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Regressive taxation,an unholy instrument of the Govt.–Sajith

3 December 2012 06:30 pm - 2     - {{hitsCtrl.values.hits}}


It has made a purposeful effort to burden the rich and poor in our society

Q: You have been quoted in the media as having called the 2013 budget a joke, what are your reasons for trivialising the budget put forward by the government?
When one attempts to analyse the budget I think it is very important to focus on two aspects, one is the financial management aspect and the other is the management of macroeconomic variables.

When one examined the financial management aspect there has been a propensity on the part of the government to focus on regressive taxation to raise government revenue. These regressive/ indirect taxes have an impact on the population as a whole, irrespective of their income levels—that is basically unfair. It is doing a great injustice to the people of our country.

If we analyze the global trends of governments to generate income; there is a general tendency towards a progressive direct tax, where taxes are levied according to one’s income level. On the whole this government has embarked on a draconian path of putting a heavier burned on the poor in this society. This is highly unfair and highly unethical, that is where I have a huge problem with regards to the fiscal management aspect of this government.

This government has no proper system to ensure that those who run away from paying taxes are brought to book. If you look at the 2011 figures the country has lost an amount of Rs. 94 Billion, in terms of revenues lost. In addition to that Rs. 45.5 Billion in the form of penalties has also not been accrued—this is a huge amount of resources that the government has lost. The government has not formulated a progressive method to bring these tax evaders into the tax net.

This is an important topic when talking about raising government funds; why become so enthusiastic about imposing regressive, abnormal, indirect and unfair taxes on the whole population, when you can focus on an area where you can raise revenues so easily.

Here I have shown two areas where the government has malfunctioned; they have not been able to address the national needs. Rather, they have spontaneously come up with this unholy policy instrument—that would put a burden on the rich and poor alike.

Some may say that the government has the right to raise revenue. However the government has been evasive when it came to the humongous resources that were amassed when they captured Kumaran Padmanadan—there is no accountability or transparency about where these funds have gone. Why can’t K.P and the LTTE’s resources be utilized into improving the livelihood of the people living in the north and east.

Therefore there are so many easier ways of increasing government revenue, but they have ignored these methods and instead they have made purposeful effort to burden the rich and poor alike.

Q: You have voiced your opposition to progressive taxation and you also spoke of tax evaders. Generally we know that those who evade tax are the most powerful in society. If so then are you now leaning towards more leftist economic policies, with a safety net and taxes on big business?
I think it is too simplistic, to define my economic policies as either left or right leaning. I am totally against the extreme-right neo-liberal economic system that is functioning today.

Q: The JVP is always levelling a criticism against the UNP, saying that it offers no alternative to the present government because it is the UNP’s system of capitalism that is in operation today.
Well I am offering an alternative. My economic approach is humanistic capitalism. The extreme right wing political and economic ideology proscribes that you make the rich, richer and provide them with the maximum incentives and benefits and this will in turn have a trickledown effect. I see that as a bankrupt economic policy.
If you take the recent US elections that has been the case, the complete neo-liberal free market approach has been completely rejected.

The fairer thing to do, by the people of our country, would be to adopt the free market approach of wealth creation to construct the pie. But you bring in social democracy and equity, when it comes to distributing the pie. It is a mixture of free-marketism and limited state intervention.

If not regressive taxation then should we move towards progressive taxation? I find that higher taxation is a disincentive to save, to invest and higher taxation constricts entrepreneurial skills, thinking out of the box, setting up small and medium enterprises. Therefore I am not for higher taxation per say, however we have to minimize taxation to encourage entrepreneurs to set up businesses and to ensure that the wealth creating mechanism functions without too much of state intervention and interference from public enterprises.

The question is then, how do we raise revenue? If we go back in time to Margaret Thatcher’s administration; she had a private sector leader in business coming into business and setting up and efficiency unit, named the Rainer Efficiency Unit. He was bought into government to minimize waste, to eradicate corruption and bring about efficiency, better management control and modern business thinking. We don’t have such a system in our country, we just earn, we just spend and we just tax. There are no controls that are put in place to enhance efficiency. I think a great deal of savings can be earned through effective management controls. I believe that the government has to embark on a system of improve the efficiency systems of government.

While I don’t propose excessive taxation, the higher income earners of our society, have to pay more—in terms of bearing the burden of society. The better off in society must make an effort to support the less fortunate in society.

Q: The government is concentrating on infrastructure development, and other areas are being forgone for the sake of infrastructure development. Do you think this is a prudent policy? What would you do differently if you were in power?
How can the government say that it is spending on infrastructure when the figures have shown otherwise. Take the numbers from 2011; the recurrent expenditure amounted to 71. 8 per-cent whereas capital expenditure only amounted to 29 per-cent, this trend has not reversed in 2012 it has worsened; recurrent expenditure has increased to 72 per-cent and capital expenditure had gone down to 28 per-cent. The projection for 2013 is the recurrent expenditure is maintaining its 70 per-cent levels and the capital expenditure is still in the 20 per-cent level. Therefore whenever you have, prioritization of recurrent expenditure over capital expenditure, you do not have progressive economic growth.

If we were to dissect the recurrent expenditures of the 71 per-cent, this government has been quite successful in maintaining the same standard of interest payments. Of the recurrent expenditures in 2011, 35.4 per-cent was interest payments and in 2012 it was 35 per-cent and the projection for 2013 is 35.1 per-cent. The government has not been able to garner resources for capital expenditure. The government is hell-bent on recurrent expenditure.

The government is trying to tell the people, with the Hambantota Port Development project and the Airports, that it is embarking on a huge capital development project. However at what cost? These projects have been implemented through tied-aid and commercial borrowings at very high rates of interest. None of these projects have given rise to a local economic boost. These projects have not resulted in a local economic multiplier effect, which would have increased money circulation for the people living in the locality. All the unskilled and skilled labour is being brought from overseas, and we have small colonies coming up.

Q: Despite this low level of capital expenditure the government has been able to achieve its predicted rate of economic growth. Do you explain this as a manipulation of figures?
When we talk of economic growth, we must talk of it with inflation being taken into account—therefore we must focus on the GDP deflator figure. If we have a look at those levels there has been a precipitous decline in the GDP deflator figures from 9.9 per-cent in 2005 to 7 per-cent in 2012. I must confess that maintaining 7 per-cent figures of GDP deflator growth rates is a good achievement. But when one examines the minute details, the situation is not so sound. When we look at the share of income, the richest 20 per-cent of our country enjoys 54.1 per-cent of national income and the poorest 20 per-cent enjoy a mere 4 per-cent of national income. When we look at these figures, the picture is not so rosy.

  Comments - 2

  • Calistus Jayatilleke Tuesday, 04 December 2012 05:46 AM

    A very well balanced analysis of the Budget. The often boasted of development has not trickled down to the masses and the massive projects undertaken with foreign aid coupled with imported labour have not contributed to improving the living standards of the ordinary people. Instead, those projects have only boosted the egos of the VIPs and created personality cults around them to perpetuate their names.

    Jessy Tuesday, 04 December 2012 11:08 AM

    He seems to be more than what I thought about him for he always kept his mouth shut. Well done Sajith. Keep kicking.

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