We don’t expect any Budget to solve a country’s problems. Resources are finite and wants are not, so economics is the business of choosing. Our wish for Budget 2027 is narrow: that the Government avoid fiscal loosening, at a moment when the world has slid into uncertainty.
Tariff disputes, volatile capital flows and weaker demand abroad leave little room for error at home. A Budget that spends to calm anxiety will spend into a shortfall, kicking the pain down the road.
Astute analysts have already factored in fiscal profligacy as a thing of the past. That judgement is fair. Loose fiscal policy alongside money printing was normalised under the Rajapaksa administration; the Yahapalana Government kept the habit through its 100-day programme, and the bill arrived in 2022 as default, queues and a currency in free fall. The country has since paid for that experiment in living costs that will not recover soon.
This Government, by contrast, pursues reforms that would ordinarily cost it votes. Opposition MP Dr. Harsha de Silva conceded as much last week, when the Committee on Public Finance he chairs hosted Central Bank officials. Party labels did not matter, he said, and backed the agenda. ‘For a long time in this country, reforms were rejected. I’m really glad that everybody is on the same page,’ Dr. de Silva said. By ‘everybody’ he meant the committee members and Central Bank officials who had called for reforms in trade, labour and the investment environment to lift the country’s growth potential, and who wanted Parliament behind them, a point aimed at other committee members pressing for more State intervention.
Firms will have to compete to succeed, no longer relying on Government interventions; there is no other route, and some market research houses are telling institutional clients exactly that.
They also hope the Government will confine concessions to a higher PAYE threshold. They do not expect a stimulus Budget, not only because the IMF waits on the Budget before deciding whether to release the next tranche, but because this Government has said, and repeatedly shown, that it will hold the fiscal line. Both reasons point the same way. A stimulus that arrives before consolidation has taken root only restores the deficit the country spent four years closing. A higher PAYE threshold, by contrast, is a correction rather than a giveaway: it returns money to wage earners without changing the structure of expenditure.
Loosening rarely announces itself. It enters through revived subsidies, through State enterprise losses absorbed by the Treasury, and through exemptions granted one industry at a time until the tax base is full of holes. Each looks affordable alone; together they rebuild the deficit. None of this is painless. Inequality is widening; the recovery has been uneven, and its gains have not reached every household. But deep-rooted defects do not yield to gentle treatment, and half-measures tend to be repeated. Trust matters as much as the arithmetic. It has to be built inside the public service, above all in the revenue-collecting agencies and the police, where the gap between rules on paper and behaviour on the ground is widest. Internal affairs units should be run at full stretch, and their findings published.
Henry David Thoreau’s essay on civil disobedience is worth reading now. He refused to pay a war tax and spent a night in jail for the refusal, regarding both as duties. The point for Sri Lanka is not the tax but the habit: obligations are met even when they are inconvenient.
If the country decides it does not want reforms that hurt before they help, the remedy is the same and simpler: vote differently at the next election a couple of years from now. The parties that governed for decades, and left the economy in the condition it reached in 2022, remain on the ballot and are promising easier terms. That, after all, is democracy.