of sorts.

Minister Marapone eventually had to resign following pressure exerted by two Ministers in the Cabinet whose opinion on the matter was diametrically opposed to that of Marapone. However, Wijeyedasa Rajapakse withstood the whirlwind unleashed by Rajitha Senaratne and Champika Ranawaka while Marapone saved the government from further embarrassment by giving up his Cabinet portfolio.

Later the President had a special Cabinet meeting which was less stormy than expected since Marapone had quit the Cabinet. The President moved swiftly to hand over Avant Garde operations to the Navy which was reasonable in itself. But it brought up a fresh problem since Avant Garde had apparently lost its market monopoly which it had enjoyed for years.

In making these sudden decisions, the President seems to be having an understanding with Prime Minister Ranil Wickremesinghe which helps avert any major clash within the Unity coalition that could be exploited by various political elements trying to cash in on the situation.

Trust issues

In January this year the President and the Prime Minister made a valiant effort to create a new political culture by forming a ‘national unity’ government which, hitherto, had not been attempted successfully in Sri Lanka and is an unfamiliar political practice. The UNP and the President were then united by the common goal of defeating the Mahinda faction.

The collaboration between the United National Party and Maithripala Srisena as the ‘common candidate’ and, the electoral victory that followed, was unprecedented in modern Sri Lankan political history. President Sirisena, along with the UNP, was able to outsmart even the political savvy Mahinda Rajapaksa and win the January 8 elections.

However, the journey of the National Unity coalition, thus far, has been anything but easy. Since being elected, President Sirisena has been struggling to repair ties with his own SLFP. Although his bid to take over the party leadership was successful, he is still struggling to earn the loyalty of the SLFP membership. President Sirisena was, originally, to be a neutral figure in the scheme of things post January 8, but when the Parliamentary election was announced, that role was forgotten even faster than the way the so-called Mahinda Chinthanaya was conveniently dropped by the Rajapaksa regime earlier.

Certain moves Sirisena made to gain control of the SLFP has alienated him from the UNP. President Sirisena came to power through a majority UNP vote, in the South as well as the North. In trying to gain control over the SLFP and in leading that party in the general election, President Sirisena cast a doubt in the eyes of the average UNP voter who had previously voted for him en-masse in the presidential poll.

Sirisena made it a point to stay out of controversy during the parliamentary elections, but is still struggling to bring the SLFP firmly under his control. At the SLFP Parliamentary party meeting last Monday, the dissident MPs group refused to abide by the party decision to vote in favour of the Budget.

MP Kumara Welgama requested a separate meeting with the President to iron out the issues. On meeting the SLFP group on Tuesday morning before his departure to Malta, President Sirisena was able to negotiate a conditional support for the Budget.

The situation then was that if he was able to facilitate a meeting of the SLFP group with the Prime Minister and Finance Minister and if the Budget was amended to meet the SLFP group’s expectations, the group would vote in favour of the Budget. If not, the SLFP dissident group had threatened to push a No-Confidence motion against the Finance Minister for ‘misleading Parliament’.

Eventually, the group did not wait for the meeting as promised. Instead they presented the No-Confidence motion to Speaker Karu Jayasuriya on Friday with 44 signatures on it. Dissident UPFA Parliamentarian Vasudeva Nanayakara claimed that they had decided to bring in the No-Confidence motion as an ‘urgent’ matter on the grounds that the 2016 Budgetary proposals contained many facts and figures that misled the Parliament and the people.

The motion claims that the Finance Minister has deliberately misled Parliament, which has the supreme power over public finances, on the main mechanism of State financial management proposed by the 2016 Budget.

The No-Confidence motion states: “The budget proposals presented by Minister Ravi Karunanayake for the year 2016 have attempted to mislead public and Parliament and they contain wrong, erroneous statistics and information.

“The Finance Minister said in the Budget proposals that government had allocated Rs 121,352 million for education sector in 2016. He had exaggerated the financial allocations for the education sector by adding the value of buildings and lands belonging to the Ministry under the recurrent expenditure.

“He had amplified the allocation by 278 percent when compared to the previous year. As the minister had submitted wrong and false information to Parliament, this House has no confidence in the Minister and resolves that he no longer should hold the position of the Finance Ministry portfolio.”

Meanwhile, Minister Karunanayake, responding publicly to Opposition charges about the Education allocation, pointed out that even excluding the capital expenditure, the allocation for Education would amount to 5.1percent of the overall Budget which is very much higher than any annual Education allocations ever made by UPFA governments.

Paradoxically, it would appear that the UPFA dissidents are trying to find a perfectionist in Minister Ravi Karunanayke!

The politicians who have come to the fore on this issue are the very same politicians whose reputations have been tainted by their gymnastics in covering up the massive economic blunders of the previous regime, such as Bandula Gunawardena, Vasudeva Nanayakkara, Wimal Weerawansa et al. The way they have behaved so far has raised the question whether the dissident UPFA element in the Opposition is attacking Karunanayake on a personal basis rather than taking on the Government as a whole.

A Budget of Amendments

Such drastic action taken by the UPFA dissidents, in spite of the understanding last week with President Sirisena, raises serious questions about Sirisena’s clout within his party. Political analysts are of the opinion that this No-Confidence ploy by the dissidents call for drastic action by the President as UPFA leader. Adding to this conundrum, Nimal Siripala de Silva, SLFP bigwig and a Minister appointed by Sirisena, is also now claiming that he will oppose “some aspects” of the 2016 Budget.

On Friday the pro-Government SLFP faction met the Prime Minister and the Finance Minister to raise their concerns. Ministers S. B. Dissanayake, Anura Priyadharshana Yapa, Duminda Dissanayake, Mahinda Amaraweera, W. D. J. Senewiratne, and MPs Lasantha Alagiyawanna, and Ranjith Siyabalapitiya raised a number of concerns about the Budget proposals. A conspicuous absentee at this crucial meeting was Minister Nimal Siripala de Silva.

At the meeting, Minister Karunanayake thought ‘nothing’ of these concerns raised by the SLFPers and called them “gross distortions” raised to gain political mileage. However, the Prime Minister was not that easy going.

When the MPs raised the issue about the emission tax, Wickremesinghe shot them down. Annoyed, he asked why the MPs were so concerned about the matter. “You are borrowing the labour pains of someone else,” he accused the group. “If people own a vehicle, surely they can afford to pay Rs. 300 per month,” Wickremesinghe argued.

The meeting decided on a number of amendments to the Budget proposals. One is to halt the proposed merging of Sri Lanka Savings Bank, Divineguma Bank and National Savings Bank. The MPs pointed out that such a move is not possible according to the legal framework governing Divineguma.

On the new tax slapped on hybrid and electric cars, the Prime Minister explained that it was a short-term measure.

“The government did this to ensure that the profits they are making from the reduction of crude oil prices in the world market will continue. So they imposed a tax to ensure that hybrid and electric cars don’t flood the market eating into the profits,” a SLFP member who was at the meeting claimed.

Ravi the dream-catcher

As their income rises, it is natural for the needs and aspirations of the people to change. The needs of a majority of Sri Lankans have been slowly shifting from essential goods to more luxury consumer goods. The proposed taxes will invariably curtail this heavily.

Added to this, indirect taxes have also increased. The Nation Building tax has doubled, which will be reflected in many of the goods and services the middle classes consume heavily. At the same time, the VAT charged on services has increased, which will be transferred to the consumer base, made up mainly of the middle class.

These moves are, however, balanced by some other steps that should bring a smile to people. The income tax threshold has been revised, and a flat rate of 15 percent has been applied to all those who earn an annual income of above Rs. 2.4 million, abolishing the earlier PAYE scheme of rates of 16 to 24 percent. This will give relief to the private sector employee whose earning capacity is less than Rs. 2.4 million annually and to those in the higher income bracket.

Meanwhile, the Government’s proposed investment plan for EPF and ETF has had mixed reactions from trade unions and the general wage-earning public. Though there is some criticism, it is mainly due to lack knowledge about what the government is trying to do.

The proposed investment scheme will be administered by an independent body outside the Central Bank under the supervision of the Constitutional Council.

This is an arrangement that will drastically reduce any room for malpractices or mismanagement in contrast to the previous regime, when every attempt was made to meddle with the largest fund in the country which ran into trillions of rupees.

However, no information on exactly how such a fund will be created or managed and how the management will be governed and monitored by the State has been made available yet. This has created a sense of confusion among wage-earners who are the principle stake holders of the EPF and the ETF.

Hence, it is time that the government moves to educate the public on the intricacies of such a merger since decisions regarding the EPF and the EPF have always been a sensitive subject. In 2011, an attempt by then Rajapakse regime to convert the EPF and the ETF funds to a pension scheme met with stiff resistance and led to street protests in which a Free Trade Zone worker - 21-year-old Roshana Chanaka - was shot dead when the Police open fired on the workers’ protest in Katunayake.

The slow demise of the Rajapakse government began with this incident. The current government should bear this in mind and make amendments to the existing system after consulting trade unions in to minimise mis-perceptions.

The proposed fertilizer voucher system too has met with stiff opposition, while the proposal to establish an Export-Import Bank and the move to provide Central Bank guarantees to all finance companies has also seen criticism by industry experts.

The move to provide Central Bank guarantees to all finance companies is, however, a welcome move as far as the depositors are concerned. The Central Bank will also move to control the unrealistic interest rates offered by finance companies to attract depositors. All in all, it seems the Unity government is slowly drifting away from the original position it had taken as far as the economic woes of the people are concerned. Hard economic compulsions, both domestic and international, seem to have forced the Government to take some realistic and far reaching measures to fix the national economy while risking popular dissatisfaction.

During the election campaigns the UNP-led UNF displayed a heightened understanding of the aspirations and fears of the average Sri Lankans, and deftly portrayed them in their advertising campaign. Today, however, people who voted emphatically to rid the country of the Rajapaksa regime, have begun to worry that their concerns are being de-prioritised in the face of the economic structural challenges confronting the new government.

The US and the Power visit

The South is not the only part of the country unhappy with the Budget. The people of the North, who accounted for a large percentage of the Common Candidate vote in January, feel that their needs have been largely ignored in the Budget.

Chief Minister of Northern Province, C. V. Vignaswaran did not mince his words when he asked visiting US diplomat Samantha Power to pressure the Sri Lankan government to divert funds given to the military and allocate them to develop the North.

The Power visit is the latest of a series of visits by high ranking US diplomats and politicians.

Another topic that featured heavily in the discussion with Samantha Power was the issue of political prisoners held under the Prevention of Terrorism Act.

Senior members of the TNA, too, decided to use the opportunity to highlight the issue and possibly exert pressure on the government to release those who are still held in custody.

Nevertheless Ambassador Samantha Power told local media that much has changed in Sri Lanka in a very short period and that itself is a matter that has reflected the government’s good intentions and willingness to resolve all residual issues as soon as possible.

This may put the President and the Prime Minister in good stead as far as the international community is concerned.

Some political circles have recently speculated that the endeavours of the President and the Prime Minister to affect the historic political changes in January and August this year may put them in the running for the 2016 Nobel Peace Prize.

But other activists point out that the political changes were also due to the initiatives taken by the Ven Madululawave Sobitha Thera and a large civil society movement that revolted against the Rajapaksa regime.

It is reported that during the meeting with Samantha Power, Northern Chief Minister Wigneswaran had read out a long list that had to be accomplished by the government. Samantha Power had, however, prevailed upon him, giving a long list of actions that the government had accomplished for the well-being of the people of the North and other Tamil-speaking areas.