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Doing what needs to be done

The Central Bank annual report has focused on shortfalls of government revenue, largely attributed to the goods and services tax (GST) which replaced the business turnover tax (BTT) not being revenue neutral as originally envisaged. There has also been a widening of the budget deficit because defence expenditure continues to escalate despite various noises made by those who matter, including the president herself, on placing a cap on such spending.

With tea prices nowhere near the peaks achieved in the first half of last year and rubber too proving unremunerative for the past several months, the agricultural sector which is a key contributor to the gross domestic product is very likely to show a downturn this year. The silver lining is that rainfall upto now has been satisfactory and that is good for crops. Given the benevolence of the weather gods and, no doubt, better agricultural practices by the companies now running the big estates, there is a possibility that part of what is lost in the price swings can be caught up in the production roundabouts.

However that be, we cannot afford the kind of populist spending that has unfortunately been a regular feature as elections approach. As it is, the taxpayer does not get full value for government spending with sieve like leaks across the spectrum due both to inefficiency and corruption. Those in the seats of power are acutely aware that the public sector is bloated and inefficient, but pressure for employment pushes the politicians to create more and more unproductive jobs in the government service when the crying need is to down size and rationalise.

Valuable reports like those of the Shelton Wanasinghe Administrative Reform Committee are gathering dust in some musty shelf in the Treasury and/or the Public Administration Ministry. It is not that those who run the affairs of government, belonging to the political and administrative establishments, do not know what needs to be done. It is that there is no political will to make the necessary changes for fear of electoral consequences and no administrative drive on the part of a lethargic bureaucracy to guide the politicians in the right direction for the national good. Sadly, self-interest and convenience take precedence over all else.

So we will see new universities opened when it is impossible to find jobs for those who graduate from existing institutions of higher learning. We will see unproductive jobs created in the public sector to take at least some of the heat off those who made wild promises to win votes. We will see lunatic schemes like the duty concessions for thousands of public servants, politicians and their henchmen to buy new vehicles regardless of the congested conditions of our roads and an illogical cross-subsidy where petrol users carry the can for those driving diesel powered vehicles. There is logic in subsidising diesel driven public transport used by the poor and the haulage sector impacting on the cost of living to some extent. But why should people driving diesel cars or vans be given the same subsidy?

The Central Bank Governor’s recent remarks about making the public service, including legislators, taxable will not be popular as he would have well known even as he spoke. Tax free public service emoluments were granted at a time when salaries were nowhere near where they are today and there was a real need to retain what little management capacity that remained in the public sector. But today that situation has changed dramatically and there are many in the public sector drawing comfortable five figure salaries. With non-contributory pension benefits and various other perks thrown in, the public service retains many of the attractions it held during the colonial and early post-Independence years.

So is there any good reason for giving those of our people earning taxable incomes, the annual tax free allowance of Rs. 144,000 on top of tax free emoluments? The reason why the privilege continues is that both politicians and bureaucrats benefit from it. Where there is congruence of interest, there is always a closing of ranks. That is why pro-labour rhetoric notwithstanding, domestic servants and personal drivers are still precluded from EPF, ETF and overtime benefits. Those are categories of employees whom both the middle and upper class politicians and bureaucrats employ. However generous they may be with public funds, it is a different story when it’s money out of their own pockets.

It is public knowledge that tax evasion is rampant in this country. It is time that the Inland Revenue authorities, instead of concentrating only on the squeezed lemons already on their files, began to look for those liable who are outside the tax net altogether. It would be useful to consider what countries like India, for example do, to catch evaders. They require all those owning a vehicle or travelling abroad to make a tax return. At the same time, politicians must not try to win favour by making rash promises like abolishing pay-as-you-earn (PAYE). That is an efficient way of collecting taxes. Given the present cost of living, raising the exemption limit is not just desirable but necessary. Rs. 12,000 a month is not a lot at current rates of inflation. Raising that limit and levelling the field between the public service and the rest is necessary.

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