THE BUDGET AND THE CONCEPT OF PRODUCTION ECONOMY
Posted on November 13th, 2021

BY EDWARD THEOPHILUS

In Sri Lanka, the budget has been given the wrong impression to people that it is a way of decreasing or increasing prices of consumables or otherwise providing various reliefs to proletarians. However, it has not come to a reality as people expect. This impression came to people’s minds, as the many budgets after the independence have been used by the government to either increase or decrease prices of goods and services since the beginning of the parliament system. It seemed like a game and became a talking point and many people at present are not concerned about the budget.

The budget in other countries considers as a strategy of taxation management that affects increase or decrease in take-home pay of the workforce, thereby it seems fluctuating prices of consumables and services. Academics consider the budget as a short-term plan that details the government policy regarding various matters and in developed countries, people expect personnel or corporate tax changes from a budget.

The expectations of the public may have differed from one country to another, and there are various theories associated with the budget, which is an integral part of public financing. The basic view of the budget is a practical plan to manage public finances, and it is short-term because the proposal submitted this year may be changed in the next year. In Sri Lanka, people have a general impression about changes in consumer prices with effect from the presentation of the budget proposal for the second reading, and the indirect and direct tax policy presented by the minister of finance leads to the budget, may change giving benefits to the public. It will lead to popularity among the public and it will open the way for members of the parliament to talk and go the public. The other vital point is when Mr.Rone de Mel was the Minister of Finance rhetoric was the budget cannot reduce prices and the best option is to give opportunities to earn money to adapt to the cost of living. That idea has ended with hipper inflation in the country as well as declining the foreign and domestic value of the monetary unit.

The budget for 2022 contains several positive aspects and the change of retirement age to 65 years is a highly positive aspect and it would lead to attracting employees’ support to the government in the public and private sectors. The policy might reduce or keep stable transfer payments. The minister expressed that keeping employees in current work would not affect hiring young people to the workforce and it is a positive proposal. It also supports elderly employees to have a reasonably good life.  

The major issue in the budget proposals is what would be the help given to farmers and while talking about production economy, the major contributors to a production economy are farmers and industrialists, and the budget did not mention what kind of incentive will be given to farmers and industrialists. That may be a vital question about the presented budget. Farmers and industrialists are a powerful part of the production economy and if the minister of finance planned to give help to them, the budget would have a popular one among most people.

From the point of view of international financial organizations, a budget should be lower spending, but increasing or maintaining capital spending the budget would support economic development and I feel that if there was a proposal to encourage the savings level of the country, it would help to balance of payment adjustment process and to reduce the borrowing. Reduction of the government domestic borrowing encourages the banking and finance sector to enhance liquidity and provide finance to various sectors of the economy from domestic savings.

The minister of finance stated that his aim is converting the economy of Sri Lanka into a production economy. What would be strategies he supposed to use to achieve the purpose is not clear. He has already stated that taxes for certain items would be increased and he never mentioned items because it will lead to a speculative shortage of traders. When considering a production economy agriculture, industry construction, services, and all others are included. The government should encourage import substitution and maintain the product quality of import substitutes that would support the effort of making the production economy.

The budget would have formulated a plan to make radical changes in public enterprises management, other words, it should have formulated strategies to attract private capital to public enterprises. Especially banking and finance sector is desperate for capital and the government is not in a position to provide capital and it there was a proposal to attract at least 25% of capital from the private sector, the banking and finance sectors would have given strength and continue business and providing supports for new business.  If such a strategy was used, the government spending massively reduced and the budget gap could have been eliminated and improve the foreign value of the monetary unit of Sri Lanka. The trade unions and opposition might be concerned about such policy and it would have led to protest marches in Colombo. The best attack to trade unions from the budget was a decision to resolve the problems of teachers and trade unions who show reluctance to express views on the budget.

The Covid 19 pandemic negatively influenced many countries in the world and to recover Sri Lanka, it needs a medium-term plan, most probably five budget proposals might need to recover the loss of the economy.

The government needs to hang on to the concept of the production economy. It is the way to recover the economy and open opportunities for people.  The administration level could help the implementation of strategies for a production economy, reducing expenditure and the use of productive measures for quality services.

The most popular measure of the budget may be increasing the service requirement of parliament representatives to ten years. Many developed countries use getting back employees to workplaces those who lost jobs during the Covid pandemic and such a short-term program would have been introduced by the budget.

The productivity of employees seems to lower because many employees during the working hours participate in protest and such employees should have suggested to given punishment and stop payments. The enhancement of individual productivity of employees should have proposed to give incentives.

In the finance sector, it should have encouraged mergers and acquisitions to reduce the cost of firms and established an industrial development bank to provide long-term financing supports for the industrial sector with the capital of private sector and less capital from the government should have come to effective.   

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