Presidential Election 2024: A look at economic policies of key candidates

 Presidential Election 2024: A look at economic policies of key candidates

 The Morning 25 Aug 2024 | By Imesh Ranasinghe

On 21 September, Sri Lanka will hold the Presidential Election to select its ninth executive president who will govern for the next five years, said to be pivotal years for the country’s recovery from its worst economic crisis. 

Although past Presidential Elections were primarily based on pledges for relief, the upcoming election is centred on the economic policies that will drive the country out of the crisis, since the job is only half complete.

Whichever government comes to power will have to work with the International Monetary Fund (IMF) programme and the agreed-upon debt treatment in relation to the country’s external debt.

Accordingly, The Sunday Morning decided to look at the policies related to taxation, IMF, economic growth, and debt restructuring espoused by the top five presidential candidates contesting the election next month.

Ranil Wickremesinghe

• Govt. committed to 5% annual growth by 2027: Prez
• Plans to modernise agriculture, make it competitive for exports
• Rs. 30,000 basic salary for primary-level service category employees 

Govt. has sent PIT amendments to IMF

Speaking last week at the launch of the National Social Protection Policy, Treasury Secretary Mahinda Siriwardana said that the Treasury had commenced negotiating Personal Income Tax (PIT) amendments with the IMF as far back as September 2023 but had not been able to implement such a proposal as revenue had fallen short of targets.

However, he said that with the improvement in revenue performance this year, it had become possible to negotiate an adjustment to the PIT structure which provided some relief to taxpayers in the middle bands, while ensuring there was no excessive gain for the highest income earners.

“The proposed adjustment to the PIT is estimated to cost around 0.08% of GDP and compensating revenue measures have already been discussed with the IMF, such that revenue targets are not compromised,” Siriwardana said.

According to the Inland Revenue Department (IRD), PIT applies if the monthly income is equal to or greater than Rs. 100,001, the annual income surpasses Rs. 1.2 million (Rs. 100,000 x 12), and the tax rates start from 6% up to 36% with the rate increasing by 6% for each slab of Rs. 41,667.

Ultimate IMF targets are non-negotiable

Siriwardana said that the ultimate targets of the IMF programme were largely non-negotiable, adding that the policy mix by which such targets were met had greater flexibility.

“In this instance, the ultimate targets of tax revenue and the primary balance are not compromised since the Government has quantified the revenue impact and already discussed compensating revenue measures with the IMF,” he added.

Further, he said that there was very little room for judgement and negotiation of the IMF programme by a new government as the programme was based on the IMF’s Market Access Countries Sovereign Risk and Debt Sustainability Framework (MAC SRDSF), which was to a great extent mechanical in nature.

Economy to return to normalcy by 2026

Speaking at a construction sector forum on Wednesday (21), President Ranil Wickremesinghe said that the Government was hoping that Sri Lanka’s economy could return to normalcy as early as 2026 rather than the anticipated 2027 timeline.

He said that the Government had committed itself to a 5% annual growth by 2027 and over 5% thereafter, with the economic policy of the Government having been made into a law under the Economic Transformation Act.

Wickremesinghe said that the authorities had now stabilised the economy and were looking at ways it could grow to ensure that the country did not repeat its recent crisis.

Export-oriented economy to repay debt

Wickremesinghe further said that Sri Lanka’s economy was an import substitution economy, where imports were greater than exports.

He said that through debt restructuring, Sri Lanka had spread out its repayments until 2042 on much easier terms, however noting that while the country was repaying its debt, it would have to borrow again every year, which could lead to another crisis in 10-15 years.

“To manage that, we have to go from an import substitution economy to an export-oriented one; once we get there we will start generating the income and revenue we need,” he said.

He added that his Government was looking at modernising agriculture and making it competitive for exports as the world population was expected to increase by two billion by 2050, leading to expansion in the food market.

Further, Wickremesinghe said that as Sri Lanka opened up its economy and ensured ease of doing business and regulations, it would have to become competitive and productive in order to attract more investments into its free trade zones.

24% increase in public servant salaries by Jan.

Speaking to the media on Thursday (22), Expert Committee on Public Service Salary Disparities Chairman Udaya R. Seneviratne said that the basic salary of public service employees would be increased by a minimum of 24% for primary-level service categories.

Accordingly, for all Government officials, salaries will gradually increase from an average of 24% to 50%, depending on current fiscal feasibility.

He said that the basic salary for primary-level service category employees would be Rs. 30,000, with the total salary, including the cost of living allowance, amounting to Rs. 55,000.

Seneviratne added that in view of the prevailing inflation and economic conditions, a cost of living allowance of Rs. 25,000 would remain unchanged for three years and would be provided to all Government employees for three consecutive years starting from January 2025, with 2025 being considered the base year.

He said that regardless of which government was in power, there was a pressing need to increase the salaries of public servants. These proposals have been made to address and eliminate salary disparities, taking into account past trade union protests within the public service. 

Seneviratne added that the proposals had received approval from both the Cabinet and the Treasury.

Sajith Premadasa 

• SJB focused on maintaining lifestyle of middle class: Harsha
• Party disagrees with IMF’s view of debt; claims SL’s problem is with external debt
• Unwilling to accept IMF targets due to its lack of focus on tradeable growth

SJB adjusting PIT to include more people  

Commenting on the economic policy of Samagi Jana Balawegaya (SJB) presidential candidate, Opposition and SJB Leader Sajith Premadasa, SJB MP Dr. Harsha de Silva said that when the party had met with the IMF earlier this month, attempts had been made to reach a consensus on the taxes that would be implemented in 2025, thus fixing the revenue target for 2025.

Speaking to the media earlier this month, de Silva said that the SJB had not reached an agreement with the IMF on taxation as no one knew who would win the Presidential Election, although the SJB anticipated a victory. 

Further, he said that if the SJB had agreed on the taxes for 2025 for a future government, it would be unable to make adjustments to the tax structure after taking office.

“We appreciate the fact that we need to work within an envelope, although we may wish to make adjustments in marginal tax rates such as PIT or even change the slabs – which is what we want to do,” he added.

He stressed that the SJB believed that if the PIT slab could be held between 18% and 24%, so that most people fell within that slab, those earning extremely high incomes could then be moved to the 30-36% tax slab.

Further, de Silva said that by adjusting the tax slabs accordingly, equity could be brought into the taxation process, since when considering the point at which tax rates of 24%, 30%, or even 36% came into effect in the tax structures of regional competitor countries, such as those Sri Lankans were migrating to, people had a certain level of disposable income in hand before they started paying very high marginal rates of tax.

He added that maintaining a middle-class lifestyle of people used to a particular way of living had become an issue. He thus said that the SJB was focusing its attention on seeing what kind of balance it could bring so that the middle class could continue their lifestyle.

Meanwhile, de Silva noted that high-income earners could be temporarily charged with a higher tax rate and a surcharge tax, adding that the SJB had explained to the IMF that it was not satisfied with the tax structure that the Government had agreed to.

Further, he said that the SJB had agreed with the IMF that Budget 2025 would tie the hands of the incoming government in terms of handling fiscal issues due to IMF programme targets.

“We did agree to work within the broad targets of revenue to GDP. We have our own plans to increase revenue outside of just taxing the people who are being taxed now,” de Silva said.

SL’s EFF is not what it says it is

Moreover, de Silva said that the SJB had argued that the agreement signed between the IMF and the Government was not what is said to be an Extended Fund Facility (EFF) but more of a standby or an extended bailout agreement. 

According to him, in a standby or extended bailout agreement, the IMF will try to fix liquidity issues and short-term problems and raise taxes, on the assumption that it will translate into a positive balance of payments situation.

“In an EFF, there will be a lot more structural reforms in order to get the country back on a growth trajectory – not just the anaemic 3.1% growth they are expecting at the end of the programme, but 7-8% at least,” he said.

Therefore, he said that the problem with the current IMF programme was that the fund believed that debt was debt and growth was growth and that there was a twin deficit, where the balance of payments problem would be fixed once the taxes were fixed.

However, he said that the SJB disagreed with the IMF’s view of debt as there were two types of debt, namely external debt and local debt. He added that Sri Lanka’s problem was with external debt, which had to be paid in US Dollars as the country had suspended debt servicing due to lack of dollars in hand.

SJB looking for exports, competitive import substitutes 

Moreover, de Silva said that to the SJB, growth was not growth but that it could be dichotomised into two types of growth; one being tradeable growth which meant exports and competitive import substitutes, while the other was non-tradeable growth such as production of goods and services that are not internationally competitive. 

He clarified that import substitution did not entail what the economy had previously been based on but rather a competitive import substitution, which meant that whatever was produced here could be competitively sold in any other market as well.

“We told the IMF that we have to link the dollar-denominated debt to dollar-generating revenue, which means tradeable growth, but the IMF does not dichotomise the production of goods and services into tradeable and non-tradeable,” de Silva said.

Moreover, he said that the IMF agreement was faulty, adding that it did not focus on tradeable growth to achieve 8-10% growth down the line, and that therefore, the SJB was not willing to accept the IMF’s targets. 

Anura Kumara Dissanayake

• Primary surplus target should be reduced as it has overperformed: Anura
• Plans to build export-focused agri villages, focus on R&D
• Minimum monthly allowance of Rs. 10,000 to low-income families

NPP looking at renegotiating IMF agreement, reducing taxes 

Speaking at a public forum in July, National People’s Power (NPP) presidential candidate, Janatha Vimukthi Peramuna (JVP)/NPP Leader Anura Kumara Dissanayake said that some of the conditions of the IMF programme needed to be renegotiated. 

He added that the primary surplus target, which the IMF required to be achieved through increasing taxes such as the Pay As You Earn (PAYE) Tax, should be reduced as it had overperformed, while expenditure needed to be reduced to maintain the primary surplus target.

He noted that the Treasury was not receiving the actual annual tax revenue it should be getting due to political and administrative issues; therefore, a future NPP government will look to resolve these issues and ensure revenue flows back to the government through the introduction of legislation and processes. 

Dissanayake said that it was important to work with the IMF to gain economic stability while continuing to follow debt treatment agreements.

Export-oriented economy with R&D 

Moreover, speaking at a rally earlier last week in Panduwasnuwara, Dissanayake said that a future NPP government expected to build 1,000 export villages to produce food not only for the country but also for export purposes.

He said that Sri Lanka could not export food only by cultivating during the Yala and Maha seasons, as there was a global food supply chain which required a weekly supply to markets and supermarkets around the world.

“Therefore, instead of growing only during the Yala and Maha seasons, we have planned to build export-focused agri villages,” he said, adding that their government would provide the necessary technology, subsidies, and seeds to help farmers cultivate.

Dissanayake added that an NPP government would focus on Research and Development (R&D) to identify new means of economic growth as Sri Lanka could no longer continue to simply sell tea, rubber, and apparel to the world, given that the plan was to achieve at least $ 30 billion in annual export revenue, in comparison to the current $ 12 billion.

He further said that there would also be R&D initiatives for the Ayurvedic and tourism sectors in particular.

Relief to the vulnerable and VAT cuts 

Dissanayake further said that a future NPP government would provide a minimum monthly allowance of Rs. 10,000 to low-income families and a minimum of Rs. 15,000 to families in extreme poverty until they were able to get back on their feet.

He added that their government would also completely eliminate the Value-Added Tax (VAT) on food items, health services, medical equipment, and educational services. They also intend to plan the gradual reduction of electricity prices by one-third within one-and-a-half-years.

He noted that in order to develop the economy, the government should move away from doing business and should instead tax those earning wealth. 

Accordingly, Dissanayake said that in order to increase the government’s tax revenue, individuals or companies should earn more wealth while the government supports them in this endeavour through assistance for opening up new ventures and developing existing businesses.

Namal Rajapaksa 

• Party intends to move away from indirect taxes, widen tax net: SLPP spokesman
• IMF programme to be accepted but renegotiated
• Focused on ensuring growth of local, rural economies

SLPP to opt for direct taxes  

Speaking to The Sunday Morning, a spokesman from the campaign office of Sri Lanka Podujana Peramuna (SLPP) presidential candidate, SLPP National Organiser Namal Rajapaksa said that the party’s intention was to conceptually move away from indirect taxes and to opt for direct taxes as much as possible. 

It also intends to widen the tax net, which will increase the number of people or entities within the tax brackets instead of burdening the same people with increased taxes.

The spokesman said that the party recognised that tax revenue was an essential component in a government, believing that there were improvements that could be brought about in the system in order to ensure that the average person was not burdened with the existing level of taxes.

He added that the party also believed that there was a means of effectively bringing the grey economy into the banking system in order to have this within the taxation system. 

“We also believe in the linkage of systems; we are looking at a unified payment system and a unique ID system similar to that of India,” the spokesman said, adding that collection of government taxes would be rendered more efficient through the linking of systems. 

Party will relook at IMF agreement but agrees in principle 

Moreover, the spokesman said that there would certainly be an effort to relook at the IMF programme; however, Rajapaksa’s policy would be to proceed with the programme in the foreseeable future. 

“As it stands, it is something which will be accepted but renegotiated to ensure things are not as draconian as at present,” he added.

He pointed out that in the IMF programme, the Government was expected to collect a certain amount of tax this year and a certain amount next year, but that it did not specify exactly how the Government should do so. Therefore, he said: “As long as the government revenue meets this target, we will be aligned with the IMF’s expectations.” 

He noted that this provided some leeway to whichever future government to manage within the IMF programme, enabling the provision of relief to the vulnerable who were suffering from taxes.

Nationalistic social market economy for development

Further, the spokesman said that while the social market economy concept was now espoused by the SJB, it was also what the SLPP wanted, with the only difference being that the latter envisioned a more nationalistic social market economy. 

“For example, the SLPP has always been said to be against the sale of State property; these are the points which differentiate the party. It is also focused substantially on ensuring the growth of the local and rural economies,” he said.

Debt negotiations will depend on timing 

Commenting on external debt restructuring, the spokesman said that there still remained some room for negotiations regarding International Sovereign Bonds (ISBs). However, he pointed out that there was no clarity with regard to exactly what had taken place during negotiations, besides what had already been published in the public domain. 

He noted that the last negotiation, which involved a Macro-Linked Bond (MLB), was detrimental to the country, since the haircut could become 10-15% if the country were to perform favourably. Accordingly, he said that if the Rajapaksa camp projected a certain percentage of growth over that period and if the GDP targets were met, then the haircut would become 15% instead of 28%, which was equitable treatment compared to other parties.

“That would also mean that we end up paying almost an additional billion dollars over the period,” he added. 

He said that further room for negotiations would depend on the timing and the level of negotiations by the time the elections are held and a new government takes over.

Dilith Jayaweera

• SOEs should be retained and converted to well-managed entities: Dilith
• Proposal to introduce UDI for every citizen, integrating State and other services
• Will revisit terms of restructuring agreements with major bilateral creditors: Dilith

Sarvajana Balaya to provide tax incentives, widen tax net

Responding to an email query by The Sunday Morning, Sarvajana Balaya presidential candidate  Dilith Jayaweera said that he believed in a fair, efficient, and transparent tax system that supported economic recovery and growth but which would also ease the burden on the most vulnerable segments of society.

He said that the objective of their proposals was to ensure that the system was balanced and efficient, promoted entrepreneurship, and created a sense of shared responsibility among all Sri Lankans.

“One of our key proposals is the introduction of a Unique Digital Identity (UDI) for every citizen, integrating all State and welfare services, banking, and taxation,” he said, adding that it would transform the manner in which Sri Lanka handled tax collection by making it more streamlined, transparent, and secure. 

Further, Jayaweera said that by automating the real-time processing and monitoring of tax revenues, they would not only close the gaps that allowed tax evasion but also ensure that every transaction was accountable.

He noted that this strategy allowed them to widen the tax net, bringing more individuals and businesses into the formal tax system, while it would also enable the more equitable distribution of the tax burden, reducing pressure on any single group. Jayaweera said that a broader tax base would help improve the direct-to-indirect tax ratio, thereby lowering the indirect tax burden, especially on lower-income consumers. 

Further, he added that with the aim of promoting local entrepreneurship, they would introduce special import tax policies for selected goods to protect local industries.

“We also plan to introduce incentives for both corporates and individuals, rewarding those who pay their taxes accurately and on time. These incentives will be designed to encourage a culture of compliance, where taxes are not seen as a burden. We want citizens to understand the necessity of taxes in funding public services and infrastructure that benefit everyone,” he said.

Will look to change some terms in IMF agreement 

Addressing the IMF agreement, Jayaweera said that he recognised that as a sovereign nation that had entered into an IMF programme, the country must respect and honour the spirit of the commitments made. However, he said as far as the limits of renegotiation allowed, a future Sarvajana Balaya government would seek to renegotiate some provisions in order to minimise negative impacts on the strategies that it wished to implement forthwith.

“I believe that any successful renegotiation must take place within a framework where Sri Lanka makes a compelling case for the positive overall benefits of changing such terms and conditions,” he added.

For example, he said that they opposed the IMF’s recommendation to sell State institutions. Instead, they believe in retaining these State-Owned Enterprises (SOEs) and converting them to efficient, profitable entities that are properly managed by professional experts. 

Jayaweera said that their plan included forming Public-Private Partnerships (PPPs) to attract private capital, which would strengthen these institutions, adding that in order to streamline operations, they would create a holding company to centrally manage all State enterprises, ensuring efficiency and accountability.

“We cannot simply demand renegotiation; where we wish to divert from the current IMF agreements, we will approach the IMF with a fresh strategy that allows for sustainable growth for Sri Lanka,” he said.

An economy of entrepreneurial thinking  

Further, Jayaweera said that his vision for Sri Lanka’s economic growth, as outlined in the Sarvajana Balaya Strategic Plan, centred on transforming the nation into a dynamic, resilient economy driven by entrepreneurial thinking and value creation. 

He said that Sri Lanka must break free from the traditional dependency on foreign concepts and aid, advocating instead for the development of a locally-driven economy which involved fostering an entrepreneurial mindset across all sectors, from agriculture and industry to technology and services. 

He noted that by encouraging creativity, resourcefulness, and risk-taking, Sri Lanka could create an economy that was not only self-sustaining but also competitive on a global scale.

“Key to our strategy is the development of State, private, and cooperative sectors that are aligned with entrepreneurial values. The strategy includes supporting Small and Medium-sized Enterprises (SMEs), diversifying exports, and adding value to local products to increase their appeal in global markets,” he added.

Moreover, he said that the plan also highlighted the importance of modernising education and healthcare, creating a digitally integrated tax system, and promoting sustainable practices to ensure long-term growth.

Revisiting terms of restructuring agreements

Regarding debt, Jayaweera said that their overall aim was to develop and execute strategies to manage and restructure existing debt in order to reduce the burden on future generations and ensure fiscal sustainability.

He said that managing debt, whether through restructuring or otherwise, had to be a fine balancing act that reduced the immediate pressure on the country’s economy but also did not compromise its long-term growth.

He noted that the most critical aspect at the moment was restructuring the $ 15 billion worth of commercial debt in the form of sovereign bonds. “We will urgently negotiate for the best terms that grant the greatest relief through a combination of write-downs and extended repayment plans,” he said.

Jayaweera also said that they would revisit the terms of the restructuring agreements reached with major bilateral creditors like China, India, and Japan, given the significant sizes of this debt, as they could not allow unsustainable terms that would cripple the economy once again at the time of resumption of repayments.

“We have $ 53 billion tied up in State bonds and Treasury bills, sourced from the Central Bank, State and private commercial banks, and primary dealers. Nearly half of this domestic debt is still unaddressed; for this, we will implement restructuring strategies, similar to those applied to Central Bank-held debt,” he added⍐.