charindra chandrasena  00:03
Dana,

Dhananath Fernando  00:04
hi Sharinder.

charindra chandrasena  00:05
How are you?

Dhananath Fernando  00:06
Good, excited for this week.

charindra chandrasena  00:07
For this week, no.

Dhananath Fernando  00:08
For this week, everybody, I think.

charindra chandrasena  00:10
Yeah, Yasmin.

Speaker 1  00:12
Yeah, it's gonna be a long week, but yeah.

charindra chandrasena  00:15
Yeah, and it's coming right at the end of the week.

Speaker 1  00:17
Yeah.

charindra chandrasena  00:18
I don't know whether people get to enjoy the poya in the middle because a lot of people who are definitely

Dhananath Fernando  00:26
not our research not your

charindra chandrasena  00:29
research team. What is what is the what are you guys cooking up? Are you are you looking at certain parts of the budget or generally now this budget, Dana, for me, I'm thinking of it as like the first year was about fiscal consolidation and also not rocking the boat too much, maintaining some of the programmes of the previous government. This year, I think, is the first. This budget is the first budget, which is purely owned by this government, as far as I am concerned. Right. So, what is the signature that this government is going to put on that budget? How are they going to make it completely theirs? But more importantly, like, what are you guys like? What's your do you have a wish list for the budget?

Dhananath Fernando  01:24
Yasmin has done a Yasmin and the team has done a five five

Speaker 1  01:29
recommendations that you know we hope this government would take up. So let me actually just walk you all through it. So one of the things that we said we will do is not we will do, but what we recommend is that now very recently also? I think the government they proposed certain changes to some of the tax incentives that businesses in the port city would enjoy. I think in September they released like a new set of incentives, which again is exemptions from corporate income taxes for a set number of years, depending on like the investment that you know the business would be willing to make versus and also the number of employment opportunities that it would gain, so it's all good, right? All of these incentives, but you know even back in 2023 there was like a different set of rules that was introduced, and for businesses that registered at that time they would continue to enjoy those privileges, whereas from 2025 September onwards, if there was a business that that were to register under the port city, there would be they would the the new rules would apply, right? But some of these rules they are quite very generous actually, right? So, and I think the big problem that we have is that you know some of these exemptions and incentives they would have huge fiscal consequences. I mean they always have. I mean even in like Sri Lanka's corporate income tax rates as a percentage of GDP is actually one of the lowest in the region, right? So that plus also we are at a time where we want to be making sure that our revenue figures that we don't slip, right? That we are continuing to consolidate revenue and strengthen that part of things. But you know, and also more than that, I think with with a budget or any policy that is introduced in this government and in this country, you want to make sure there's a level playing field, right? So, but when you so it can be like one like two businesses that are basically situated on two opposite ends of the road or opposite sides of the road. If you take the child the road, one side is port city, the other side is just general land. No port city. No port city. No port city.

Speaker 2  03:40
Yeah.

Speaker 1  03:40
So, but then they face completely different tax incentives, right? So one side says pays no personal income taxes at all; the other does, right? And in this side, you have 25 year tax holidays; the other side does. Yeah. So the

charindra chandrasena  03:55
argument that the government may or may not be this government, but generally a government would make for that is one is that the port city is new, and therefore you need to encourage investments there. Secondly, the whole point of the port city is to have a different tax regime, different incentive scheme to the rest of the country. That's why it's it's it's sort of an offshore development. So how does that reconcile with with what you're saying?

Speaker 1  04:28
So I think we already acknowledge that it is a special economic zone, right? But and it already has the advantages that no other place in Sri Lanka has, right? It's organised sort of enclave, it has you know the roads are well developed. Everything is sort of like designed, pre-built. You have like you know direct access from the airport. It has all of those benefits. And like I don't know, maybe I don't. This is just my perspective, but like you know, even with the tax exempt. Than tax holidays that have already been given since 2023, the like it's it's still slow, you know the pace of like businesses coming and setting up there, and you know I wonder if it's really not tax incentives and tax holidays that play a bigger role.

charindra chandrasena  05:15
That's right. I I I I also feel like if the tax benefits are all you're relying on to attract investments, I think that's a that's a big strategy.

Dhananath Fernando  05:27
Pick your brain on more political, political and economic angle. Now, every time when we bring these, you know, tax concessions like you know, slowly sunset the tax concessions and all that. In in defence of the other side, like the if you speak to the poor city gentleman, he says like, okay, look, what else do I have to offer? You know, but at the same time, the academic literature says what the investor is not looking is only for tax concessions. There is ease of doing business, so on and so forth. That's what the surveys and everything comes up, but what they say is okay. Look, there's nothing much that Sri Lanka can offer while we support the. I mean, I think we strongly believe that the tax concess should erased. But I would like to know your thoughts. Like, how does it perceive on a investor angle on one side and also on a political angle? Because for politicians also on a five-year time period. Sometimes they may think I don't have time to do all these reforms that you guys are academics and think tanks are saying. It is for me. It's easier to somehow attract because otherwise you will come back and question me after three years. Like what happened to the foreign direct investment that you promised when you came to power? How do you how do you strike a balance? Exactly.

charindra chandrasena  06:41
It's exactly what you said, Dana. Now, this is something that every government since the Mahindra Jabra government has inherited. They've inherited it, right? Once you start, once you embark on a project of this scale, that is that goes across governments, across eras.

Dhananath Fernando  07:02
Yeah.

charindra chandrasena  07:02
So every government that comes in wants to make something of it. So even the Yahapana government, when they you know put a pause on it, they realise that that's not the way to go. And then there was, I think, pressure from China. Probably I don't know that for sure, but I think there was pressure from China as well to restart, to recommence the project, and then they had to basically follow through on. Oh, sorry, continue what had been started by the previous government. Yeah, the same thing with this government. Now they have to, even though they have been talking about a 75-year curse on the country in terms of governance and politics. This is something that they can't discard, and therefore they have to make it work. So it's exactly what you were saying earlier. They are probably the argument would probably be: you're asking us in one year, to change something that is so systemic, and that is so entrenched in terms of the image of the country, in terms of how business works in Sri Lanka, how foreign investors free Sri Lanka. So the president always talks about this: that Sri Lanka is a is a has a black mark internationally because of certain human rights issues, because of corruption, all of that. So his argument would probably be: if he was asked about it, it will not happen overnight. And when he says overnight, he probably means like one year. The solution I see from this point of view is the same solution that maybe you're proposing from an economic economics point of view. We have to set our entire house in order for this to really work. Okay, if we are thinking, okay, we are just going to take the port city as, I mean, in isolation, and then forget about the rest of the country. That's not going to work.

Dhananath Fernando  09:07
But I think the trick is, Yasmin, we are proposing tax credits. I mean, okay, we understand that concern as well. So we are, in fact, in a way proposing not a tax holiday, but a more incentive. I mean, it's

charindra chandrasena  09:20
a compromise. It's a compromise, but

Dhananath Fernando  09:22
I think Yasmin and Jim has come up with a. I mean, it's not new, but the tax credit idea, like because based on the objective, Yasmin, you want to quickly? Yeah. So what we're

Speaker 1  09:31
suggesting is that you can replace these massive exemptions on CIT and PIT with more tax credits that are tied to job creation and capital commitment outcomes, right? So, I think now this is not a new thing, right? Other countries also practice it. So, for example, even Singapore, they have something called a refundable investment credit scheme, where companies are allowed to invest in key sectors and growth areas that are specified by Singapore, and and they can like up to 50% Of qualifying expenditure, they can sort of you know yeah over 10 years they can like get this credit right. The credits can offset the income tax that is payable, so it's a very similar model that we are just saying. So if the concern then is revenue generation, if the concern is then attracting investments, it can also be sort of these objectives can be met with like tax credits because then at least there is it's tied to an outcome. It's tied to some sort of evidence for there being some sort of development, you know, out of it, right? As opposed to blanket exemptions because then you give it, then like you know, I don't know even even the new regulations it does give you know specifics about okay this the tax exemption would come into effect only once the company is operationalized some of those you know caveats are there but I I my personal view is also that you know a tax credit that is you know tied to job creation or capital commitment would be far yeah so that

charindra chandrasena  11:01
is the the the. I think you address that my question also. I'm just wondering in the current system, the CIT and PIT corporate income tax and personal income tax exemptions are not provided based on a pledge alone.

Dhananath Fernando  11:19
Correct.

charindra chandrasena  11:20
Right.

Dhananath Fernando  11:20
It's a more blanket. Like everyone who set up a company in Port City, there are certain tax concessions. Even one is based on

Speaker 1  11:27
whether they are primary or secondary. No,

charindra chandrasena  11:30
no. But my question is, it's not based on a pledge, right? Yeah, correct. Just because you pledge that investment, you will not be able to enjoy the benefits of that exemption, right?

Speaker 1  11:42
Um, I don't. I'm not sure. Actually, I think that there is no. So it, so it says the. I don't know. According to the new regulations that I read, it just says that okay, if you if you have to make this amount of number of jobs or employment, and you have to commit this amount of capital-that's what the and. But then, how do you assess, right? Who is going to assess over the couple of years that goes by? Who is going to assess if that many jobs have been created? Who is going to assess all of that, right? Whereas with a tax credit, exactly, you are more incentivized. The company is incentivized to show records. At least, and I have created this amount of jobs, so I need to be able to utilise the tax credit that you know you have given me. Yeah. So, so basically now

Dhananath Fernando  12:27
the current format, even when I okay, I I give a commitment, but there's no reversal back if I don't

charindra chandrasena  12:35
deliver. Yeah.

Dhananath Fernando  12:36
But that's what we say. Given the economic growth that we require, what we need is job creation. So fine if you really need, but give some tax credits or tax concession. But it is more connected to a outcome or an up. If you only achieve the outcome, you will get the credit. So in other terms, they have to work towards getting the expected results, which also supports Sri Lanka's economic growth. So then the you know visions are aligned. We give some benefit. They also need to create more job opportunities. So our people will get more jobs, and then you get some tax credits. Now it is more a blanket one. So we address both sides. We understand sometimes you have, I mean, offering as an investor when a country has gone through a default and a credit downgrading and see rating, it's difficult to attract investment. So you have to have some catch, but that catch could have been more connected to the outcome. So then everyone works towards it. So that's what we would like to propose because then it's aligned with the. That's the most important thing we discussed in the beginning. The budget, this budget has to be growth oriented. So on growth oriented, you can't also go and blanketly say wipe out all the tax concession. You wipe out, but the catch has to be while you are wiping it out, you have to bring the investor also and make that guy working towards the national, I mean, where we all wanted to go. So I think that's why this proposal we think also is you know you know more relevant at the same time on a transparency matter because otherwise when the minister whoever gives a tax concession, of course he's prone to corruption. Now the investor also has to do his work. He just cannot take the tax concession and you know sit there jolly well. I mean you have to work towards the output because now he is also pressure getting the market pressure there to deliver. So that's I think Yasmin, you can add more if I missed any. No, yeah. So

charindra chandrasena  14:35
what you're saying is that the minister's discretion is now taken out, but even more importantly, the investor can't just you know sit back after like lounge about after getting the benefit because now he will have to prove he or she will have to prove and produce records to justify.

Dhananath Fernando  14:57
Yeah, absolutely.

charindra chandrasena  14:59
Do you think? Yes, sorry. Go ahead. No, no. Just on the on the taxes, also, Dana. What I remember is now, President has said there will be no new taxes in this. Yeah. Okay. Do you think the revenue targets for next year could be met without new taxes? And if so, is it been done by through better revenue collection, better tax collection, broad base in the tax base. How how does it work?

Dhananath Fernando  15:27
I'm not sure what president actually meant when you say there will be no new taxes. Exactly, there may be not there may be no new category of taxes, but you can always play with the the threshold.

charindra chandrasena  15:40
Yeah,

Dhananath Fernando  15:41
right. Or else, even you can increase or play with the tax rates as okay. There'll be no new tax, but it you can. But if you if you

charindra chandrasena  15:49
if you lower the threshold, then that means for that category that is a new tax. That is a new tax, right?

Dhananath Fernando  15:53
And also, I'm not sure whether whether something like the property tax whether it comes in a different form, because already what you call the municipal council, like you pay in Singa, you call Baripana, the local government taxes that you pay, so you can broadband on that, and you know there are multiple ways that you play it wrong. But I think, on fairness to the government, they have reasonably done well in the first six to eight months, they have pretty much their budget deficit. They have cut down the budget deficit by almost about 50% But of course, the challenge is where how they did it.

Speaker 3  16:30
It

Dhananath Fernando  16:30
mainly came from the vehicle imports taxer. So we cannot expect the vehicle imports to be this high in the next one year or two year because we are basically now servicing the pent-up demand. Exactly. So it might come down next year. So then you have a look at for alternative tax collection. Of course, the tax administration has to be improved. But rather than the new taxes, maybe a better way to look at it is also improving the tax administration, which I also think there are some improvements than it was before. Even if you compare the data with last year and this year, there are improvements in paying of personal income taxes, so on and so forth. But my one one important point that I would like to make is Chari. We also need to think about the expenditure because, in my view, actual government revenue has to be its expenditure because there is no other way of for government to cover that expenditure. Either they have to cover it from next year's revenue, either they have to borrow money to cover which also people have to pay, or else you have to inflate it out. That is also a form of tax as inflation. So actually, government expenditure has to be government's revenue, maybe for this year or for a future year. So ultimately, we are not also stop paying taxes from this year. No, we constantly have to pay. So we have to ultimately pay for it. So it's important that we slowly, you know, think of also the expenditure measures because just thinking by increasing expenditure, thinking that we will somehow cover it doesn't go into make sense because ultimately to cover that every increase expenditure cent of or penny of expenditure has to be covered from taxes.

charindra chandrasena  18:16
Yeah. So I actually have your five proposals, right? So there's accelerating land titling vis-a-vis bimsavir and then there is enacting plant variety production.

Dhananath Fernando  18:35
Yeah.

charindra chandrasena  18:36
For in the interest of time, I'm going to skip those two, and I just want to focus on two the two others. One is phasing out para tariffs, and the other one is modernising social security. I think phasing out para tariffs is a popular view among economists, so I I don't think that is going to be controversial or it needs a lot of inspection. But what is this modernising social security? Because you have said you are proposing a three-pillar reform strategy to transform Sri Lanka's outdated and fiscally unsustainable social protection system. So the key steps include transforming the EPF into a competitive multi-fund superannuation model, introducing a contributory pension scheme for public sector employees, and establishing a joint contributory unemployment insurance fund to provide a safety net for workers. Let's start with EPF.

Speaker 1  19:33
Yeah.

charindra chandrasena  19:34
What do you mean when you say it it should become a competitive multi fund superannuation model?

Dhananath Fernando  19:41
Before that, now Charlie, I'll ask you a question. I mean, rather a question now. How I mean, your personal finances. How would you like to manage it? Like you know, would you like to take it for like you know, do everything, do someone else for you, which you have no choice. Or say no, or whether you would like to

charindra chandrasena  20:04
manage. I would like to have agency over how my money is spent. Absolutely, and I know we are going with this. I would like for my money to be invested or spent either with my consultation or directly through my decision, right? I I am the master of my wealth.

Dhananath Fernando  20:28
Absolutely. So that's what now we were we were also thinking. Now one of the main complaints or like one reason why people are reluctant to invest is they always say I don't have a initial capital. You know I don't have money because I am from basically going from paycheck to paycheck. But actually, if you look at, we contribute private sector, not the state sector. We contribute 12% I mean, the employer contributes 12% employee contributes 8% and the employee trust fund 3% Right? In a way, in my view, actually the entire 20% in a way is under the employer, while it cuts your 12% 8% from your salary. Let's say I'm going to take a new job. How am I going to negotiate my salary? I'm just basically asking my take-home salary, right? So in a way, you're you're costing, you're factoring your entire salary on the employer's side, so basically, in a way, okay, there's a logic that deducts from your salary, but 20% So basically, your 20% over a period of every month, ah, so that 20% is a significant amount, 1/5 of your salary, right? So then you should actually have your own way of investing with the with all what we have seen now, there was a gold market, like you know, price hike. There, stock market is working. So there, if of course you really should not. I mean, okay, you can even at a more, you know, if you are on a perfect free world, you should basically take it out and invest, and you know, you should take responsibility. But even if if people have the fee, okay, you take that money out and you spend it and waste it. Maybe you can have a mechanism that okay, you cannot really take the money out, but you can make the investment decisions on your behalf rather than some unknown government official investing only on treasury decisions or whatever. Then

charindra chandrasena  22:16
I explain to me how that would happen in a practical sense, and Yasmin also, because we are talking about millions of people here. Absolutely, right. So how do you consult each and every one of them? Because you can't.

Dhananath Fernando  22:33
Yeah.

charindra chandrasena  22:34
So who makes the ultimate decision about? Are you suggesting a group of investments, set of investments that they can choose out of, or how does it work? And is there a model around the world that you're proposing?

Speaker 1  22:53
I mean, what we had as inspiration was how it works in Australia. Right. So Australia has these fund managers, I think, and I'm not very familiar actually with whether I don't know someone has consent or sort of say in how the fund managers invest their money. But what I mean, the point is that it's not under a government monopoly to decide because right now what's happening in Sri Lanka is that you know when your money is in the EPF, a 90% of EPF you know funds are actually invested in government

Dhananath Fernando  23:32
securities. Yeah,

Speaker 1  23:33
securities. So it's not very. How do we? How does how does it

charindra chandrasena  23:38
work in the Australian model?

Dhananath Fernando  23:40
Yeah. So basically, what we are proposing is now look at how you can, I mean, invest in the stock exchange. Like there are licenced stock brokers, right? So likewise, there are there will be companies who will be ideally you should not have like a licence regime, but who are professionals who can who has the depth to manage pension funds, so there will be multiple companies who can come up, and then basically you have the choice to pick who you want to invest with, as who are professionals because they can actually multiply your wealth, not only investing on the treasury bills. Even my this is my personal opinion, but I would even say, okay, if someone is comfortable with government, okay, leave that option as well. Imagine I'm like more conservative. I don't want any private guy to tap my money. I really want the government only do it. Okay, you have that option. But of course, they will invest your money in the only the treasury bills and the treasury bonds, depending on how they want to do it. But otherwise, I have the choice of people, a set of like you know. You're talking about a set

charindra chandrasena  24:43
of investment advisors.

Dhananath Fernando  24:45
Absolutely,

charindra chandrasena  24:46
that will take your EPF contribution and decide. Okay, I'm going to put this much in this asset class, that much in that asset class. Absolutely.

Dhananath Fernando  24:57
So it's like insurance, like you know. In the insurance market, like you have multiple products, you have I mean pension funds, wealth funds, and all sorts of I mean multiple ways that you can invest on an insurance. Same way, you give the opportunity, so the financial markets will also be activated, and you have the choice very importantly how to invest your money, and you will also demand the returns because I mean why one guy says I am giving you 9% the other guy will look at you you also build up the pressure on the other side you know the investors cannot just say okay I am giving 9% flat the others will say no I am going to make the portfolio better that's how sorry it happens on the look at what happened with our default now most of the people who bought our sovereign bonds were also the fund managers of other countries. So what they did was they even went beyond their shows. Like you know they said, okay, you know you you get a better interest rate if you invest in emerging markets. So that's how they invest in emerging markets. Of course, you know those funds have also compliance guidelines. For an example, some of the pension funds cannot invest in a country if they don't have like a at least a B plus rating. So by providing, so the fund comes up comes up with a guideline how to secure your money because otherwise I am not going to secure. I mean, if they go and say like, okay, I am going to invest your money in Africa or some other country, I am saying, look, I I'm not going to give my money to you. I'm considering a better fund to invest with a better. I I think it already happens in a way not for the pension funds, but lot of our I mean retirees who had earned good money look at how they are investing. There are what you call unit trust funds and all sorts of funds coming up with different ways of investing to multiply their wealth, so that option in our view should be also available to mr. Siripala to mr. Sumana Avati, who contributes with mr. I mean

charindra chandrasena  26:53
it's a it's an interesting idea. It's a radical overhaul, radical overhaul. So and also it opens up other possibilities. The regulation levels will have to go up. You'll have to guard against maybe insider trading also. You know there are absolutely radical one. It's radical, but

Dhananath Fernando  27:15
I think it's it's needed because look at what happened now with the government when you went for the debt restructuring. First victim was the EBF. Like every time there's some conversation that some bond scam happened, breaking EPF money. Some EPF invested in this and they buy the treasury bills, treasury bonds, and there's conflict of interest. The central bank manages the EPF, and you know also I mean not I mean if there is a better way, I mean it hasn't also worked no so I think people should have that's what I'm saying I'm not saying leave the government completely someone is thing no he should have the EPM okay let it be but give me the choice

charindra chandrasena  27:52
absolutely

Dhananath Fernando  27:52
if I am because now look at the other thing now I am in the I mean my 20% whatever the contribution I can only make it up at 50 years of it okay that's even fine. Let's say otherwise you will waste it or something. But at least I should have a choice now to invest it in a better way because if they give, if they increase, I mean, if they, if the inflation goes up, ultimately I'm compromising my EPF. No, but if I have a opportunity to invest with you know hedging to inflation, definitely I would consider that option. Sorry, Aswin, I took you. No, that's okay. I think you

Speaker 1  28:24
mentioned everything that needed to be said. So yeah. Yeah. No,

charindra chandrasena  28:27
but I mean, I'm fascinated by that idea. I'm just thinking how realistic it is, and in terms of the time that would be needed to implement that.

Dhananath Fernando  28:38
You know, we are for the radical referral. Radical. Yeah, not for the. You cannot come up exactly. 76 years of curse. You cannot really come up with like another centing another 76 years. You know, come up with like you know five six years. No, it's a radical one. We know that. But I think it's a. But have you have

charindra chandrasena  28:57
you spoken to the maybe the central bank or or a or a or a government? We have

Dhananath Fernando  29:02
shared this with the Ministry of Finance, and we really haven't had like a one-to-one conversation.

Speaker 1  29:09
And I think we're doing our research on this as well. That our plan is to sort of like we would like to bring more. I mean, cases.

Dhananath Fernando  29:16
Of course, we have done the research, but we would like to. I mean, moving forward, of course, before implement or some legislation being drafted, there has to be multiple conversations to take place. For that, we are we are happy to take part. But I think the other two one is just been is also important. This is now what we spoke was the private sector. We have ETF now. There's also the government sector and the unemployment insurance fund. Yeah,

Speaker 1  29:37
so that's another reform. So basically, right now, what's happening is that you know the public sector workers. I mean, it's entirely a government-funded pension scheme, right? So one of the biggest, like even if you look at our recurrent expenditure, huge portion goes to just the pension bill alone, right? So, and I mean the number of like public sector workers, when you look at like. Number of pensioners or retirees-it's just been growing over the years. So you're seeing a like-it's almost like a problem that's waiting to happen, where you know, like you you can't continue to fund this, right? It's going to be a very massive. So is this

charindra chandrasena  30:16
EPF for the public sector?

Speaker 1  30:19
Technically, yeah. I mean, if you put it in a very raw format, what we're trying to recommend is that instead of it, the burden being entirely borne by the government, that the pension, like the public sector workers, also should sort of contribute to it, right? So, I mean, I think we haven't really detailed out the mechanics and the practicalities of it in our brief. So,

charindra chandrasena  30:43
okay, my my question is this, right? Isn't that going to, in a way, increase the salary expectations of the public sector workers as well? Because now in the private sector, as as you spoke about earlier, the EPF contribution is factored in. That's why you have two ways of defining salary. You have the basic, and then you have the take home. So, wouldn't that introduce? Wouldn't this introduce that to the government sector as well?

Dhananath Fernando  31:17
No, I think the salaries because you know you really cannot reduce the salary, no, deduct the salary. So definitely, it will have an impact. Even Chari, our view is while we we firmly stand that the government sector is, I mean, over bloated and too much that we are spending as salaries, let's be realistic. I think the salaries of the people who are making senior level decisions also need to go up. The problem is you have a very tail-heavy structure, and you have to do some VRS and cut down it at the tail end, and then whatever that you are saving has to be actually compensated to attract the right talent. I mean, everyone speaks about Singapore and all that. I mean, they are very well paid, so you really do not have to take a risk on getting bribes and depending on some, you know, under the table cash, so definitely we have to increase. But of course, you have to bring to the right size. But here's the trick. Now we spoke about a debt crisis. We are definitely going to hit a pension crisis. It still hasn't come to that window. No one is worried because they know it won't come in their under their watch. It won't come. It will take about another 1015 years, right? Yeah. But it is going to come. We all know because the government is going to face if at the current rate at one point they will face a challenge how to service the pensions, right? And at the same time, I think lot of government employees are mis. How shall I say? They have been misguided by thinking you know the by getting trapped to this pension because in economics, Shari, the basic is not on economics. The basic fundamental is money today is better than money tomorrow. That's why even you do. I mean, you try to when you get when you pay it in cash, like you get a discount because rather than getting it in three months' time, you it's better to get it today, right? So if your pension is just a pension which is not factoring to inflation and other market dimensions, you are basically completely out from this game. It happened to people. Look at what happened when the inflation went for 70% I mean, how? What? How are they going to survive from this pension? But

charindra chandrasena  33:28
isn't that isn't that a cultural thing over here? It's a cultural thing. You know, because people have got so used to, magay pension is that kind of thing that they just wait for. And and also, doesn't that really breed mediocrity in the government sector as well? Because you are really, in the last few years, you are just waiting to go on pension and just you know. It

Speaker 1  33:53
also hampers labour mobility. Like, yes, why would anybody want to move out of their government job, even if like they wanted to, because they can only get access to the fund, like the pension funds are.

Dhananath Fernando  34:04
Absolutely, and don't forget the impact on the overall economy. Now, in another country, sorry, when your government salaries are also somewhat, I'm not saying 100% but somewhat competitive to the private sector is where actually the government sector also become productive because then the private sector guys will also leave their job. I mean, if someone has a reasonable passive income, they basically leave that job even for a lesser salary. They can come and contribute. So basically, you are bringing the know-how. So overall, people improve network comes in. Now it's completely obvious. I mean, have you ever heard about? I mean, of course, there are people who left the private sector and joined the public sector, but it happens at a very low. I mean, low capacity just because of the pension at high level. Even the government struggles. So even the president himself said no. I mean, even I mean our proposal was to break down the electricity. I mean CEB for multiple departments. What the president said was, you are saying to I mean. Dividing for multiple, I am finding it difficult to appoint a board for some of these institutions. Like I mean, if you have multiple boards, how I mean, fair. I mean, in a way, fair enough because you really do not have people who basically, I mean, compromise your private sector because your salaries are. I mean, not. I mean, not even close. Yeah. So, so as a result, Yasmin's point is very valid because labour mobility helps to improve productivity overall. Because everyone now look at our the reason why our digitization is slow, our tax administration slow, our I mean rest of all the government I mean operation is slow because there are not enough capable people because their salaries are not competitive. Labour mobility doesn't take place. Government sector people are every entire their entire career. They are in the government. Private sector people they are entire. Yeah, I think

charindra chandrasena  35:50
I think maybe a solution in the short term because this doesn't have a short term solution. It has to happen generationally, right? But maybe a short term solution is to take the 20 to 30 crowd from the private from the public sector and try to channel them into the private sector, because really, if you think about some of these jobs now, AI can actually fulfil those roles, and it will save a tonne of money for the government, but nobody wants to do that because they think that's cutting jobs, cutting government jobs. But it doesn't have to be if you can find them employment. So I think that's why this is a larger macro problem where you have to sort of enlarge the private sector so that they have the capacity to hire these people.

Dhananath Fernando  36:48
Absolutely, no. I think no good point. Now, let's if you look at Dr. Hans's GovTech, actually it is like a government sector restructuring department. No, because now look what has happened to the post offices. Now everyone can pay the exactly fine on the mobile, right? Now the postal officers they lost about I think 300 million revenue because earlier every time you have to go to the post office and I think they keep about 10% cut for you know procedural thing. Now you need not to do that. So what are you going to do? Like you know, of course, if the if the digitization succeeds, some government jobs need to go out. I mean, it it is the yeah. So

charindra chandrasena  37:30
my my problem is that when this this issue is brought up and when this solution is proposed, people think it's being insensitive. People think this is just unbridled capitalism. It's it's not. This is just common sense. As long as you can find them employment elsewhere, where there's a whole you know reemployment drive, it can happen.

Dhananath Fernando  37:54
Absolutely. The best example I could provide is now when I I mean when we were schooling, the banker's job is a very comfortable job because I even never thought because one of my mentors told was look become a banker job security is 100% why because someone has to count the money no there was no way that you can I mean I mean even even how your parents teaches when you go to the shop and you know count the balance and take it now because there's no way that someone puts the money and exactly it is right. But look at what has happened now. If you go to deposit to the counter, I mean, if you go to the counter to deposit money, I mean, the bankers are are thinking like, are you crazy, right? It has moved to that far. Earlier people thought, okay, withdrawal under ATM you can do, but no one. I mean, at least I didn't think the depositing can happen on a machine, right? And now no one goes to the counter to deposit money. Does it mean that the bankers went on strike and whether the the number of bank jobs basically came down? No, it it it grew because the other sectors, the IT, the other services, the financial services, it grew. The same thing is going to happen, but at the initial stage, it may be painful. Like someone has to because when when that process takes place, and it is, I mean, rapidly, that's that's challenging. But I think you all Yasmin. I mean, the other suggestion is the unemployment is because it has three sectors. One is the EPF ETF. You give the choice. The public sector-that's the private, like the you know contributory pension-that we are avoiding a future crisis by doing that, and also we provide some encouragement to the public sector. Yasmin, can you explain what do you mean by that? I think

Speaker 1  39:32
the third one that we wanted to say was basically to because right now with the termination of Employers and Workmen's Activa, it's very difficult to fire someone for non-disciplinary reasons. And even if you do, you have to. There's a very high severance pay. You have to pay like salary for X amount of months or whatever. And you know that's actually a big concern for employers. Like, why would they want like even if it's. Like a like a foreign firm who wants to come and establish their offices here, I think there was a huge debacle. With even there was a factory that the next factory I think they closed down. There was a whole like you know so much, but that's a separate conversation. But what I'm trying to say is that one of the biggest issues when it comes to people wanting to come and set base here is that it's very difficult. Like if their business scales sort of go up and down, they need to be able to adjust accordingly. But because of this law, like it's very difficult to fire people, right? And amendments to this law and reforms to this law. I mean, it's been ongoing for several decades, but you know there hasn't been much progress on it. I think back in 2004, 2005, there was some sort of you know sort of they tried to introduce they formed the National Labour Advisory Council, and there was a you know opportunity to introduce something called an unemployment insurance scheme, and it wasn't a contributory scheme. It was supposed to be a state-funded scheme. So instead of like the employer then sort of handling the burden of you know firing people, the state would sort of pay for it. Is what I understood from my reading, but it didn't. It didn't come through that after 2004, 2005. I never saw it being mentioned in any of the labour reform readings that I was going through, so and it was dropped mainly because they couldn't find the funding for it. So what we are proposing is actually to introduce a contributory unemployment insurance scheme or fund, where say for example, if it's me, if I'm already contributing to the EPF and the ETF, then a certain cut would also be you know taken for an unemployment insurance scheme, so that if you know again I don't we haven't detailed the process out entirely in our you know in our brief and it could it could work in multiple ways. Either it could be like a pool, for example, where everybody contributes to it equally based on obviously their salary scales, or it could be that you have your own you know fund to sort of withdraw from whenever you face unemployment. So that

charindra chandrasena  42:14
so wait just to get this straight, what you're proposing is a contribution on top of the EPF ETF is it?

Speaker 1  42:23
Yes.

Dhananath Fernando  42:23
Correct. Yes. Okay. So it could be one option is we can consider the ETF sort of the 3% So how it happens is what we are suggesting now. The challenge is, Chari for someone the worry is if you lose your job, you really do not have a way to sustain until you find a job. Yeah. So there has to be some, in a way, social safety net. In a way, a social safety net. But some level of, you know, how shall I say, absorption mechanism till you bounce back. How are you going to survive? So for that, you need to have a how the insurance works is not like you know you save enough money only for your consumption. When people pool it, whoever who is getting a you know facing a challenge that can contribute during their unemployment period. So what we recommend is okay. Consider another contribution both from the employer and the employee for a particular period, like six months or one year, that if you are if you do not have a job, you actually can survive. But it's not like the entire salary, but at least covers the you know your compared to your previous salary, how much that you can earn or like even the basic living standards. There will be a minimum amount that you can get. So you are, in a way, you add to the labour mobility because then if I lose a job, if a factory closes down, look at what happened that next car motor something.

charindra chandrasena  43:51
Yeah,

Dhananath Fernando  43:52
everyone, you know, it's a misery. No, I mean you really don't know what is going to happen. So, but in in that in case of an unfortunate event, actually you have a buffer till you find a job,

Speaker 1  44:01
and more importantly, there's no sole pressure on the employer to kind of pay. So it's like because that's I think the and what happens is then you know it's so much more convenient than to employ someone through like an informal contract. You you don't you don't pay EPF, you don't pay ETF. Like none of those get covered, right? So is it isn't it better then to establish a system like this that encourages you know hiring people through formal contracts and they contribute to EPF they contribute to ETF and they have that safety net that's going as opposed to sort of like you know disincentivizing employees from hiring workers on formal contracts because it's difficult for them to fire them later on.

Dhananath Fernando  44:43
Because it's under this Teva termination of termination of employment workmen act, when a company closes down, let's say they are bankrupt, there is like a formula that you have to pay for the employees, which is with all good intentions. But sorry, on a practical level, when your. Company is bankrupt. How are you going to pay your employees? But at the same time, it should not be a mechanism that okay, the company just announces. You know, there are two sides. Yeah,

charindra chandrasena  45:09
it should be incentivized just incentivizes. The lack of responsibility. So that's

Dhananath Fernando  45:13
why we say okay, employer also contributes. Employee also contributes, and of course, you have to bring the you know the bankruptcy laws and all that-it's a separate conversation. But with that, you give the flexibility, so the employer actually can basically, even if you before you move to the bankruptcy laws, this helps for the employees to find a better job during their interim period, and it's a in a way a social safety net because at the moment there is nothing like okay you are poor as a poor you have assesuma but what happen if you actually doing a job and you become now example with AI some people are going to lose jobs so till they reskill or till they find a job how are they going to survive so in that case of course you cannot ask the companies to just keep them if they are not skillful, because then your companies are becoming uncompetitive, and anyway the company has to be closed down. So then you will have more job losses than making it more agile and flexible. So in that sense, you have to look at the broader picture, and that's why we are proposing the unemployment insurance fund, which is a contributory one again, but it has a stupid. I mean, you can start initially with three months, six months, nine months, and 12 months, and you can expand. And we haven't done the details because unless you have some consensus on the concept, there is no point of detailing out. It's like one of the government, or we are a think tank and a research organisation who can conceptualise and float the idea. But according to the basic numbers that we have done, this is feasible. This is feasible given the size of our labour force.

charindra chandrasena  46:45
Very interesting. I I don't know what response you guys have got so far. If if you have spoken about this through the we have shared.

Dhananath Fernando  46:55
I think everyone is busy. We really haven't like had a one to one chat because generally our budget processes. Yeah. Everyone goes and lobbies either to keep the tariff rates high or increase the tariff rates, or everyone goes and goes with the begging ball and say give this, give that, you know, give this concession. But what we want to do is like bring more policy conversations. But these are also not like you know government need to. I mean, except for the, I mean the para tariffs removal, they will lose some revenue. But in our view, actually they will gain more by cutting down para tariffs. So there is no. I mean we are not going and saying no. Give 10,000 rupees every citizen. So then the government has to work out. Okay, how am I going to spend that 10,000 rupees? How am I going to finance it? These are all like more policy-wise thought process, which will have no cost to the government. It is just a regulatory process that the growth can be accelerated. Right. Okay. Very interesting. Next week when we meet, we are going to have a lot to talk about because the budget will be out. What is? What are your thoughts? I mean, how how do you think what the society thinks or like the public at large? What is their you know sentiment on the budget? Do they expect this time also salary increase? Last time they did a salary increment. So what is our even they

charindra chandrasena  48:16
are never going to say no to a salary increase? Absolutely, everyone wants salary. Everyone wants, but since there was one last-I mean, just a few months ago, really. So I don't think that's going to be a huge issue this time around. I just think that the opposition, because they are going hard at this whole, okay, AKD is becoming a dictator. This government has failed all their promises and all of that. I think they are also looking for a way for this budget to be something that delivers on those promises. And there are a lot of promises that are left undelivered. Okay, so this government isn't perfect, but I think the government is still very popular, and that popularity largely rests with the president. So it'll be interesting to see what he has. But I, I don't think this is one of those budgets where if there is no salary increment, everybody is just going to be really upset, but it'll it'll be interesting. I I don't want to make any predictions or assumptions before it comes out, because I want to see exactly how they are going to make this a pro-growth budget.

Dhananath Fernando  49:35
Absolutely,

charindra chandrasena  49:36
because the like I said at the beginning, a lot of it is carried forward from last year in this budget, the current current budget, but the next budget will be their own one. So, what is how are they going to put their signature on it? Is what I'm waiting for, and it'll be very interesting to see.

Dhananath Fernando  49:52
And a critical one, no, because what they do this year will be what they will. I mean, you know. Yeah, this will set the set the set the foundation for the next. And I don't think there's time for a to set it next year's budget will be too late.

charindra chandrasena  50:08
Too late. Too late.

Dhananath Fernando  50:09
And the execution has to happen immediately, especially on things like public transport. Yeah. On getting women labour force participation. So all those things with ageing population. So I think we have to think seriously on this matter.

charindra chandrasena  50:26
Yeah. All right, guys. Thank you for the insights and this discussion. Very interesting. Like I said, we'll have a lot to talk about next week. If

Dhananath Fernando  50:36
you have people inside the government who know this, tell that consider these consider these proposals. I mean, you know, become a duke. Become a duke of a

charindra chandrasena  50:48
duke of laja. I but but I do hope that you guys get some response because, like I said, radical. But maybe it obviously won't be in this budget, right? This is not going to be included in this budget for sure, but maybe next budget because the groundwork will have to be laid. Right, but that initial discussion, I hope it happens soon. Okay, we are out of time, and therefore we are going to run. Thank you, Dana. Thank you, and we'll catch up for the budget review next week.

Dhananath Fernando  51:21
Yes.

charindra chandrasena  51:22
Okay.

Unknown Speaker  51:22
All right.


Transcribed by https://otter.ai