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Responding To The Politics Of The Budget

By Ahilan Kadirgamar –

Ahilan Kadirgamar

Budgets are deeply political because they are about the distribution of resources. If we take the budget of a family, it is hierarchical and gendered; decision making on expenditure is often monopolised by the head of the family, where male and monetised work are valued over others, particularly domestic work. The same goes for the national budget, not only in terms of the priorities of resource allocation, but also the value given to certain sectors, the limited number of actors determining the budget and particular constituencies making recommendations. Budgets also intervene in deeply political moments shaped by historical social relations whether it be natural disasters, global economic crisis or national political manoeuvres.

Immediate Concerns

There are at least three immediate political economic concerns that will shape the reception of the 2013 Budget. First, if we take the drought that has affected our farmers this year, the impact of such a natural disaster is necessarily shaped by agrarian relations; whether it be the history of land reforms and the size of farming plots, their dependence on wage labour and their access to longer-term credit and subsidies to wade through difficult times. The same can be said of the politics of the global economic crisis. An economic crisis does not erupt out of a vacuum; it is a product of the capitalist system which exploits one section of society to the benefit of another, and in the process also creates the conditions for its own crisis. Furthermore, the impact of the global economic downturn depends on the extent to which the Sri Lankan economy has been integrated into the global economy through financial and trade liberalisation. Next, the controversial Divi Neguma Bill and the immense centralisation of resources and powers under the Minister of Economic Development is bound to shape rural economic life including the distribution of subsidies and local finances such as microfinance loans. The Divi Neguma Bill will both undermine devolution by absorbing subjects and powers belonging to the Provincial Councils and reinforce political patronage down to the local level.

While these concerns are shaping the imminent reception of the Budget, the Government is likely to heed the recommendations of those economically powerful actors and members of the mainstream economic establishment. Serious engagement with the Government on the Budget has been limited to the major financiers of the Colombo Stock Exchange, the Chambers of Commerce and the business community, and the international financial institutions. The IMF and the World Bank in particular have considerable leverage to shape the Budget. The IMF has strict budgetary conditions for its Standby Agreement of 2009 and the World Bank’s loans promote infrastructure development through its heavy investment and pushes for privatisation of education through its funding. The media is also selective in legitimising the views of professional economists, as budgets are viewed as technical policy plans rather than political documents requiring engagement by the citizenry. This situation is not unique to Sri Lanka. A national budget is claimed to be the realm of expert economists and business leaders, even though it is a reflection of the balance of political and economic forces or class relations in any society.

Citizens Engagement

It is in this backdrop that a recently publicised submission by the Active Citizenship for Development Network (ACDN), a forum that has been engaging peripheral communities on local government budgets since 2011, is an interesting and important intervention. The ACDN paper which has received good media coverage – a positive shift in the media’s engagement with budget politics – can be found here. While many professional economists may couch their elitist politics behind technocratic recommendations towards balancing the budget and liberalising the economy, the ACDN paper is bluntly political. In this article, I am going to draw extensively from the ACDN intervention, which begins by asking: “Will the 2013 Budget signal a shift in policies to address the economic challenges facing the marginalised communities and the broader citizenry?”

Then it goes onto question how such citizens can keep their governments accountable given the history of broken promises. What avenues do ordinary people have to engage the Budget? And what do the recent protests and strikes mean in relation to the Budget? The ACDN claims: “Indeed, if the recent mobilisations and demands are seen as a process of engagement with the state, especially where participation through other means is limited, then the budget is to be awaited as the state’s response to citizens’ demands.”
Recurrent and Capital Expenditure
Yet there is a particular logic to the budgeting process and the budget as a policy document. Significantly, the budget is divided into expenditures that are recurrent and capital. It is indeed debatable if these distinctions hold and whether manipulation takes place in the actual spending. Nevertheless, these distinctions shape the budget making process as a limited yearly exercise that fits into the larger economic policy trajectory. Again to quote ACDN:
“Recurrent expenditure is towards the maintenance of state infrastructure and salaries of state employees from teachers to bureaucrats. … Capital expenditure on the other hand is dependent on any surplus revenue, development aid or loans taken by the state, and it is that portion of government expenditure that signals the priorities of economic policies and shifts in the economic weight of sectors.”
This important distinction between recurrent and capital expenditure raises questions about the large defence budget which has rightly come under scrutiny. Now, what portion of the defence budget goes towards the salaries of security forces personnel as opposed to spending on military equipment and infrastructure? Furthermore, since the Urban Development Authority was usurped by the Defence Ministry, considerable allocation towards problematic urbanisation spending also comes under the defence budget. While we must demand demilitarization as a political priority, both in terms of the size of the military and its increasing role in civil administration including urban development, it is not as simple as cutting the budgetary allocation towards the military, the bulk of which last year was recurrent. It must be a process by which the military is downsized while creating employment for those who have been in the state security sector. The investment in roads as capital expenditure as well as other infrastructures built to promote tourism might be more revealing of the Government’s priorities. The argument that the Government lacks funds for social welfare should be turned into a debate about political priorities.
Uneven Development, Devolution and Revenues
Next, capital expenditure for certain sectors alone will also not capture the problems of uneven development. And this is where the Budget at the regional or local level is important as the ACDN submission highlights:
“…[T]here can be great geographical differences in capital expenditure within the same sector. This is where the budgets at the Provincial and Local Government levels and access to capital spending will determine if there will be uneven development. Recent changes to tax policies have reduced the Provincial Councils’ potential to collect taxes. The Business Turnover Tax (BTT) was abolished and the Nation Building Tax (NBT) introduced in 2011. Whereas BTT was a source of revenue to Provincial Councils, the bulk of the revenue from NBT goes to the Central Government. This has further reduced the revenue resources and autonomy of Provincial Councils.”
Therefore, returning to the earlier point about Divi Neguma, the process of undermining devolution and local participation has been underway for a couple years as reflected in the changes to provincial revenues. After all, one of the most important aspects of meaningful devolution is the capacity to both raise revenues and control allocation of economic resources.
Indeed, not just at the provincial level but also at the national level, the Budget is determined by expected revenues, which in turn is influenced by tax policies. Indeed, the last two Budgets came with changes to tax policies which reduced the tax burden on the wealthy and reformed the tariff structure of imports. And this year again the engagement by the business community has been towards further tax and banking reforms to their benefit. At the same time, there is talk of a tax on water wells and reduction of tariffs on agricultural products to the detriment of rural communities. Thus when policymakers and economists speak of the lack of fiscal space and the budget deficit to avoid addressing popular demands, they are silent about the priorities that constrain the revenues available for expenditure.
In the upcoming Budget, as with many economic policy documents we must be prepared for the economic experts’ doublespeak. Economists always communicate with two hands. On the one hand, they will tell us that we are a successful economy with 8% growth over the last two years and therefore must sustain this development policy path. On the other hand, they will tell us that we must tighten our belts as we are facing problems with our budget and trade deficits because of the global economic crisis and the drought. That is often the message to the citizenry: we are prospering but we must tighten our belts, or that in order to prosper further we must tighten our belts! Whether in times of economic prosperity or crisis, the question of far reaching redistribution never arises.
Capital Accumulation, Social Welfare and Protests

The ACDN paper has called for greater allocations to the education, agriculture, fisheries and estate sectors, and to consider the gendered implications of the Budget when it cuts social welfare. Yet many mainstream economists take the line that these demands on the Government are counterproductive. They claim it is only with a prosperous private sector, through the privatisation of services such as education and health and the building of private sector friendly infrastructure that capital accumulation necessary for further investment and economic growth can be stimulated. This logic draws from development economics that investment for developing countries can come from foreign aid or local capital accumulation. These mainstream economists extend this argument to social welfare, claiming that state investment in education and health could stagnate capital accumulation.

This argument is particularly weak in the context of the far reaching financialisation and integration with global capital underway since the launch of neoliberal policies in Sri Lanka after 1977 and their acceleration over the last three years. We can readily observe such financialisation in the proliferation of banks and leasing companies, whereby people are increasingly drawn into debt. The same is true of our national economy, which by inviting global finance capital through the Stock Exchange and Sovereign Bonds is creating the conditions for a debt crisis caused by capital flight. Furthermore, parasitic capital accumulation through the privatisation of education and health will not necessarily lead to re-investment in Sri Lanka. Rather, such accumulated capital could be moved to other markets by global financiers or channelled into speculative bubbles by local financiers. Thus such financialisation could in effect dispossess the most needy communities of services, while the profits are absorbed by global and national financiers. Indeed, without clear state policies including state investment, locally accumulated capital and donor aid may end in luxury consumption rather than productive investment. The balance of payment problems that Sri Lanka ran into in February this year was a consequence of such consumption of luxury vehicles, the cost of which had to be borne by the lower classes in the form of massive fuel price hikes.

The 2013 Budget is unlikely to waver from the broader economic policy trajectory set by the Rajapaksa Government. Yet engagement with the budget is important as it is the most concrete articulation of the Government’s economic policies every year. Engagement may not lead to immediate changes, but the cumulative impact of engagement, including strikes and protests, are important if an economic policy package that is acceptable to larger sections of the citizenry are to be won in the future. In the meantime, given the increasing cost of living and the roll-back of essential services, protests are likely to mount. Indeed, such protests are responding to the politics of the Budget.

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Latest comments

  • Dinuk / October 30, 2012
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    The hard working, tax paying and honest middle class and the poor subsidize the corrupt political elite and the rich under Rajapakse and the inequality gaps is widening by the day in Lanka.
    But this is the case all over the world where the IMF and World Bank call the shots. In Greeece which is bankrupt and under heavy austerity measures (like Lanka),the journalist that published the rich list of 2000 people with Swiss bank accounts who are evading paying taxes was arrested on violation of privacy!
    The whole international economic system is corrupt and makes the laws that protect the filthy rich, while the rest merely survive..

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  • Don Stanley / October 30, 2012
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    Thanks for highlighting the poverty of economic theory in Sri Lanka and the govt think tank the Institute for Policy Studies which should have pointed out that fact that:
    1) the military complex needs to be downsized and right sized for a post-war period and the human resources available re-trained and found alternative work in partnership with the private sector under a special program
    2) the wrong development policies are being followed and it is not that there is no funds for universities but that the available funds are being wasted on Rajapassas tamashas (for the Commonwealth organization an old colonial outfit), white elephant infrastrcutre and corruption that is bankrupting the country.
    The priority is the need for a Human Resource Development Ministry to prioritize the development of human capital, but the uneducated Bsiil Rajapakse who does not know a bean about real development and thinks that tourist hotels is development who wastes huge funds of Rajapassa’s white elephant Hambantota infrastructure projects just do not understand this.

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    • Dodo / October 30, 2012
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      Yes, a Human development minister who is highly qualified and technically competent should be put in charge and all the useless, unqualified and corrupt Ministers of Economic development, Education, Higher Education, Health, Petroleum, Power and Housing and oh Mervin Silva and Gota the white van goon should be sacked!
      Like the military establishment the Rajapassa Cabinet of corrupt goons, fools, clowns and leftist geriatrics which is a huge burden on the tax payer, needs down sizing and right sizing.

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    • John Wayne / October 30, 2012
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      Indeed the corrupt cabinet ministers keep buys all sorts of fancy technology and equipment with big kick backs, but the equipment stops working after the money changes hands — like the CCTV cameras from Singapore specially purchased by Gota the goon– at the National Museum when it was robbed!
      The uneducated Rajapassa brothers think that gadgets and technology can replace human resources and are buying stallyetes instead of investing in research talent and research programs in the universities to generate knowledge.. Latest is that they are buying devices to measure water in reservoirs from a German company instead of de-silting the reservoirs, but these water meters will pack up soon and no one will know what to do with them..
      The Cabinet of fools and clowns needs to be disbanded and competent people who can have clear cut sector and human resource development plans and qualified people to DESIGN, IMPLEMENT MONITOR and EVALUATE project and sector development policies put in place for real development to happen in Lanka.

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  • Bedrock Barney / October 31, 2012
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    Objective analysis by Ahilan. It is indeed ominous the inroads governments and merchant banks are making into the field micro finance. In Bangladesh political machination have led to the ouster Prof Yunus from Grameen Bank.
    The most important issue will be the Introduction of the DIVI NEGUMA bill and it’s implication for rural SL. In an age where RTI and Lokpal legislation is being introduced and implemented across the strait. The Divi Neguma Bill has non-disclosure agreements to be signed by employees of the soon to be department.
    What is clear is that there is no long term strategy. Only knee jerk reactions to the stimulants of times.

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  • gamini / October 31, 2012
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    To eradicate Poverty in this country, there used to be a few Nation Building Ministers appointed by MR. Rohitha Abeygunawardene from Kalutara, a former peon called ‘Raththaran’, was one such Nation Building Minister who was caught with Rs. 495 million in his bank account unable to explain the booty. A case was filed and the file is collecting dust at the Attorney General’s Dept for the last six years. Now he sings praises loudest to MR in the public.

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  • Palitha / October 31, 2012
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    The poverty of theory in the dismal science (economics) in Sri Lanka is phenomenal and visible in all institutions – universities, NGO think tanks and the Colombo 7 Center for Poverty Analysis that has been discretely silent on the DiviNeguma Bill when it should have gone to Courts against Basil Rajapassa’s attempt to turn poverty reduction in Sri Lanka into a political patronage circus.
    These NGO think tank outfits like IPS and CEPA that get huge donor funds are completely IRRELEVANT and useless to the economic policy debates because they have not got a clue about POLITICAL ECONOMY and are schooled in neoliberal economics..
    Keep up the good work Ahilan!

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  • D.B Adikari / October 31, 2012
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    Since 1977 UNP developement policy was derived on Money-orinted political-economy of social development.In term of economy school of thought its call neo-liberial social order.It whole packege economy policy base on AUSTERITY MEASUREs.
    It had been undermine by national capitalism developemnet in Sri lanka.The UNP liberial policy lot of money floating around and much less real producation that people need in Agriculture Industries and country itself.
    Unfortuanely during growth of seperatism since 1977,Tamil so-called demand of Eelam by All Tamils Parties 12% per cent of the population inhabited the TWO REGIONS,which togeather account for 30% per cent of the Island’s landmess and 60% percent of its costline and it was unfair for this samll percentage of population to lay exclusive claim resources of the TWO regions in the Island.
    Due to result of unfair claim land by Tamils politicians and parties in Sri Lankan our entire nation ECONOMY GROWTH HAD BEEN undermine by WAR OF TERRORISM AND SEPERATISM over thirty 30 odd years.
    Natioanl economy cannot revival or rehibiliation with short peroid of THIRTY YERAS WAR UNTILL 2009 MAY.
    Economy developement have no short cut path or MODEL in any part of world.
    What is Dr Kadiragaman proposed by esaay cannot accompolished by NEXT FINICIAL BUDGET due to past undermine natioanl economy, is NOT QUITE POSSIBLE revive so soon.
    Damnage has done by Tamil terrorist and Tamil Natioanl political parties to whole country of ECONOMY is immanent, immeasurable
    The result of Tamil-terrorsim to recover and put NATIOANL ECONOMY ORDER NEED unprecrdeented TIME AND SPACE..

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  • Samual Perera / November 2, 2012
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    Mr Ahalin Kadigamanin..Sir….What is the great deal of Golble economy is dominated by school of thought & an idea of more on Growth and developemnt.?
    Since 1453 downall of Constatnopoal and moribund of Medival-Fedul order ,the rise of Bourgosios class establihed current faces of Capitalist system came into being.After long yeras old path of GROWTH and DEVELOPEMNT the whole humankind currently faces a very unprecedented and serious problem of whether even decent existence can be carried forward.
    We are now edge of a precipice of enviornmental destrucation.
    If Develpemnt and growth is understood and recognized to inculde constant attack on physical environment that sustains life we like ,as a exapmle greenhouse emissions destroy of Rural and Commerical Agriculture land and so forth,it that’s what it relized,then we are like lemming walking over a cliff.
    This is not what we want development or Growth has to mean.
    We required differant pathway of growth must be simpler lives and more friendly livable society.It takes workforce and does not just come by themselfs.It take manpower and developemnt of differant path.
    ” The part of what play by functions are free communities like the civial communities an working for and spreading to other communites is a diffreant way of LIVING.This type society ..is not based on maximizaing CONSUMER GOODS ,but maximizing VALUES THAT ARE IMPOTRANT FOR LIFE.” Chomsky said.
    Mr Kdiragaman we have to look for such social changes in Sri Lanka.
    Not the Old Budget proposal put into NEW Backet by several regaimes who rule and ruin our an Island people of all communities since Indepandeance 1948!

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