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Vicious Cycle of Increasing Election Related Govt Expenditure, Increasing Govt debt and increasing taxation – Leader of the Opposition Mahinda Rajapaksa

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(Text of Press Release Issued on April 9th 2019 by the Leader of the Opposition Mahinda Rajapaksa)

According to the provisions in the Budget for 2019, all government servants are to be given a special allowance of Rs. 2,500. Pensions are to be increased. Samurdhi benefits are to be extended to an additional 600,000 families. Existing Samurdhi beneficiaries are to be allowed to withdraw up to Rs. 30,000 in two instalments this year from their accumulated funds in the Samurdhi Banks as spending money for the New Year and Christmas.

The newly set up Office of Missing Persons is to pay a monthly allowance of Rs. 6,000 each for the families of all missing persons until the Office of Reparations is established and a larger sum paid. The fact that this is an election year, will naturally lead many people to suspect that all these provisions are election related.

The government seeks to justify extending Samurdhi benefits to an additional 600,000 families on the grounds that ‘deserving families’ had been kept out of the scheme for political reasons. It appears that the government suddenly became aware of that alleged long standing injustice only after ruling the country for over four years.

The rhetoric of the government makes it obvious that the additional 600,000 Samurdhi recipients will be selected on political criteria for reasons more to do with elections than with poverty alleviation.

There is an inherent contradiction in the government claiming on the one hand that poverty has been reduced and then increasing the number of Samurdhi recipients by over 40%. Furthermore, spending money for the New Year and Christmas is being released from the compulsory savings of Samurdhi recipients in 2019 when such a thing never happened in previous years. After releasing Rs. 30,000 in a single year, it is obvious that there will no money to be released in that manner in the coming years.

The purpose of having compulsory savings for Samurdhi recipients is to encourage the savings habit and to enable them to utilize that money for self-employment and other livelihood related activities. We have not heard of the compulsory savings of Samurdhi recipients being released as spending money for festivals. Except for this Rs. 30,000 coming out of the compulsory savings of the Samurdhi recipients, all the other measures mentioned above will result in an increase in government expenditure. Through their first Budget in 2015, the yahapalana government gave a special allowance of Rs. 10,000 to all government servants, reduced the price of fuel and gas and certain foodstuffs so as to win the Parliamentary election on August 2015. Thereafter, the taxes collected from the people were increased from Rs. 1,050 billion in 2014 to Rs. 1,355 billion in 2015 – an increase of Rs. 305 billion in a single year.

Such an increase would have been spread out over at least three years under my government. As a matter of policy, we kept the year-on-year increase in taxes within the range of Rs. 50 to 100 billion a year so as not to oppress the public. Under my presidency, the economy grew at an average annual rate of 6% from 2006 to 2009 despite a raging war and at 7.4% in the five post war years from 2010 to 2014. No government in post-independence history has achieved an average growth rate of 6% leave alone 7.4%. Because of that growth, the economy was able to absorb the relatively modest annual increases in taxation under my government. In 2019, the government hopes to collect Rs. 2,077 billion as taxes – twice the amount that was collected 2014. All that money is to be wrung out of the public in a context where the annual growth rate has declined to 5% in 2015, 4.5% in 2016, 3.1% in 2017 and it is expected to be around 3% in 2018.

The total outstanding government debt increased from Rs.7,391 billion in 2014 to more than Rs. 11,859 billion by the end of 2018 – an increase of 62%. This increase in debt has been incurred for no other purpose than paying for the cost of inducing people to vote for the yahapalana government. These enormous borrowings were not spent on any development work. When government salaries are increased, and various other concessions given, it may give the recipient the feeling that he has got something. But very soon, he finds that whatever is given by this government with one hand is taken away by the other. Due mainly to excessive taxation and currency depreciation, any salary increase given by this government disappears almost immediately.

The Rupee depreciated from Rs. 131 to the Dollar at the end of 2014 to reach around Rs.180 under yahapalana rule, driving up the prices of all imports. Under my government, taxes were much lower, and the exchange rate was controlled to prevent increases in the prices of imports. So whatever was given by my government as salary increases actually stayed in the hands of the recipients. The yahapalana finance minister who became popular by increasing government salaries by Rs. 10,000 and reducing the prices of fuel and foodstuffs was forced out of the finance ministry and assigned the foreign ministry within a couple of years after he became unpopular for increasing taxes to pay for those concessions. That gives an indication of the turnaround time between doling out concessions to win votes and having to pay for them under the yahapalana government.

Sri Lanka is now caught up in a vicious cycle of increasing government spending for the electioneering needs of the incumbent government, heavy borrowing to finance that expenditure and increased taxation of the public to service those loans.

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