The 2027 National Budget presented by President and Finance Minister Anura Kumara Dissanayake promises economic transformation, stronger investment and improved living standards. However beneath its ambitious development language lies a fundamental contradiction: the Government expects to maintain substantial revenue mobilisation while offering households only limited relief from the continuing cost-of-living crisis.
The President’s Budget speech emphasised that economic stability had created the foundation for a new development phase. The Government has allocated Rs. 2 trillion for capital expenditure in 2027, while total expenditure is projected at approximately Rs. 7.9 trillion. Revenue and grants are estimated at Rs. 6.2 trillion, with the budget deficit widening to approximately Rs. 1.75 trillion, or 4.5% of GDP.
The primary surplus target, meanwhile, declines to 2.3% of GDP, equivalent to approximately Rs. 890 billion, from 3.6% previously.
These figures demonstrate the difficult fiscal balancing exercise facing the Government. However, the question is whether the benefits of increased public revenue and economic recovery are being distributed fairly among taxpayers.
The Budget raises the personal income tax-free threshold from Rs. 150,000 to Rs. 162,500 monthly, providing some relief to salaried employees. It also removes VAT from printed books and periodicals, reduces selected import levies and cuts CESS duties on approximately 800 import categories.
These measures deserve recognition. Nevertheless, their overall impact should not be exaggerated. The income-tax adjustment is relatively modest compared with the cumulative increase in household expenditure experienced during the economic crisis. Furthermore, the targeted reductions in import duties do not remove the wider indirect tax burden confronting consumers.
The continued application of the general 18% VAT and the Social Security Contribution Levy across relevant taxable transactions means that ordinary consumers and businesses remain exposed to substantial indirect taxation.
Unlike income tax, consumption taxes affect households irrespective of their earnings. Low-income families consequently spend a larger proportion of their disposable income on taxable consumption, making the burden disproportionately severe.
Food, transport, electricity, healthcare, education and other essential expenses continue to absorb household incomes. Removing selected levies on imported sprats, dried fish and educational publications cannot, by itself, compensate for the broader pressure created by taxation and higher operating costs.
Another concern is the relationship between revenue collection and productive public expenditure.
Sri Lanka’s recovery has already required substantial fiscal sacrifices from households and businesses. The Government must therefore demonstrate that the revenue collected is being converted into better public services, infrastructure, employment opportunities and productive investment rather than merely strengthening Treasury balances.
The 2027 Budget also allocates Rs. 230 billion for social protection and Rs. 110 billion towards completing public-sector salary increases. These measures can support domestic demand, but their economic benefits will depend on purchasing power, inflation and the Government’s ability to finance recurrent obligations sustainably.
The World Bank and IMF have repeatedly emphasised the importance of protecting vulnerable households while maintaining fiscal discipline.
The central weakness of the Budget is therefore not necessarily its commitment to fiscal discipline, but the limited immediate relief offered to people who have financed much of the recovery through higher prices and taxes.
Economic stability cannot be measured solely by revenue targets, budget surpluses or improved financial indicators. Its ultimate test must be whether ordinary citizens can afford food, education, healthcare and housing without falling deeper into financial insecurity.
A successful economic transformation must deliver more than balanced Treasury accounts. It must restore the purchasing power and dignity of the people.
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