Tuesday, June 28, 2016

Fiscal Consolidation – we must explain this in simple terms that people understand

Economists and Pundits in the Treasury use this word Fiscal Consolidation very glibly. In simple English it is simply ways and means by which the difference between what we spend and what we earn is reduced! Equilibrium being ZERO!

The difference is called the deficit, and like any household, NO DIFFERENT to running the Country, if we spend more than we earn, we either have to borrow to fund that spending, or we have to reduce that spending to be more in line to what we earn. If we continue to spend more than we earn, we will go bankrupt, if our debtors demand immediate repayment, or we get deeper into debt!

So in terms of this Government’s management of its finances, it is simply out of control. Forget about the excesses of the Rajapakse mismanagement. That we all know about. We have failed to explain some of the simple aspects of their heavy borrowings on unproductive investments, where we have to pay interest and capital repayments, when that investment has NOT resulted in any income! Or even public benefit/value from the investment.

The biggest mistake that has resulted in a ballooning of the current account deficit, was the massive Rs10K a month pay raise for the Govt. servants, which the country is still reeling from, and NO ONE dare tell the truth, for upsetting these same Govt. servants who benefited from this pay raise, that has left the Private Sector reeling with their staff demanding higher wages, or voting with their feet by using whatever, and usually this means political influence, to get Govt. jobs, that turn a productive private sector worker into an unproductive govt. sector employee, ready just to mark time to get a pay check! 

The public of Sri Lanka, MUST understand that they have paid a huge price to get this YAHAPALANAYA Govt. as this Public Sector pay raise, may have been the pivot to winning the election, but it is ALSO the straw that has broken the Camel's back, resulting in the belt tightening we have already seen. Make no mistake that when the Telephone cost via the VAT has affected everyone, it is SPENDING power that has been affected, which affects every business, as there is less money to spend on other things. Ask any businessman, they will tell you their sales HAVE FALLEN. It appears only the Govt. does not seem to have realized that simple fact of life!

The link above is to the Sunday Times article that also tries, to explain that unless these needed fiscal reforms come about quickly, and it seems even the VAT is quietly leaking buckets, as the Finance Minister who is trying to placate each and every interest group, seems to be gradually giving into every demand, putting further pressure on the class that is least powerful, in that they don’t have the muscle to demand, and they are usually the poorest of the Community. They will bear an unfair burden of paying VAT, and de facto taxes on everything from Phone calls to essential food items, in this most regressive (TAX) country on the face of the Earth, where the poorest pay the higher proportion of Taxes!

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