ECONOMYNEXT — State Minister of Finance Ranjith Siyambalapitiya has defended a proposal to increase salaries of cashs-strapped Sri Lanka’s bloated state sector, calling it a “courageous” decision by the president, amid concerns over revenue shortfalls.
“It was a very courageous statement by the president at the last cabinet meeting, because, one year ago, this was a country that was unable to pay salaries,” said Siyambalapitiya.
The state minister said Sri Lanka needs 90 to 95 billion rupees a month to finance the state salary bill, with another 15 billion needed to cover pensions.
“A year ago, this was a country that was unable to raise those funds. A country that was compelled to pay salaries in two installments.
“In a country that was in such a state, the leader has communicated clearly that he will increase state sector salaries. The way I see it, it is a difficult thing. But a leader must have that courage,” said Siyambalapitiya.
“We’re now doing the math. There are 1.4 million workers and 600,000 pensioners — a total of 2 million. If you increase salaries by 1,000 rupees, you need 2 billoin,” he added.
The state minister said Sri Lanka must rise again from last year’s crisis.
“In sports, you have to make it to the finish line. This is a time in which we as a country must adopt thinking,” he said.
The state minister’s optimism notwithstanding, concerns have been raised by some quarters over the proposed salary increase for state sector workers in the face of an ambitious 2.3-percent primary surplus target.
Meanwhile, President Ranil Wickremesinghe last week defended a proposed 3 percent hike in value added tax (VAT), amid confusion over how the government would finance the proposed salary increase.
He said the VAT hike was required for economic stability.
Speaking at the National Industry Excellence Awards 2023 on Wednesday November 01 in Colombo, Wickremesinghe acknowledged that the decision to increase VAT was a challenging one, driven by the “need to maintain economic stability”.
“To ensure our financial stability in the coming year, we must significantly boost our income. We have set specific revenue targets that we must work diligently to achieve. It’s crucial for the country’s progress and to prevent bankruptcy in the near future,” he said.
“As a result of these financial constraints, we had to make the difficult decision to raise the VAT to 18 percent yesterday. This step aligns us with the practices of countries like India and Pakistan. Such decisions are never easy for any government. However, failing to take these measures would cast a shadow on everyone’s future. Therefore, making the right choices becomes imperative,” he added.
The public, particularly the working and underprivileged classes, will have to bear the burden of this “regressive” tax hike, he said.
The salary hike for state sector workers is to be proposed in the upcoming budget for 2024, with President Wickremesinghe also promising to request the private sector to increase salaries of employees following an unprecedented rise in commodity prices due to inflation triggered by 2022’s currency crisis.
There is also an ongoing campaign of agitation by state sector unions demanding a 20,000-rupee salary increase. Government spokespersons have not provided specifics on the salary increased that will be proposed in the budget.
Meanwhile, Sri Lanka’s deal with the International Monetary Fund (IMF) includes an agreement to achieve a primary surplus of 2.3 percent of the gross domestic product (GDP) by 2025.
It is against this backdrop that President Wickremesinghe’s administration has increased personal income tax and now also plans to hike VAT by a significant margin, despite protests from unions and increased levels of migration. (Colombo/Nov07/2023)