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The taxation proposals in the budget have been opposed through violent protests, demonstrations and strikes. At the same time, there are demands for additional expenditure in social infrastructure, social welfare and numerous benefits from the government. People want reductions in prices that decrease revenue, while opposing privatisation of loss making state owned enterprises that increase government expenditure. The government is in a fiscal trap: It is expected to increase expenditure and reduce revenue collection.

Taxation
Taxation is the means by which a government obtains revenue to undertake the whole range of activities that are necessary and benefit society. The government needs much higher revenue to meet its committed and current expenditures and finance development. Taxation is the means by which the government obtains revenue to finance its activities including the running of the government, salaries and pensions of government employees, servicing of the public debt financing education, health and social welfare and undertaking development projects that would in the end benefit citizens of the country as a whole. It is also the means by which law and order are maintained and defence expenditure is met. Without adequate revenue the business of government would be ill done.

Funding development
Taxation is important as the government needs revenue to fund development projects, health care, education and public transport. Without tax revenue, the government would not be able to fund essential projects and services that people need. One of the country’s fundamental fiscal flaws has been the inadequacy of government revenue to meet its expenditure.

Falling revenue
In contrast to the experience of other countries, our government revenue as a proportion of GDP has fallen as per capita incomes have risen. The inadequacy of revenue is clearly demonstrated by the fact that in recent years government revenue was not even adequate to meet the debt servicing costs.
In the early 1990s, government revenue was around 20 percent of GDP. This fell to as low as 11 percent in 2013-14 and increased to 13 percent in 2015.
The budget expects revenue to be 15.7 percent of GDP in 2017 and to progressively increase it to around 20 percent of GDP in 2020—a more acceptable proportion at our level of per capita incomes.

Civic ignorance
There appears to be considerable civic ignorance about the country’s public finances. The public believes that the government can spend without a limit and that it need not increase taxation. Successive governments have themselves given credence to this notion by their extravagant promises prior to elections.

The popular view is that the government has unlimited amounts of finances for handouts, decreasing prices, increasing employment in the public services and reducing taxes. There is no understanding that the capacity of the government to grant benefits is dependent on its revenue collection. ‘After all the government can print money!’

Basic economics
Good economic management requires that the government should not spend much more than the revenue it earns. A small fiscal deficit is acceptable, especially if the additional expenditure is on development activities that would enhance future output of goods and services. When it spends more than its income or revenue, the government must borrow and increase debt that is a burden in future years and requires higher taxation.
When the government resorts to borrowing, it not only increases the debt burden, but also leaves less money for private investment by reducing the supply and availability of funds and increasing the costs of borrowing.

Money creation
It is also true that a government can spend more than the revenue it obtains by the creation of new money. This is as much or more injurious to the economy as it leads to inflation. The increase in costs of living leads to hardships for the poorer sections and lower wage earners. It also leads to increasing costs of production and reduces the country’s competitiveness in international markets.

To correct the trade balance and reduce the strain on the balance of payments, it is necessary to depreciate the currency. This leads to a further wave of inflation. Therefore it is not in the interest of an economy to resort to money creation to finance its expenditure. It should attempt to live within its means. Tax revenue must be enhanced to find the fiscal space for its expenditure.

Specific taxes
Opposition to particular taxes could be justified if these heave unconscionable burdens. Admittedly some of the objections are of this nature. Some of the so called “taxes” were inappropriate inclusions in the budget. The increase in fines for traffic violations should not have been announced as a budget proposal. It could have been part of a revision in legal penalties with a minimum and maximum provision that the courts could decide on.

Water rates
The increase in water rates should have been a part of the routine increase in utility costs that are approved by the Public Utilities Commission. By unnecessarily announcing these as budgetary measures the Finance Minister gave ammunition to the joint opposition and the general public.

Concluding observation
The country is in a serious fiscal trap with the current inability to tax adequately. There were objections to VAT, the GMOA is opposed to the budget, bus operators struck work and so did three wheeler drivers in opposition to increased traffic fines proposed in the 2017 budget. However, the opposition to taxes without discussion smacks of a political agenda to destabilise the economy.

The opposition to the budget by the GMOA appears to be either due to their ignorance of economic issues, self interest to avoid taxation of their high income members who evade taxes or part of a political agenda orchestrated by the Joint Opposition.

Such opposition to economic issues is irresponsible and dangerous. Since the GMOA is more into issues of the economy and the disruption of government medical services rather than the improvement of medical services, they should be asked to propose taxation measures that would reduce tax evasion and increase government revenue to meet its expenditure.