Slashing and spending dilemmas | Sunday Observer

Slashing and spending dilemmas

23 October, 2022

If the tax dragnet does not yield the revenue that’s sufficient to balance the budget, the only alternative would be to ensure that there is a ‘haircut’ in public services. A ranking bureaucrat had said this recently.

There has been severe taxation, and most of it coming for the business community which feels almost under siege. There can be little by way of alternative revenue raising however, after what the country went through, but that doesn’t mean that business owners can be pacified.

Besides that, it is a double-edged sword. If businesses are taxed to the point that business owners feel they cannot be viable any more, some of them would try to move their enterprises abroad.

Others would attempt to stay on and make protesting noises, but the latter would continue to feel aggrieved because the government seems to have no alternative but to raise taxes because the money printing presses have been working overtime, and there is a limit to that.

This is not the United States which has the world’s reserve currency and can do some of these things — such as raise taxes and print money simultaneously — without serious repercussions.

If there is still no change in circumstances after all the unpopular taxation that has been imposed, there would be no alternative but to cut public-spending.

But where can public-spending be cut when this is already a developing country in which public services are stretched because the government is cash strapped?

Though there may be a shortage of cash for vital sectors, which is always the case, there may be no choice but to enact further spending cuts. Where would these come from?


Some would say that the national airline would have to fold up. But this may be a blow to national prestige others may retort, while the airline’s management may say they are on the verge of making profits despite everything.

In any event SriLankan Airlines is one enterprise, but there are several loss making institutions in the bargain, and not all of them could expect to function when we are recovering as a nation from an economic meltdown of the magnitude the country has had to face.

So to which exact public enterprises should the scalpel be taken? What about the job-losses that are entailed when pubic enterprises do not perform any more and have to be shut down when drastic public spending reductions are called for?

Can there be cuts in sectors such as education which have not received adequate funding in the best of times? Some would say there is no choice in the matter, even though the sums earmarked for education are perennially short of what’s desired.

One recommended way of managing spending, of course is to cut the ‘pork’ and ensure that there is no wasteful expenditure in public enterprises. There should be no expensive vehicles ordered for the managements of State enterprises, before the utility of the existing vehicles in Government departments or corporations expire.

Of course politicians should make the first sacrifices in this regard, but even if they endure all the letting-go that is necessary and forego luxury ministerial vehicles and so on which is rather unlikely, the savings that would be entailed would still be of a limited nature as politicians — no matter how accountable they may be — are minuscule in numbers, if a cross section of the public service so called, is considered.

There are other areas that may be touched — for instance the money that’s paid out to the poverty stricken in terms of cushioning them from the impact of the meltdown and the various closures and so on that impede economic performance in the country, to take an example.

These types of cuts are called ‘austerity’ in some other nations and what has been falling under the rubric of ‘austerity cuts’ have been health related welfarism and so on which has made life very difficult for some of the poorer demographics.

But such cuts have been made nevertheless, and public services such as those concerning the arts have been pruned to a point where what exists now is a mere shadow of what used to obtain in the past.

In countries such as ours there weren’t adequate facilities dealing with the arts etc that were state sponsored to begin with, so where are the policy makers going to affect the cuts in the first place?

It’s a major issue, and privatization has never been a satisfactory answer in this country, even though some measure of parcelling off public enterprises to private ownership can indeed be tolerated.


But where vital public services have been parcelled off to private ownership, the story has not ended well in some other countries. Private utility companies for instance are a very bad idea, because the experience in rich countries is of these companies raising their charges as the drop of a hat completely unmindful of the sudden imposition of burdens on the consumers of utility services.

Besides all that of course the social impact of such measures would be incalculable in countries such as ours. The unions would be up in arms because union bosses do not necessarily want to work under private-ownership, when union activity would more or less have to cease.

The mere mention of privatisation would bring certain unions onto the streets and then of course there would have to be massive inputs in terms of maintaining army and police to ensure that striking and protesting Unionists are kept from causing severe social unrest.

Speaking of which, there would be some who’d opine that there should be cuts in spending when it comes to the armed forces and never mind the police, they would certainly recommend that expenditure for maintenance of the security forces be kept at a minimum.

But the only recourse for governments to keep the social contract intact would be to rely on the armed forces during times of unrest, a fact that was abundantly clear when the recent incidents of social unrest occurred during the economic meltdown.


Though recommended, the extent to which a Government would go in terms of ‘cutting down the fat’ in the national security apparatuses would be necessarily extremely limited in the above context.

But then again if there is a case to be made against spending cuts in almost all areas of State endeavor and public enterprise, where exactly does the ‘haircut’ come from?

It’s a problem, and when there are bridges to be repaired and roads to be tarred and maintained, and hospitals which are run-down and have to be refurbished, what more spending cuts can be contemplated in a country such as ours?

There is almost no leeway really for spending cuts, except of course in cutting down on what’s referred to as the ‘pork’ which is the unnecessary spending that has been earmarked to satisfy certain politically important elements. There may have to be persons in charge of spending cuts that need to be super skilled, Houdini like, in negotiating the tightest of situations, but no genius can accomplish cuts in a situation such as ours without making people who are at the receiving ends of these cuts feel hard done by in the main.

It is only hoped that the people realiSe how bad the situation is and how much of ‘biting the bullet’ they have to endure on the long run. They probably do realise some of that already, but even so when it comes to experiencing real cuts, there is not much that can be done sometimes other than grin and protest as opposed to grin and bear it.

But more protests means more unrest, and that would leave the economy in further shambles and that’s not what anybody wants, least of all those high tax paying business people who want a conducive business climate to be able to operate their beleaguered businesses in.

But yet, recovery is a slow and painful process, and it’s reasonable to think that the poor and the underprivileged would unfortunately again have to bear a great share of the burden from public-spending reductions.

reat share of the burden from public-spending reductions.