COLOMBO (EconomyNext) – Sri Lanka’s Ceylon Chamber of Commerce called for a better budget that will allow all the people in the country to progress after the new regime put forward a plan to transfer massive amounts of resources towards state workers and consumption.
"The Ceylon Chamber believes that the proposals outlined in the interim budget reflects the commitments in the election manifesto of President Maithripala Sirisena," the trade chamber said in a statement.
"Going forward the Chamber calls on the Government to formulate – and announce at its earliest – an economic policy framework to drive sustainable and inclusive growth."
The chamber said it would like to see more exports, investment and education.
"Such a policy framework, if aligned to market forces and institutionalized governance and supported by foreign policy, would ensure a competitive & productive economy and thereby, a reasonable minimum standard of living for all Sri Lankans."
An interim budget based on a manifesto devised by Sri Lanka’s United National Party, the Janatha Vimukthi Peramuna and Jathika Hela Urumaya transferred almost 100 billion rupees to state workers and pensioners from the rest of the society.
The Janatha Vimukthi Peramuna was also involved in a policy framework called Rata Perata in 2004 which sent inflation zooming up and the rupee sliding down.
The budget slashed capital spending and took away investible capital from big firms in the form of a sudden retrospective windfall tax to finance a part of the salaries.
The budget also slapped punitive billion rupees taxes on some companies violating a time-honoured basic principle of taxation observed in South Asia for more than two thousand years.
The chamber noted that some of the taxes were "distortionary and entity-based and may send confusing signals to investors leading to a reallocation of resources.
"These are not desirable features of a competitive economy (which thrives on consistency) and a modern tax system (which ensures consistency)."
"Thus, the Chamber hopes that they are short term transitionary measures aimed at maintaining a reasonable fiscal position until a firm economic policy framework is introduced.
"In terms of revenue generation in the future, we call for a framework that is fair and non-discriminatory and focuses on a streamlined tax structure and an efficient tax administration."
The Chamber said that given low household income, relief measures were needed and since inflation was "benign" and expenses have been financed with the selective taxes "macroeconomic stability is unlikely to be undermined."
However analysts say bank credit has started to grow and the exchange rate is already under pressure, and the higher state spending tends to heighten risks to macro-economic stability.