By Ruan Pethiyagoda

Q: The UNP has come out strongly against the government's budget proposals for 2009. What are the party's main problems with the budget?

A: The UNP has come out against this budget for the simple reason that we have seen for 15 years an SLFP budget which is not targeted, which is more rhetoric and it is just an exercise for one day's clapping of hands and thereafter becoming a nightmare. Furthermore, after the UNP was toppled after April 2, 2004, there have been two budgets presented by the Rata Perata concept and Mahinda Chinthana subsequently. At every budget it is mentioned that there is domestic industry being protected, that the people are getting more benefits and at the end of the day it is a status quo with the economy falling back rather than going forward.

That is why we are mounting a very concerted effort. Sometimes people complain as to why the UNP is so silent. We have said that there is a time to come out, and this is the time. We have shown our character by presenting an alternate instead of just blackguarding the existing budget. And we have taken it forward by saying compare and contrast what we would do if we were passing a budget in the present situation.

There is a huge problem which is coming up with these SLFP budgets. One thing is that they blame the world and don't blame themselves. But their job is to blame the UNP for all sins and take credit for themselves. From international terrorism, the financial meltdown, commodity prices, oil prices, everything is an outside problem.  But when we, the UNP, is governing none of those international issues come into play according to them.

That is why we have said that this is an incompetent government, inept and insensitive. This is why we have presented an alternate budget, and why we are taking the system on.

Q: The government has completely revamped the taxation structure for next year. What effect do you think this will have on people in various strata of Sri Lankan society?

A: The taxation structure is altered for nothing else but because the government is going through a huge dollar crisis. Always they talk of domestic industry when they have a foreign reserve crisis.

In 2000 when bombs were going off all over and when investments were taking a reverse flight that was the case. Now in 2007 and 2008 it is becoming precarious. US$ 3,200mn in  reserves eight months ago are down to US$ 2,100m today, and the action one week ago to keep 100% on Letters of Credit means to show that they have to preserve the dollars. If they were trying to protect industry, why didn't they impose a tax on fisheries? There are fish all around the island, and people say that fish in these waters die of old age and not from harvesting.

That shows that it is only to protect dollars. So once again, the decision on L/Cs was to stem the tide on dollars outflows. So what are the changes in the taxation policy. PAYE has been increased to 400,000. This means nothing. The devaluation impact has been enormous. This year devaluation has been almost 25%. So if a person earned Rs.1,000 then, he is earning Rs.750 now. Have they supplemented that? No.

Where is the government showing taxation for the corporate sector? They are saying 3% reduction on VAT, and increasing 2% on PAL and a National Security Levy. Remember, VAT is an input output tax, but PAL is a cascading tax, so now they have a snowballing tax. It is collected at every point. VAT has certain exemptions but these are taken completely off.

They say they have collected some total of Rs.35 billion. Really they have collected Rs.75 billion. They have given Rs.45 billion or so on the 3% VAT taxation. The total VAT is calculated on the tax base of Rs.1.5 trillion. Three percent of that is shown as Rs.45 billion. The net impact of taxation to the country from the budget is Rs.31 billion. If you take the 4.5 million families and remove the two million Samurdhi recipients, this new taxation affects about 2.5 million families.

Thus each family is paying roughly Rs.1,200 rupees more per month from these new taxes. Then they talk of domestication. They have imposed a cess. Why are they using cess? Because they cannot put duty due to free trade agreements with countries such as Pakistan and India. If they impose duties it would be a violation of the trade agreements. So they have put cess as a parallel tariff. Else why would they use the word cess? This tax started in 2005 from about Rs.4 billion and it will earn close to Rs.40 billion next year.

Where is the benefit to the private sector or corporate sector? Where is the benefit to the small and medium enterprise sector? On one side they give Rs.100 and then from the other side they take away Rs.1,000.

Q: You have asked for an adjournment debate in parliament over the high fuel prices in the country. If the world oil prices are so low, and our fuel prices at the pump are so high, what in your opinion accounts for this difference in price?

A: This is exactly why we are pointing a finger at this corrupt, inefficient and insensitive government. The reason why the petrol prices are in such a mess is because the government has bungled it up. I must say that the CPC chairman is doing his best amidst a bad situation. But that is one side. Hedging has ruined the opportunity to get a better price, so opportunity has been constrained.

They roughly import 1.2 million barrels of refined fuel per month. The petrol products take 40 million litres per month. Diesel is roughly 140 million litres per month. Furnace oil is about 70 million litres and kerosene is roughly about 17 million litres per month.

Yet the profit of petrol earned is as follows. Today they sell petrol at Rs.142. It was at Rs.157. The UNP said that we can bring it down to Rs. 75 if crude oil is at US$70 per barrel. The net cost today is US$58 per barrel. Dollars 58 divided by 159 litres in a barrel gives you roughly Rs.40 rupees per litre. That is your net cost.

So roughly their taxes are Rs.128 on a litre. Multiply this by 40 million litres per month, and again into 12 months for a year, and you can see they are earning Rs.70 billion rupees per year. That is Rs.12 billion per month. What do they need this money for? It's to keep their huge cabinet of ministers, for unwanted expenditures such as Mihin Air. What is Mihin Air about? They have put Rs.100 million for youth development, and Rs.100 million for national integration, and Rs.200 million for international construction, and they have Rs.6000 million for Mihin. How can they justify this?

This black-market pricing is done by nobody else other than the Ceylon Electricity Board and the CPC. We said to bring fuel prices down because these prices have an impact on the people and on industry. It will have a spin-off effect. What is the point in trying to negotiate with a government that mints Rs.6 billion rupees per month off burdened citizens by jacking up their fuel prices? They need to be sent home packing.

Q: While evaluating the budget proposals, is it important to know how much of last year's allocation was actually met and spent? Is this information available to you and what conclusions have you drawn from it?

A: They said that there were tax rebates on petroleum, but they increased prices. They promised incentives for the sugar industry, and they gave nothing. They promised milk for school children, nothing was given. They promised to give a sahana malla. They gave the malla but there was no sahana.

Last year capital expenditure went down and recurrent expenditure went up. They projected Rs.750 billion revenue last year and it came to only Rs.675 billion. They had a massive increase in the budget deficit. Who financed the Rs.100 billion deficit? This year they want to show expenditure of Rs.1,719 billion and Rs.875 billion they claim is their revenue.

When they couldn't realise a revenue of Rs.675 billion last year out of Rs.750 billion they are trying to overshoot that by over 25%. Definitely revenue will be a maximum of Rs.725 billion. Then the expenditure could go up to Rs.1,850 billion. They are looking at a budget deficit this year of Rs.560 billion. Who is held responsible for this? I salute the Supreme Court for taking a sound decision over how recklessly the government handled Section 2 (1) of the Appropriation Bill and Sections 6 and 7. Now they are going to go forward.

I'll explain why this is important. They took US$500 million from HSBC for infrastructure. If it was borrowed in the UNP time we would have got it at 0.25% or 0.5% interest. If that was the case, you would have had just Rs. 275 million as your interest payment.

But the government borrowed at 8.5% interest we pay Rs.4.8 billion  in interest. That is massively unnecessary expenditure. These things are being done because they don't have financial discipline, financial direction, sensitivity towards the people and they are using the war to throw sand in the eyes of the people.

Q: The UNP accuses the government of mismanaging the economy and having poor control of public spending. What do you feel is the single biggest contributing factor to the country's current economic crisis?

A: Corrupt, inept policies of the government. Out of Rs.1,719 billion of total expenditure Rs.875 billion is for capital amortisation and interest payment - debt servicing. Where on earth are they going to find this money? This one expenditure is larger than their entire expected revenue for next year. If you borrow today for tomorrow's expenditure, you are okay. But this government is borrowing next month to meet last month's payments. That is the sorry state of our financial situation.

Citibank has sent a revealing message to the world by saying the debt servicing and exchange management is so poor in this country that they have not honoured certain things. They warned investors to be careful in Sri Lanka.

Today they have a total debt of Rs.3,400 billion rupees. The local loans are at about 18%. The foreign loans are at 4% - 6%. Last week there had been a devaluation of 2.25% on the rupee against the dollar. The exchange rate change alone has cost the country Rs.34 billion in just two weeks. Imagine if the rupee slides to Rs.120 against the dollar. There will be a massive impact. That is four times Samurdhi expenditure, lost in the batting of an eyelid, in just two weeks.

Q: You presented an alternate budget proposal to the house on behalf of the UNP offering wage increases and other benefits to the people. How was your budget able to afford such pay hikes and giveaways? What did you have to cut down on?

A: Today the budget debate is being based on the UNP's budget, not on President Rajapakse's budget. We took Rs.1,790 in expenditure and a deficit of Rs.844 billion and given our answers. We have taken certain ideas into that expenditure, reduced certain things and worked around the President's budget.

We have given opportunities for small to medium enterprises to get financing at 8-9% interest. We have highlighted the benefits of good governance, eradication of bribery and corruption, family bandyism, nepotism and such like. We said the 17th Amendment is a must as well.

They asked us why we did not present such a budget between 2001- 2004. We reminded them how the UNP handled the economy between 1977 and 1994, and the fact that when we took over in 2001 from the Kumaratunga administration there was negative growth and bombs going off in every part of the country with six hour power cuts everyday. Inflation was 28%, bank interest was 24%. Within six months we managed to bring things into order and bring a proper economic climate, and got the economy on track within two years.

After we did six years of work within two years, we were getting the dividends in the third year when the JVP, Hela Urumaya and all these parties exploited President Kumaratunga's executive powers to bring down the government.

In that time we brought 28% inflation down to between 5-6%. Nobody denies that. We were able to bring the Treasury Bill rate from 21-22% to 7-8%. You can see the saving. Owing to that fact people saw confidence in the economy. We brought investment into the country. Land prices zoomed from Rs.100,000 to Rs.1 million a perch. That is what you call economic development.

What has this government done? We have Rs.875 million in debt servicing. Of that Rs.290 billion is interest charges. Then they have not included the Iranian oil financing. They didn't include arms purchases. When you add it all up you have about Rs.350 billion in interest charges.

The UNP is saying instead of getting 6-7% high interest rates we could borrow at 0.5% on conditional loans where we have financial discipline. You would save at least Rs.40 billion a year there alone. If you look at the Treasury Bill rates, bringing them down from 20% to about 5-6% you can save about Rs.150-160 billion per year.

We can bring 500,000 tourists in next year. Each of them will spend at least $5, so that's at least Rs.5 or Rs.6 billion rupees there. You can reduce the 110 minister cabinet to one tenth its size and save another Rs.10 billion.

This is not one person's budget. Our proposal has been endorsed by Ranil Wickremesinghe, the UNP Political Affairs Committee, some assistant secretaries of the Finance Ministry, senior MPs like Kabir Hashim, John Amaratunga, the UNP National Organiser S.B. Dissanayake, economists like Dr. Harsha de Silva.

Our alternative budget gives a way forward. No one will dispute the fact that if we pledge something we will deliver. We don't promise anything that we can't give.

Q:Aside from GSP+, are there any other looming consequences for Sri Lanka in the international arena, given that the government has forged strong ties with China and Iran?

A: Sri Lanka is a small leaf caught in the huge worldwide financial meltdown. The US is putting $750 billion, China is pumping in $560 billion, India has invested $220 billion, the EU has forked out $450 billion and you have Iceland which has gone bankrupt and Pakistan which has had to put down $200 billion and even Japan has accepted the gravity of the situation and funded up to $350 billion.

The Sri Lanka Central Bank Governor says that this is not relevant and we are insulated from all of these catastrophes and that we have the best economy. We have hit rock bottom and haven't even fully understood how the world turmoil could affect us. Sri Lanka will be reeling by the end of the day.

We must realise that over-bloating the Sri Lankan image is only detrimental to ourselves. We must get involved and work together. When the whole world is suffering a financial meltdown why is Sri Lanka saying there isn't anything? Why is inflation still 25%? Why is it that there are no takers for their latest $300 million syndicated loan offer to pay tomorrow's debts? Why is Citibank saying be fearful of putting your investments in Sri Lanka?

Q: Does the UNP plan to defeat the budget this year or just symbolically vote against it?

A: We will do our very best to get the message across to the people, but realistically we may not have the numbers to stop it.

Q: What is your opinion on the prosecution of the war, the way it is marketed to the people and the treatment meted out by the government to dead and injured soldiers?

A: It is pathetic and deplorable coming from a government that it exploiting these brave young men and women so much for its propaganda. The moment they are injured, their pay pack gets cut in half immediately. Some of them join the army because they have no other option for employment. That is something that is deplorable.

Q: How do you think the government handled the events leading to the death of Maj. Gen. Janaka Perera and the formalities thereafter?

A: They never handled anything. They didn't give him security. They said there was no threat to him from external forces, but no sooner he was assassinated the government instantly pointed the finger at the LTTE, even before any examination or inquiry.

The same government that denied security quickly blames the LTTE. It could have been any of these - Tigers, Karuna or anyone. And thanks to their neglect, he is no longer among the living. We gave Lakshman Kadirgamar 32 vehicles and a house that was never shifted. That is human decency. Anyone who opposes this government is taken to task.

Q: There have been many rumours about the possible return of several members of the UNP (D) group into the party fold. What are their reasons for wanting to return, and what is holding them back?

A: Not only the D group, there are SLFP groups and other parties all in negotiations. I will refrain from answering this sensitive question because you will see a surprise in the near future.