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What is Fundamentally Wrong With the 2014 Budget

What is Fundamentally Wrong With the 2014 Budget

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Published by: Thavam on Nov 29, 2013
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12/08/2013

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by Laksiri Fernando ( Noember 2!" 201#" $ydney" $ri Lanka %uardian&
The economic fundamentals overtly appear strong in the 2014 budget with the objectives of reducing the debt rate, budgetary deficit and sustaining a reasonable growth rate. That is when we look at the budget from a conventional economic point of view or a bourgeoisie! stand point, to be more precise. "ut what is the point of a budget in a developing country like #ri $anka if it doesn!t address the key challenges in the socio%political system, not to speak of any socialist or progressive objectives& This article focuses on the budget!s implications on the provincial council system or the country!s fiscal devolution.
Lost 'iretion
$et me begin with some general points. 't is unfortunate that a ()*+ budget which is epected to be progressive in its social content has almost completely lost its social direction % neglecting social e-uity, fair distribution of income and upliftment of the poor and the needy. The ()*+ talked about a caring society! in the last budget and it has now been completely dropped. +ll in all, if the )resident!s speech, as the inister of *inance, at the last budget kept some semblance of traditional #$*)%$eft policies or his almost bygone pro%poor! orientation, the speech this time is a mark contrast and it contains only glorified financial notes and figures perhaps from the /epartment of ational "udget of the Treasury without any sense of direction for the  people or the country ecept casino%type growth.
 
There are many vantage points from which the current budget could be criti-ued, including major flaws in economic missmanagement or fiscal policies. There is no doubt that #ri $anka is in a favourable position, particularly after the end of the war, to utili3e the advantages accruing from the +sian growth, being net to 'ndia, and linked to hina!s economic resurgence. 5owever, it is doubtful whether the present regime is utili3ing the full potential of this undisputable advantage, given the self%interests of the ruling elite and the increasingly disdainful attitude towards the general masses and the provincial6regional development. +s many have already pointed out, the present budget is ineffective in attracting enough *oreign /irect 'nvestment */', as it could have been, or reforming the ta structure to utili3e the full potential of the domestic capital formation, not from the poor! but from the rich. ost of the present taes are indirect taes burdening the poor. "e as it may, the present article focusses, however, its attention on seemingly untouched area of complete abandonment of fiscal devolution which could have been a cornerstone of a developmental budget at this stage of social development in the country both addressing the spatial ine-uity in general and the -uestion of ethnic and social reconciliation in particular.
Fisal 'eolution )or *+s
't is possible that fiscal devolution is largely an unfamiliar concept in #ri $anka. 't is more  possible that financial mandarins at the inistry of *inance are averse to the concept. "ut it has  been there in practice since the 17th +mendment 189: and even it took epression at least in some form at the last budget and its speech. 't is completely absent from the present budget speech or in any tangible form in the budgetary planning documents ecept crude figures given for the allocations under the inistry of $ocal ;overnment and )rovincial ouncils. $et me first -uote what it said in the last budget by the )resident himself.
 Hon. Speaker, Rs. 130 billion has been allocated in this Budget for development activities in the education, health, social service and provincial economic activities that are devolved on  Provincial ouncils. !o broaden the sources of income of the Provincial ouncils, it is e"pected to allocate Rs. 3# billion from the income derived through $ation Building !a", Stamp %ut& and 'otor (ehicle Registration. )s such, it has been ensured that the Provincial ouncils could spend around Rs. 1*# billion in #013.
The above is not the only statement on fiscal devolution for the )rovincial ouncils in the last  budget. There was a complete section on the subject titled <)rovincial ouncil +ctivities.= "ut the above statement is -uite sufficient to understand what was there until the present budget in terms of fiscal devolution, at least in circumscribed manner. >hile the )resident promised  budgetary allocation of ?s. 170 billion from the government income at the national level, another 72 billion was allowed through sharing taes at the provincial level. These included  "T, #tamp /uty and @?. +ll these seemed to be scrapped.>hy ' say <in circumscribed manner= is that even by the last budget, arrangements had been made to collect the taes through the central agencies and then allocate the estimated amounts to the )s. This is not the fiscal devolution intended under the 17th +mendment. *iscal
 
devolution proper incorporates both ependiture and income within the devolved units as much as possible. This is what is in practice in 'ndia, #outh +frica or hina, not to speak of anada, (#+ or +ustralia. *iscal devolution or decentrali3ation has nothing much to do with federalism or unitary state under contemporary circumstances. 't is sine -ua non in any country with major regional disparities or under development. 't is of paramount importance when power and governing functions are devolved. 'f one argues that fiscal devolution is applicable only in large countries, then the counter eamples are from #wit3erland or "elgium. 'n countries or socio%political systems, like among living beings, human or animal, the anatomy is the same whether the country is big or small. 't should also be noted that although the last budget talked about 1A2 billion for the )rovincial ouncils, the present revised estimate is 149 billion for the current year 2017 and by the end of the year, it would prove to be much less. There must have been a drastic cut somewhere, most probably in the ta revenue sharing. +nd for the coming year 2014 what can be seen is  purely an allocation for the inistry of $ocal ;overnment and )rovincial ouncils and through which, of course as in the past, funds would be transferred to the respective )rovincial ouncils as an appendage of the central inistry and controlled by the Treasury. This appears to be the dominant thinking of financial centrali3ation at present, instead of what intended as financial devolution under the 17th +mendment mediated through the *inance ommission.
Budgetary ,lloation
(nder the inistry of $ocal ;overnment and )rovincial ouncils, 149 billion is allocated for the 8 )rovinces for the year 2014 without any policy reference in the budget speech. ' believe the omission is by purpose and indicative of how the government is going to treat the  provincial councils in the future. This is eactly the reduced amount for the current year, from the promised 1A2 billion, even after the reconstitution of the orthern )rovincial ouncil in #eptember this year. There is clear callousness in the budget estimates for the provincial councils, or otherwise the two figures could not have come that close as if the figures are largely duplicated or even manipulated. This allocation also contrasts -uite significantly with what is allocated to the inistry of /efence and (rban /evelopment which amounts to over 2:0 billion. 'nstead of reconciliation through devolution, the big stick of military might has taken priority and instead of  provincial6regional development, urban development in the >estern )rovince and provincial cities of particularly the #outh has taken priority. But of the allocated amount of 149 billion, 111 billion is for recurrent ependiture and only 7:  billion is for much needed capital and development ependiture. Cven out of the recurrent ependiture, the major bulk of 84 billion is for personal costs i.e. salaries and the rest, 1:  billion is limited for operational costs. There is obviously something fundamentally wrong in these estimates and allocations, making the principles of devolution a mere mockery. 5owever, in theory, there are 7D functions assigned to the provincial councils even after taking away the  police and land functions. +mong them, education, health, social services and provincial economic activities are of paramount importance and they will all suffer as a result.

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