State and govt. not interchangeable: Same goes for revenue and income
hoax of free education and free health services
By Usvatte-aratchi-December 4, 2017, 9:03 pm
On 11 November in the evening news, President Maithripala Sirisena claimed that his state (mage rajaya) would not permit anyone who fought in the war against LTTE to be brought to court for his conduct in battle. Leave aside the legality and morality of that statement, no President can claim ownership of this state. Nor can Xi Jining claim that Chong Guo is his state. Sri Lanka is not the President’s state.
A few years ago, there was a President who acted as if this state was his estate and paid dearly for his folly. Four centuries ago, there was an unwise king dubbed Sun King who claimed ‘L’ etat c’est moi’ (The state, am I) and his successors paid for that folly with their heads on the guillotine. In contrast, this government is the President’s. He created it, at least in law, he preserves it and may destroy it, a sort of three in one, a tihai, of which the President is very fond. He would have been perfectly lawful had he said, ‘My government will not permit …’, although whether that statement is right or wrong is another matter. In Britain there is no government but Her Majesty’s. That is because for everything that the queen does, there is one of her ministers legally responsible, beginning with the First Minister.
In the US, there is the President’s Administration, with ‘government’ rarely used in that context. This practice, where a President appoints his Cabinet of Secretaries (as they are called, derived from 18th century English usage) subject to approval by Congress (Parliament), is a practically useful one. It is a part of the principle of separation of powers in practice. It answers, in part, to the murmur here that professionals take part in government. (I do not have that faith that professionals are men and women of high integrity implicit in this argument. There are too many instances of corruption and dishonesty among them for me to accept that. In Cabinets we have had professionals, who have displayed the most deplorable traits of character!) What is significant is that given pervasive jealousy in this society (no matter, the recitation several times a day ‘suvaco ch’assa mudu anatimani), members of Parliament, who will have lost opportunities to make money hand in fist, will swell to go after ministers to get them by the throat. We may be able to set thieves to catch thieves.
Perhaps, we may be able to reduce abuse of power in including corruption - a double perhaps - because corruption seems to be something well entrenched. (Do we say well enshrined?) in Sri Lanka culture. Abuse and misuse of terms, either out of ignorance or with malice forethought, is quite common here and it is a good beginning to start correction with an instance from the President of the Republic.
Governments, the most stable of them, are short-lived. In some states, it is written in to the basic law of the state that government shall not live beyond a short specified period of time, for instance four years in US. In others, governments end when those who created a government indirectly, tell it that they do not support it to last anymore. That happens when a majority of members in Parliament pass a vote of no confidence in a government. In some, a government may end when the army or the people rebel against the continuance of that government. The most recent instance is the revolt against Robert Mugabe of Zimbabwe. We have seen many times over governments in Asia change in similar processes, Thailand most frequently. The state of Lanka has existed for a very long time, although with interruptions. The state of the United States of America has existed continuously since 1776. The Republic of India is a young state. Some states have disintegrated as did USSR in1989 and Yugoslavia a few years later. Others have merged with another, e.g. GDR with West Germany. State and government are separate and distinct entities and to confuse one with the other misleads the reader. The terms in Sinhala are rajaya (state) and anduva (government) and are used entirely without care.
Government revenue and income
That same day in Parliament, Minister Pathali Ranawaka, one of the most intelligent and well instructed men in the House, spoke of income of government from taxation. A highly reputed tuition master in economics made the same remark at a press conference. Surely, both these men knew, better than most, that revenue of government was not its income. Anyone who runs a kade (chaiwala) knows that revenue is different from income. Income comprises wages, profits, interest and rent. Tax receipts of government are none of these and are a part of the income of taxpayers. A government collects profits when an enterprise it owns, earns them. It collects interest on the money it lends to its employees. It collects rent when it leases its buildings or land. It does not earn wages though it pays out a lot. Total annual income of government in our country does not exceed 4% of its annual revenue. All students in Year 12 in school and university men and women who study Economics or Commerce know that. Why confuse everybody when with a little bit of sense (a little bit of sense, as Alfred Doolittle, the dustman, might have sung, with a step, after a beer, which the good minister has made cheaper) in the use of common terms, that confusion can be avoided?
All taxes are paid by people. Neither commodities (commodity taxes or goods and services taxes) nor corporations pay taxes. Taxes on imports as well as income taxes are paid by people. All taxes on corporations are paid by its owners. All taxes, however collected, transfer a part of people’s income to government. So, all taxes, no matter direct or indirect or inflation, call forth the same reactions from taxpayers. Consequently, the claim by government that they imposed taxes without burdening the people is baloney. If a government increases the ratio (note well, ratio not proportion) of tax revenue to GDP, there is no way it can do so without increasing the burden of taxation on the people. That verse in budu guna alankaraya, ‘ron aragena semin-yana bingu lesin kusumin- satata duk no demin- ganiti puda panduru pera niyamin’, which some in Parliament sometimes quote, is written out of poetic licence and has no practical relevance. The idea that government earns income may lie behind the common clamour for larger layout for education, health or for higher wages to government servants, without making it explicit that that demand requires that either less is spent on other functions and more commonly that the burden of taxation on the people increase. I am perplexed every time that the President, who is the Head of Government, offers to spend large sums of money without reference to the Ministry of Finance. How can the head of government put his own government in jeopardy with such cavalier commitments? Every demand by the public for increased expenditure by government is by itself (ipso facto) a demand for raising the burden of taxation. When present day citizens pay increased taxes they bear the burden of taxation. People who will live in future will pay out of their earnings when a government borrows now and spends now and pays back the lenders from future tax revenue. Some might find this immoral and unfair. How dare we compel future generations who cannot vote now to pay for our expenses now? One answer could be that we borrow now for repayment later to create irrigation works, power plants, universities and factories all of which will raise incomes of people in the future. That is why it is doubly criminal, when borrowed money goes to add to the private wealth of those now in government and that that money which is black is held overseas providing investible resources in those countries or held in secret domestically, producing no capital. Government may raise expenditure by printing money. That expenditure will permit government to take away real resources from the public. This competition for resources between government and the rest of the economy will raise prices. Resources pass on to government in the same way as taxation does. But unlike taxes which are designed by government to distribute the burden of taxation in some manner, the burden of taxation with price inflation will be distributed haphazardly and probably most unfairly. Inflation is the most unfair tax of all!
Direct and indirect taxes
Most people, both inside and outside Parliament, ask that the proportion of revenue collected from direct taxes be increased because indirect taxes allegedly distribute the burden of taxation unfairly. A friend of mine, last month, bought a small Japanese car, paying $57,000.00. (These prices are crazy, as Crazy Eddy might have said.). His daughter in the US, three months earlier, bought a slightly better car paying only $22,000.00. The father paid $35,000 (= Lkr. 5.2million), more as taxes to government. If he takes a meal at a restaurant, he pays some 12 percent of the bill as taxes to government. His utility bills include high taxes to government. Now my friend is not among the high income earners in this country; nor does ne derive any income from property but lives on savings from earlier employment. High income earners probably pay much more, all as indirect taxes, than low income earners. Those that pay taxes on their income also pay taxes on their expenditure because they like all others pay indirect taxes as well. Taken together high income earners probably pay a greater portion of their income than taxpayers in lower income brackets. Consequently, you cannot say simply that this scheme of taxation is equitable because it relies heavily on direct taxes and that is not equitable because it relies heavily on indirect taxes. It all depends on who pays how much and that you would not know, even approximately, until you have the results of a reliable survey. There is no necessary consequence that all indirect schemes are iniquitous. Even if you have information on which income groups pay what proportion of their income in taxes you cannot conclude that that scheme of taxation is iniquitous. (That income in this country is distributed unequally is a different matter altogether.) Tax revenue is spent to pay for goods and services, provided by government and, of course, for bribes to politicians and bureaucrats. We have to know the benefits that accrue to each income group from government expenditure to know whether fiscal operations increased inequality or reduced inequality.
One of the wise men at a recent seminar sagaciously observed that in our country government expenditure benefited mostly the higher income groups. Where is the information? My casual observation does not support that contention. If you walk past the National Hospital in the morning on a working day you would see mostly poor people waiting in queue to see medical personnel. When the GMOA called out doctors in government hospitals on strike, the men and women who complained before television cameras were mostly poor people. There were no masses of people with capacity to pay who flocked to private sector hospitals, because those people had suffered from the strike of doctors. The rapid fall in average infant, child and maternal mortality rates could not have come about without widespread availability of public health and medical care services. (The rationale for taxing people to provide them with certain services is that some services must be provided collectively. You cannot live free of dengue fever by keeping your own compound free of mosquitoes without our neighbour and his neighbour and so on keeping their compounds dengue mosquito free.) It is at best careless to assume simplistically that any indirect tax is iniquitous. A whole lot more work needs to be done to pronounce on the re-distributional effects of government fiscal operations.
There is no way that the wide variety of services provided by government in this country can be paid for without the large mass of people paying for it. It is a matter of administrative feasibility how you collect those payments. When a large part of the economy runs without its transactions in written form, there is no way that income taxes can be administered effectively. Hence, indirect taxes! Yet, there is much tax evasion and avoidance.
To be continued
