Professor H.D. Karunaratne of the university of Colombo called on the government to continue its efficient administration of public expenditure. Karunaratne was speaking at Hatch on 10 March at an EmpowerSL discussion on the recent changes to the tax system.
He said, “The Sri Lankan scenario has been generated by unnecessary expansion in the public sector. Economists in Sri Lanka always think the government revenue should match the expenditure but we can see the type of expenditure we have in Sri Lanka. The budget deficit has been growing in Sri Lanka and it is expected in 2020 to grow by 7.5 percent of GDP.”
He mapped government revenue to government expenditure over the last ten years. He said “If we didn’t increase the government expenditure to that level then we would have already matched the government expenditure with the increase in government revenue by 2019. If you come the linear way the government expenditure would have been covered by 2019 which means we would have generated a budget surplus if we had not increased the government expenditure.”
He added “The last government expenditure increase leads to an increase in the public sector employment growth. In 2015 the 100-day program introduced a 10,000 salary increment for all public sector employees. That is the worst scenario for macroeconomic management in Sri Lanka. That would not happen if you were considered by a healthy macroeconomic environment. If you multiply 1.4 million public sector employees by Rs 10,000 a month that is a huge amount. That is why we needed a high tax.”
He said “The government budget in 2019 provided another 600,000 for Samurdhi. The department of census and statistics in Sri Lanka has shown that the poverty rates in Sri Lanka are coming down. With the poverty rates coming down the government will be able to reduce expenditure.”
He added “We know what happened in Sri Lanka in the recent past. The quarterly growth has come down to 1.8 percent. The economy is not moving in terms of production. That is why is this tax reform is needed in Sri Lanka.
The policymakers I know clearly understood the economic growth should be stimulated by the tax cut.
The huge tax in the SMEs and the impact of VAT on SMEs was the main impact. Even when we see the composition of GDP, economists like to analyze things in terms of composition, the only sector that has been growing is the government sector expenditure. Government expenditure growth is one of the worst things happening in Sri Lanka.”
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