Sri Lanka's president cut taxes and increased salaries, subsidies and welfare spending on Friday in a populist budget ahead of a troubled bid to win a third term. Mahinda Rajapakse made no direct reference during the budget announcement to his plans to seek a third term at an election that the government says will be held in January, two years ahead of schedule.
But he hinted at confidence in the polls, saying, "I can't see any elephant who can cause trouble for the government" - a reference to the main opposition United National Party, whose symbol is the elephant. Rajapakse, who is also the finance minister, painted a rosy picture of the country's economy and said it was on track to reach per-capita income of $4,000 by 2015 - a year ahead of schedule.
"There is a significant reduction of poverty levels in the country during the past 10 years," he said, adding that the country's overall debt had fallen. Rajapakse advanced the 2015 budget by a month to give his government more time to implement tax cuts and subsidies ahead of the election. In a widely anticipated move, he announced he would increase the salaries of 1.2 million public sector employees by 3,000 to 15,000 rupees ($23 to $117) from January 2015 and offered motorcycles and cheap loans to public servants.
He also ordered supermarkets to reduce their prices by 10 percent across the board. "The recent reductions in electricity and energy prices and tax cuts should allow supermarkets to effect this reduction," he said, without specifying how the reduction would be enforced. He capped income tax for public and private sector employees at 16 percent, down from 24 percent, and offered a host of subsidies for agriculture and exports including tea, Sri Lanka's main export commodity.
Small shopkeepers and farmers were exempted from tax altogether, in a populist move aimed at the rural electorate. Political analysts say Rajapakse, who oversaw the crushing of the Tamil Tiger rebel movement in 2009, faces a challenge to cling onto power as public gratitude fades. His United People's Freedom Alliance only narrowly won last month's election in the south-eastern Uva province, the party's worst performance since the president came to power in 2005.
Sri Lanka has posted impressive annual growth rates of around eight percent in the years since the end of the Tamil separatist war in 2009, but the government's popularity has declined in the past year. Rajapakse said the strength of the economy had allowed him to reduce the country's goods and services tax from 12 percent to 11 percent. Official figures put the budget deficit for 2015 at 4.6 percent of GDP, worse than the initially estimated 4.4 percent.
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