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Sri Lanka: Taxing Times

Mahinda Rajapaksa is correct, for once. The real reason President Wickremesinghe scuttled the local government election was not economics but politics.

8 mins read
Sri Lanka's President Ranil Wickremesinghe attends an interview with Reuters at Presidential Secretariat, amid the country's economic crisis, in Colombo, Sri Lanka August 18, 2022. [Photo: REUTERS/ Dinuka Liyanawatte]

“…we emphasise that we won’t hesitate at all to unite with all health workers and take tough measures which can paralyse the entire hospital system against this unfair wage cut.”

Statement by the GMOA (23.2.2023)

Sri Lanka’s poorest of the poor, their lives devastated by economic collapse, may face a killer blow soon: a crippling of the public health system.

That GMOA is planning to ‘paralyse the entire hospital system’ in protest against a government decision to institute a ‘wage cut’. Needless to say, ‘the hospital system’ they are planning to paralyse is the public one, used by those Lankans who constitute the bottommost layers of the income totem pole. The fee-levying private health care system, used by middle and upper layers of society, including politicians, will function smoothly. The very doctors who refuse to treat patients in government hospitals will attend to their private practices with usual assiduity.

Hippocrates and our own physician-king Buddhadasa, who, according to legend, stopped a royal progress to treat a sick cobra, would turn in their graves at the conduct of these medical merchants.

We excoriate politicians, and rightly so, for their unconscionable and irresponsible conduct, for their greed and their willingness to risk the safety and wellbeing of citizens who sustain them. Are the doctors, who threaten to hold the poorest of the poor hostage to win a wage demand, any better?  

The UNP president and the SLPP government will probably condemn the doctors’ strike because they are in power. Had they been in opposition, they wouldn’t have.

Will the SJB, the JVP, and sundry opposition parties have the moral and political courage to ask the doctors not to penalise the already pulverised poor in order to win a wage demand? Will Sajith Premadasa, Anura Kumara Dissanayake or Dulles Alahapperuma possess the decency to tell the doctors to find another weapon to attack the government with?

The doctors’ demand may be just. But their tactic is supremely unjust. Weaponizing poor patients is heartless and malicious at any time, doubly so in the midst of a calamitous economic crisis. The strike won’t hurt politicians. It will hurt the fiscally impoverished 36% of the population who are missing meals and missing school, the 600,000 families who might lose access to power thanks to the recent electricity hike. The very people, who through indirect taxes, helped fund the medical education of these doctors. 

When President Gotabaya and PM Mahinda Rajapaksa reduced health expenditure in the midst of a pandemic, the GMOA doctors remained mute. They were too busy enjoying the rich fruits of Gotabaya Rajapaksa’s 2019 tax cut, the first step in Sri Lanka’s fast-track to bankruptcy. The GMOA bosses were probably among those who whispered sweet lies about tax cuts and instant growth into the ignorant ears of the former Lt. Colonel.

In Sri Lanka’s avoidable tragedy, the only bad guys are not the politicians. The rot in the political class is a reflection of a widespread and deep-going societal malaise. The politicians are the most culpable. But none of us voting age citizens are completely innocent. If any solution is to work, if any change is to be effective, it must move beyond the simplistic formula of bad politicians and good everyone-else and confront special and vested interests, from monks and military to professionals and privileged trade unions.

Are there other predators apart from politicians?

According to the latest IHP survey, while no political leader has a net favourability rating, in a general election, the NPP/JVP and the SJB will win a plurality.

Stirring oratory and pie-in-the-sky promises apart, how will a NPP/JVP or SJB government apportion the economic and social costs of recovery? The answer will depend mostly on how the tax burden is distributed. And on this seminal matter, the SJB and the NPP/JVP fudges at best. The SJB talks about reducing direct taxes for the uppermost bracket, while remaining silent about which income segment/s will have to pick the extra tab for that tax break. The NPP/JVP criticises the current imbalance between direct and indirect taxes, promises to correct it, but says nothing about how.

The reason is obvious. Neither party wants to anger those professional groups who are demanding tax cuts for themselves.

The demonstrating professionals are not saying they don’t want to pay higher taxes to fund such government waste as the silly Janaraja Perahara or the huge stable of cabinet, deputy, and state ministers. The government – any government – must be held to account about how public funds are used. But that is not what the protesting professionals are doing. They don’t want to pay higher taxes, period; irrespective of the identity of the president or the hue of the government. Their reasons have nothing to do with how government borrow and spend and everything to do with how they themselves have lived beyond their means. They too, like successive governments, have borrowed heavily to sustain an unsustainable lifestyle. They want to continue that lifestyle, even as the poorest of the poor are starving. That is the burden of their tax-song. And their tax song will remain unchanged irrespective of who sits in the president’s chair and who forms the government. What is Ranil’s headache today could be Sajith’s or Anura’s headache tomorrrow, if either leader achieves his presidential ambitions.

The Australian TV channel, ABC News did a feature on Finland’s education system. Arguably the best in the world, it is completely free. Not just the teaching, but also lunches, books, and excursions. Teachers are highly paid; teaching is one of the most sought after professions, and one of the hardest to get into. As a school principal told the interviewer, “Schools can’t raise private funds or to charge fees from parents. All schools are equitably funded from taxation” (https://www.youtube.com/watch?v=7xCe2m0kiSg).

Finland has one of the highest direct tax rates in the world. And this high rate came into being not after the country became developed but before. From 1945 to 1951, when Finland was dirt-poor and war-devastated, about one third of public revenue was generated through income and wealth taxes. (https://helda.helsinki.fi/bitstream/handle/10224/3553/pihkala26-47.pdf?sequence=1). That money was used to build free health and education systems of the highest quality, which in turn helped the country to escape poverty without falling into the debt trap.

Taxation, argues Thomas Picketty, in Capital and Ideology, played the leading role in West’s economic triumph over the East. Based on a wealth of data, he points out that by the end of the 15th Century Oriental and Occidental powers were evenly balanced. The West took its great leaps upwards firstly from 1500 to 1800 and secondly from 1930 to 1980. Both were enabled by increases in tax income. Chinese and Ottoman empires declined because their tax revenues remained low. Japan was the only exception, Prof Picketty points out, with higher taxes being a major pillar of its Meiji reforms.

Taxation is not the only issue. The recent electricity hike which disproportionately burdens the poor was caused not only by political corruption but also by the wasteful way in which the CEB was run for decades. Wages for excess workers, bonuses despite huge annual losses, and other privileges all added up to push the unit cost of electricity sky high. Now more than half a million poor families might be pushed back into the kuppi lamp era in consequence.

State owned enterprises (SOEs) were supposed to rescue consumers from exploitative practices of private entrepreneurs. But in Sri Lanka, SOE officials and trade unions have themselves turned predator, preying on citizens. Several recent directives provide examples of how these groups battened themselves on public funds. One ended the practice of top government officials taking their official vehicles home at retirement. Another prevented officials from holding their retirement parties at state expense. A third directed all officials to travel economy class and not business. Are these unearned and unjust privileges only the tip of the iceberg? How come no trade union screamed about these high-way-robbery type practices? Is their silence indicative of a mutually beneficial understanding of the plunder-and-let-plunder variety?

 ]          When rulers are hegemonic, they transplant their own values and beliefs on to the society they rule; and by doing so successfully, they manage to maintain their moments of hegemony longer. From an addiction to unearned privileges to tax phobia, from anti-compassion to indecency, we are still Rajapaksa children.

During a recent parliamentary debate, when MP Rohini Wijeratne was speaking, a parliamentarian was heard scolding her in filth. The Speaker remained silent, during and after. Not a single opposition parliamentarian intervened to defend their colleague. This is what the Rajapaksas have brought the country down to. Unless the President orders the miscreant to apologise publicly (and removes him from his ministry if he happens to be the education minister), unless the opposition in one voice demands such action, then, even if the last member of the Rajapaksa clan departs politics, Sri Lanka will remain a Rajapaksa land.

Why elections?

Mahinda Rajapaksa is correct, for once. The real reason President Wickremesinghe scuttled the local government election was not economics but politics.

In 2020, the timing of the general election became a bone of contention between the Rajapaksa government and the Opposition. The government, knowing it was on a winning streak, wanted to hold elections as soon as possible, despite the pandemic. The Opposition, citing the pandemic, wanted the election to be postponed. The Opposition’s argument was more factual; having an election in the midst of a pandemic was risky. But the real reason the Opposition wanted a postponement was the fear of losing.

Now the opposition wants an immediate local government election because it believes it is ahead politically. The wisdom of spending so much money on an LG election in the midst of an economic devastation is not even considered. In truth, their much shouted fidelity to democracy is but a cover for power. If the SJB was clearly ahead and the NPP/JVP trailing way behind, the latter wouldn’t have been so averse to a postponement and vice versa. And Ranil Wickremesinghe would have found the money for the election somehow, if he thought the UNP could come first. This is how real priorities are decided. This is why Sri Lanka is unlikely to do better in the future than it did in the past.

Elections are necessary for democratic health. But democratic health cannot be reduced to periodic elections. Moreover, if there are powerful groups with vested interests who claim that they have the ultimate right in deciding how a country is run, a democracy’s health becomes precarious, with or without periodic elections. In many countries, it is the military which arrogates unto itself such political veto powers. In Sri Lanka, so far, it is the Buddhist clergy.

During their anti-devolution demonstration outside parliament, several monks argued that the president should not implement the 13th Amendment in full because the chief prelates are opposed to it. In a subsequent interview with a You Tube channel, two leading political monks, Ulapane Sumangala thero and Akmeemana Dayaratne thero reiterated the argument. The former said, “Even if the entire parliament agrees we won’t allow the 13th to be implemented. If 13th is given the country will become a lake of blood.”

Sri Lanka’s bloated military might become a threat to democracy in the future (especially if politicians continue their constant bickering, making an exhausted public turn to the Uniformed Man for salvation). The Buddhist clergy is an actual threat to democracy now. They insist on having the final say in every matter, from how much devolution Tamils should be given to how much sex education children should be taught. (The answer to both is none; no devolution, no sex-education, we are Sinhala Buddhists). The monks obviously think Sri Lanka is a Sinhala-Buddhist Iran and they are the Sinhala-Buddhist ayatollahs. If every measure needs saffron sanction, why bother with elections or parliaments? Why not save a lot of money by asking the chief prelates to run the show?

Given the key role political monks played in Ceylon/Sri Lanka’s downward trajectory right up to the re-election of the Rajapaksas in 2019 and 2020, their undiminished determination to interfere in governance poses a real danger to the prospects of recovery. If political and societal leaders lack the courage to stand up to rampaging monks and other vested interests (civilian and military), what hope for the future, irrespective of which party comes to office and which politicians hold power?

Tisaranee Gunasekara

The writer is a senior political commentator in Colombo.

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