THE TASK OF THE ELIMINATING BUDGET DEFICIT
Posted on October 18th, 2021

BY EDWARD THEOPHILUS

Mr. Basil Rajapksha, the Minister of Finance, stated that his intention is to eliminate the budget gap or deficit in Sri Lanka. It is a good fiscal motivation, and the task is difficult to achieve and it may be an art of discourse because the budget deficit of Sri Lanka cannot be quickly eliminated from the current environment. As people knows the budget deficit is a concept that has a considerable history. When talks budget policies during wartime, A.C.Pigu advised that the cutting wages would be increased the wage fund and unemployment could reduce giving jobs spending saved money, despite the classical views, Keynes stated the deficit budget would support to increase spending and effective demand and create more employment opportunities. The covering budget gap or deficit would be crated inflation and how to control the inflation has not been advised by Keynsian supporters, but later Milton Friedman advised introducing an inflation tax. The view of Keynes has been implemented in many countries and economists found that the idea of Keynes would be suitable for when an economy has an excess capacity, but many countries opted for continuously deficit budgets and it has been a serious economic problem in the 1980s and the World Bank advised managing balance budget or excess budgets and many Western countries have been converted the fiscal system to balance the budget using the collected funds from privatised public enterprises.

Mr.Basil Rajapaksa, as the Minister of Finance has an excellent idea, how to eliminate the deficit budget is a gigantic task because the budget policy of Sri Lanka has not been targeted to balance revenue and expenditure. It has been a structural problem in Sri Lanka’s economy since the Korean war and the budget policies of the country did not explain to people in simple language why Sri Lanka needs eliminating the budget deficit. In addition, the corrupt practices of politicians and bureaucracy also contributed to increase the budget deficit in negative format.

Why doesn’t Mr.Basil Rajapaksa begin a campaign to educate people about outcomes of a balance budget. A balance budget would reduce the debt of the country and eliminate many economic problems. The major problem is how to eliminate the negative deficit. One option is to increase taxes in various sectors, the others are reducing spending (especially expenditures for parliament and its members), increase job opportunities for poor people reducing their subsidies, stopping free health and education for people who are in a reasonably higher level income bracket.

The best option to eliminate budget deficit is reduction of expenditure and increase revenue. In the 1980s, many western countries either reduced or eliminated budget deficit by selling public enterprises and using the pays off debts and budget gap.  

Mr.Basil Rajapaksa needs promoting these ideas among people and explaining possible positive impact on the elimination of the budget deficit. If it happens, the value of Sri Lanka rupee will be higher and the foreign reserves in increase US $20 billion.  

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