Yahapalanaya failing the test

February 7, 2015, 6:50 pm 

Ajith Nivard Cabraal’s Rs. 500 million house

Each passing week sees a mockery made of the term yahapalanaya. The most surprising episode we have seen yet after the ouster of the Chief Justice Mohan Peiris, is the acceptance of the Chairmanship of the Board of Investment by Upul Jayasuriya the President of the Bar Association. Under Upul Jayasuriya the Bar Association was more politicized than ever before. His predecessor was Wijedasa Rajapakshe - himself a UNP politician. But even he did not politicize the Bar Association presidency to the extent that Jayasuriya did. There was really no difference between the Bar Assocaition and an opposition political party over the past couple of years. Upul Jayasuriya played a leading role in the evicting of Mohan Peiris from the Supreme Court. Many people including the present writer was amazed to see the president of the Bar Association announcing to the public over TV that the appointment of Mohan Peris was void and that former CJ Shirani Bandaranayake would be reinstated.

Is this the law of Yahapalanay

If it was the presidential secretariat that had issued the letter declaring Mohan Peiris’ appointment to be null and void, then it should have been at least the Secretary to the President or the presidential spokesman who should have made that known to the public. But here was the president of the Bar Association announcing matters of state to the public! Just days after what was described even by the pro-yahapalana Colombo Telegraph as a ‘judicial coup’ Upul Jayasuriya was made Chairman of the BOI. How can a top professional chairing the body that represents his profession descend to such levels as to accept a position that was obviously given to him as a token of appreciation for support and services provided to the new powers that be?

We grant that the position of the head of the Bar Association is not a sacrosanct position like that of the chief justice. The Bar Association just represents the private bar. The question however is whether the president of a body representing a key profession should be a political individual who has no qualms about accepting office under people he helped bring into power using the office of BASL president. What will that do to the image of the BASL? Even former chief justice Sarath N.Silva has spoken disapprovingly of the involvement of the BASL in the ouster of chief justice Mohan Peiris and said that the BASL should not be involved in such sensitive issues. Perhaps the BASL should not allow politically involved lawyers to contest for the top positions in that organization in the future.  The biggest joke was the Commonwealth Secretary General Kamalesh Sharma commending the government on the appointment of the new chief justice without any mention of how the previous one was removed. That must be a variation of the Latimer House principles that we have somehow missed!

Kangaroofication of institutions

In a development no less scandalous than that of the Bar Association president accepting a political appointment, last week the director-general of the Bribery Commission Ganesh Dharmawardhana was transferred and replaced with another official whom the new government obviously feels will fast track complaints of bribery and corruption made against members of the fallen Rajapaksa regime. This transfer came in the context of raucous cries from the JHU and the JVP that the top officials of the Bribery Commission should be removed and replaced with new officials who will fast track investigations into the complaints against certain individuals they themselves made to the bribery commission! To cap it all, even while the director general of the bribery Commission was being transferred and replaced with another official, the JHU held another demonstration outside the Bribery Commission demanding the resignation of the chairman of the Bribery Commission so as to expedite the investigations into the complaints they made.

In other words, the JHU wants the Bribery Commission turned into a kangaroo court. The Daily Mirror captured the mood of the moment with a cartoon depicting a picture of the blindfolded maiden of justice with the pair of scales and sword being covered with a picture of the hooded grim reaper wielding a scythe. That indeed seems to be the direction in which we are heading. In what increasingly looks like a primeval feeding frenzy, the yahapalana types appear to be turning against one another in a little concealed power struggle. Last week, JVP trade unionists of the Ceylon Electricity Board went to the Bribery Commission against power and energy minister Champika Ranawaka alleging that he was not taking steps to reverse a salary increase given to the CEB engineers. The JVP depicts the salary increase as a misuse of the money of the four million electricity consumers and want it reversed with no consideration given to the question as to how the new minister was going to shelve a salary increase that has been negotiated with the Engineers Union.

So what we have here is the JHU and the JVP literally devouring each other’s rear ends in a game of one upmanship. Even as the JHU was holding a demonstration in front of the Bribery Commission demanding the resignation of its Chairman so as to expedite investigations into complaints, the JVP was presenting a complaint against Champika Ranawaka for trying to ‘bribe’ the CEB engineers with salary increases!  Both the JVP and JHU have anti corruption movements. The JHU outfit is called the Dooshana Virodhi Peramuna and the JVP outfit is known as the Dooshana Virodhi Handa. Both these small political parties obviously see a political advantage to themselves in muddying the water as much as possible with allegations of corruption against individuals they think will pose a threat to them. Both the JVP and the JHU are targeting the Rajapaksas because they feel that if a new political formation led by the Rajapaksas comes in as a third force to compete with the UNP and the SLFP, that will be the end of the road for outfits like the JVP and JHU. They have valid reasons to fear this third force. It is now barely a month since the yahapalana government came into power and already, a group led by Dinesh Gunawardene, Wimal Weerawansa, Vasudeva Nanayakkara and Udaya Gammampila are planning to hold a public rally in Nugegoda on Feb. 18.

Likewise the JVP feels that in the unlikely but still probable event that the JHU contests separately at the next parliamentary elections, they would take some votes that would otherwise have come to the JVP. Some of the allegations both the JVP and the JHU have been making against targeted individuals are just fabrications. The intention obviously, is not to present a genuine case but to have a media show of handing over complaints to the Bribery Commission as that gives them an opportunity to make the allegations public. To give just one example, the JVP posted a story on their website saying that the former Central Bank governor Ajith Nivard Cabraal had bought a house in Nawala for no less than Rs. 500 million.

Rs. 500 million amounts to something like 3.8 million US Dollars. If somebody bought a house in Nawala for that kind of money, it should have at least three acres of land with swimming pools, saunas and the works and at least three pet elephants to go with it. Upon making inquiries, this writer was informed by Cabraal that he had indeed bought the house next to his own in Nawala for Rs. 30 million last year – a property on 15 perches of land with an abandoned house. He also said that he had got the property officially valued to pay the stamp duty. Now 30 million that is a far cry from the Rs. 500 million mentioned by the JVP. Cabraal has also provided us with photos of his alleged Rs. 500 million property. These are politically motivated complaints designed to gain public attention and to vilify the target without having to prove anything.  

In December 2001, the charge against the then prime minister Ranil Wickremesinghe was that he did nothing to consolidate himself politically by providing jobs for the youth who rallied around the UNP in unprecedented numbers at that election. In 2001 by the time the election came around even minor candidates on the UNP list had entourages of several dozens of youths. Back then it was not so much the cost of living as employment that was the main issue. But after winning power in a hard fought election, RW stopped all recruitment to the government. Even existing vacancies remained unfilled. Resentment built up against the government day by day and after just 30 months in office it was defeated at the 2004 parliamentary election. It took nearly one and a half decades for the UNP to recover even partially. Arguably, they have still not recovered to the December 2001 level.

Today the UNP is the largest component in a wide ranging coalition that brought Maithripala Sirisena into power. The acid test will be if they can win at a general election the same number of seats that they won at the December 2001 parliamentary election. In the opinion of this writer, it seems doubtful whether the UNP will manage to win that many seats at the parliamentary election that is due in a few months time. Be that as it may, what is commendable this time around in the UNP’s approach is that they have adopted a much more people friendly approach to economics than they ever did before under Ranil Wickremesinghe’s leadership. This time one might even say that they have moved to the opposite extreme and gone totally overboard in adopting populist measures. If the UNP is trying to win an absolute majority in parliament with such measures, no one will blame them for that because political stability is also a factor vital to the economic wellbeing of the country.

Operational side of mini-budget    

The UNP has therefore done well to shed their rather stiff and dogmatic approach adopted in 2001. A more populist approach like in the 1977-94 period will conduce to building a viable ruling party. But they should watch out for the operational snags they may come up against in putting the specific measures they have decided on into action. At a macro level, the new government is continuing the precedent set by the previous government of reducing the budget deficit year by year. In fact they have reduced the budget deficit even further. The previous government envisaged a budget deficit of Rs. 521 billion whereas the new government has tried to reduce it further to Rs. 499 billion.   

The most salient feature of the mini-budget of the new government are of course the sweeping concessions they have announced - Salaries of 1.3 million government servants to increase by Rs. 10,000 in two instalments, A Rs. 1,000 increase in the pensions of 550,000 pensioners, Samurdhi payments to be increased by 200%, A grant of 20,000 to be paid to pregnant mothers, A 50% waiver of loans of up to 100,000 taken by farmers, guaranteed prices for paddy at Rs 50, potatoes at Rs. 80, tea green leaf at Rs. 80, rubber at Rs. 350 and fresh milk at Rs. 70, Concessions for relocated city dwellers at the rate of Rs. 100,000 per family and rent assistance of Rs. 250 per month for 20 years,  and the reduction of petrol, diesel, kerosene, gas and the prices of 13 foodstuffs.

All these measures either reduce government income by forfeiting of taxes or increase government expenditure. Some measures such as the waiver of interest payments on a maximum of Rs 200,000 on gold pawned at state banks will not be a burden directly on the government, but will certainly burden the state banks. The giving of 15% interest on fixed deposits of senior citizens up to a maximum of Rs. one million will also place a burden on both state owned and private banks. Taxes on some foodstuffs had been reduced in a manner that would raise other questions. For example, reducing the price of sugar by Rs. 10 is meant to give relief to the poor, but how many kilos of sugar does the average family consume in a month? Furthermore what impact will the reduction in the tax on imported sugar have on our own sugar industry which was just beginning to increase production?

Starting fish canning industries in Sri Lanka was the dream of many fisheries ministers including Mahinda Rajapaksa. But the only fisheries minister who managed to get some canning industries started was Rajitha Senaratne. For the first time people were beginning to buy fish canned in Sri Lanka. It’s true that some of the fish that was canned here was imported as Sri Lanka did not produce enough of the variety of fish that was canned (Linna Bolla) but still, there was local value addition to even the imported component. Halving the tax on imported canned fish is no way to encourage the local canning industry. The reduction of the import duty on cement and steel will also open the country to cheap imports from India and make our own cement and steel industries uncompetitive. Another measure obviously meant to keep the Indians happy was the reduction of 15% on import duties on small Indian made cars. The increase in import duties on hybrid cars has raised a storm of protest and the government may have to back off on that one.

The most contentious issue is however the measures that the new government has adopted to raise money to pay for all the concessions they have given out. Some of the money will be raised by reducing expenditure on locally funded infrastructure projects from Rs. 576 billion to 399 billion. That alone will release Rs. 177 billion. The next most important source of funding envisaged by the government is the one off super gains tax of 25%  on companies and individuals who have made profits of over 2000 million in the 2013/2014 financial year. This is expected to bring in 50 billion in revenue. The only institutions that will fall into this category will be the banks, insurance companies, telephone service providers, some apparel companies and conglomerates like Aitken Spence, John Keells and Hayleys.

When the stakeholders of these companies hear it being said that they have been making ‘super normal profits’ with the ‘undue patronage’ of the previous regime at the expense of the development of many other businesses in the country and that the intention of this tax is to ‘reverse the ill-gotten gains’ of these companies back to the general public they are not going to be pleased at all! The rhetoric of the government would make them feel that this is a punitive exaction aimed at them and not merely a revenue generating measure. Furthermore, this is a one off payment levied not on future profits but past profits of the 2013/2014 financial year. We are now coming to the end of the 2014/15 financial year. Whatever these companies earned in 2013/14 would have been distributed as dividends or reinvested. Hence, paying this super gains tax will throw all their plans into disarray. It is also not clear whether the 25% super gains tax has to be paid on the after tax profit or the before tax profits of these companies.

If these companies pay this tax which will run into hundreds of millions of rupees it will be at the cost of something else. The banks in particular will have difficulties because a part of their profits would have been used to meet capital adequacy requirements in the law. The turbulence in the stock market following the mini-budget was obviously due to the anxieties stemming from all such issues. Uncertainties now dog the companies at the commanding heights of the economy. The mobile phone service providers will have to pay a one off payment of Rs. 250 million. As in the case of the 25% super gains tax dealt with earlier, this fixed payment of 250 million on mobile service providers will be paid only at the cost of weakening these companies by depleting their reserves or halting investments. Preventing the mobile phone companies from passing on the 25% tax on reloads to the customer will deplete the resources of these companies further. Given the uncertainties surrounding the mansion tax of Rs. one million on houses above 5,000 square feet built in the past few years, and the increase in duties on hybrid cars, it is doubtful whether the anticipated revenue will be earned from these sources.

The request made to private sector employers to increase salaries by Rs. 2,500 may not be easy to implement especially in the plantations and apparel industries. If a company with a workforce of 3,000 workers increases salaries by Rs. 2,500, they will need an additional 90 million a year just to pay the increase. Another pitfall could well be the guaranteed prices that have been announced for paddy, tea green leaf and rubber. The paddy harvesting season has already begun and people will be expecting their harvest to be sold at the rate of Rs. 50. Buying paddy at the guaranteed price is always an administrative nightmare and a permanent feature of that nightmare is the JVP which is always present at harvest time to complain about the actual price that paddy was fetching on the market and about the inability of farmers to sell at the guaranteed price set by the government.

The rubber industry too will be turned upside down by the increase in the guaranteed price for rubber to Rs. 350 per kilo. The world market price of rubber is Rs. 210 per kilo. The cost of production at the moment is around Rs. 150-160 for smallholders and about Rs 20 more for the plantation companies. The smallholder can in fact make a small profit even at the current world market prices and there was really no need for the government to assume the burden of forking out Rs. 140 per kilo of rubber in subsidies. Exporters will wiped out because they can’t export rubber after buying it at the guaranteed price of Rs. 350.