Sri Lanka group laments reduced control of rulers after 2017 budget

ECONOMYNEX – An activist group has lamented a perceived reduction in the control of Sri Lanka’s elected ruling class and bureaucrats over every day economic decision-making of citizens, in the wake of a budget for 2017.

"It is clear now that the objective of the budget, is to reduce the role of the state in providing essential services and distribution of resources," a group styled the Alliance for Democracy said in a statement.

However it is not clear that rulers in fact have given people more freedom to spend the money they earn according to their own wishes.

Rising state spending

A budget for 2017 sought to extract revenues of up to 13.5 percent of gross domestic product through taxes from businesses and ordinary people using the coercive powers of the state, up from 11.6 percent last year, so that rulers can re-distribute it according to their desires.

The budget for 2017 hiked taxes including direct taxes on businessmen in some sectors who have been paying as little as 10 percent corporate tax to 14 and 28 percent, while turnover based value added taxes were also raised to give more resources for rulers and bureaucrats to re-distribute including as salaries to themselves.

Around 53 cents of every tax rupee taken from the people are paid to state workers and state pensioners, not counting perks of the elected ruling class.

Sri Lanka ratcheted up the salaries of state workers and subsidies in a budget for 2015, without raising taxes, and instead printed money, leading to excess demand which was filled by an import boom and it also led to a collapse of the currency from 131 to 148 rupees to the US dollar.

Irresponsible leaders in Sri Lanka have a habit of increasing spending to give them more room to ‘re-distribute’ according to their political imperatives but do not raise the required resources through taxes.

Free Lunch?

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Instead the non-existent ‘income’ is either borrowed expanding the budget deficit, conveniently passing on the responsibility to the next generation, or rulers print money (borrows from the central bank) generating balance of payments crises and high inflation.

The 2015 budget raised total ruler spending to 21 percent of GDP from 17.8 percent, pushing up the deficit to 7.4 percent of GDP from 5.7 percent. More than 200 billion rupees were then printed wreaking havoc in the economy and the currency peg, from which Sri Lanka is still recovering.

There is little understanding in Sri Lanka resources must be raised from the people through taxes, allow rulers to re-distribute through a bureaucracy, with the bureaucrats themselves consuming a large share of the money. Singapore’s former finance Goh Keng Swee said the country purposely refrained from building a central bank after independence (Sri Lanka’s inflation and currency troubles that impoverished the people began with the creation of the central bank of Ceylon in 1951).

Singapore’s leaders wanted to inform "citizens that if they wanted more and better services, they must pay for these through taxes and fees. There is no free lunch here," Goh said.

"The increase in indirect taxes and cuts to state spending will shift the cost of essential services on to the people," the Alliance for Economic Democracy said, articulating a fundamental truth that is ill-understood in Sri Lanka.

"Drastic increases in the costs of State services such as electricity, fuel and water can also be expected due to “cost-reflective pricing” and privatisation measures in the years ahead."

Privatization

Sri Lanka has had unusual success in privatizing telecoms, gas and airlines. The reversal of some of these privatizations especially airlines had increased the burden of the state on the ordinary people including corruption.

Some freedom advocates say that public private partnerships can be less successful that outright privatization.

In full privatizations private-owners have to take all the business risks and lose their investment if they cannot compete and provide a good service to the public and survive.

The Alliance for Economic Democracy however said agriculture, fisheries and small and medium enterprises have received dismal amounts in the budget.

It is not clear why any business, big or small should receive any tax money taken from the people and avoid paying their fair share of taxes, unless their owners were disabled and was in need of special help.

Labour

The Alliance for Economic Democracy also slammed tax holidays for big corporations and what was seen as efforts to loosen labour regulations.

It said a majority of formal sector workers are in labour-intensive industries where their rights are constantly threatened by employers who evade labour regulations.

"The government’s rhetoric about creating “flexible labour” plays into the employers’ hands, while undermining the role of regulatory institutions such as the Labour Department," it said.

"Active demands of the workers to increase wages, provide cost of living relief, safeguard employee funds and reduce precarious labour have not been met. In contrast, the labour law reforms proposed in the budget will increase precariousness in people’s employment."

The Alliance also slammed the International Monetary Fund and what is said was ‘neo-liberal’ policies,

In Sri Lanka opposition to any loosening of the grip of the state and rulers on the people come from both fascist-nationalists (social and religious freedoms) and left-oriented Marxists (economic freedoms) and other advocates of statolatry.

Economic analysts have warned that unless the budget deficit is managed with spending limited to the taxes that can be raised from the people, any money printed to give deceptive ‘services’ or ‘subsidies’, hardship of the working class will increase.

The best protection for the working class is low inflation and a strong currency.

The IMF specializes on monetary policy and advices governments to avoid policies that lead to money printing and high inflation. The IMF has placed controls on the central bank to limit its ability to print money and de-stabilize the credit system through quantity targets and also a ‘monetary policy clause’.

Illiberalism

Some critics have said that the current administration’s policies are far from being consistently, liberal, neo or otherwise and have tended to be illiberal in several key areas.

The administration has resorted to price controls, pushed up state spending and undermined a safe environment for businesses to operate in by slamming retrospective taxes and continuing policies of prerogative taxes.

In the budget for 2017, Lak Sathosa, a scandal ridden retail network which is under the control of the elected ruling class will 500 million rupees and its franchise shops will get 10,000 rupees a month from people’s tax money, to sell goods at controlled prices.

The franchises of Osu Sala, a state pharmacy network will be given 2,500 rupees in another illiberal act, while private healthcare is taxed at 15 percent. A billion rupees of people’s money has been allocated for the purposes.

Critics say the privileges and cash shovelled to scandal ridden ruler-run entities like Lak Sathosa shows illiberalism is alive and well and that prospects of any sweeping neo-liberalism liberating the tax paying public from the burden of state, state enterprises, and the the elected ruling class in general is not clear. (Colombo/Nov15/2016)

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