Financial Times

Cost of living- No miracles
By Sunil Karunanayake
The promise to bring down cost of living is a traditional pre-election song sung by politicians. Arguments from the opposition are forceful in comparison to those in power. This has been the pattern since Independence with no progress achieved. The facts are stubborn and clear that this is no easy task, nor an overnight miracle.

Recent upheavals in the world Petroleum Industry and the consequent upward movement in the crude oil prices (now said to around $ 49 per barrel) have caused havoc in the world economy with developing countries with import dependent economies being the worst hit. Sri Lanka too is going through this crisis with a vicious circle of price hikes and threatening pressure on Balance of Payments and the currency.

As a result apart from fuel every imported article will cost more leading to a rise in the cost of living affecting every citizen of the country. This complex problem needs strong commitment from the rulers and a firm foundation from high tech oil exploration to simple grass root level efforts of restoration of tanks to boost agricultural production.

Apart from the external factors beyond our control there are other revenue factors which could be approached with consensus. Government and the opposition working within a common agenda in matters of critical importance of this nature is important, in contrast to the prevalent open hostilities. Fiscal discipline to keep the budget deficit to a manageable level is the first step.

This will need the government's absolute commitment to cut down wasteful expenditure exerting pressure on limited revenue. There's a mistaken concept and belief not only among the politicians but also the general public that the Treasury has unlimited resources to meet any kind of expenditure and subsidies.

People should be made to understand that it's the people of this country who pay for each rupee doled out by the Treasury and subsidy is a hidden item in the national accounts. When unreasonable pressure is applied on the government to meet unproductive expenditure it is natural that taxation is used as a collection instrument. Today there's no Sri Lankan who can escape from the VAT as almost every article is subject to this tax.

Whilst VAT has many good features it's total applicability to electricity, water and LP gas deserves scrutiny. Widening of the exempt threshold for electricity and water and total removal for LP gas could offer some relief in difficult times. Liquid petroleum gas (LPG), another import based commodity, has now emerged as a important source of cooking both in urban and rural sectors. Any losses in tax revenue could be made good through efficient tax collection and administration.

These measures are not easy and will need strong commitment, sincerity and political will on the part of the government to prune expenditure. Apart from corruption, waste and inefficency, there are many other areas to save money. Often after a government is elected to power we hear of large sums of money being paid as compensation for "Political Victimisation," Cannot this unfair victimizations be avoided with the support of government and opposition, why should the public be called upon to pay the price for rash irrational decisions of politicians?

Then there are vast opportunities to reduce government exposure to losses by restructuring loss-making institutions, railway and bus transport are dominant in this area. The ruling party has to act with courage in the interests of the larger majority who bears the brunt of these losses over that of politically motivated pressure groups.

In the early days most of the ministries (numbers being relatively low) were located within the Galle Face Secretariat and later Sethsiripaya was built to locate a number of ministries and relevant departments in one complex. In recent times with the expansion of the cabinet of ministers we see ministries/departments being located all over Colombo and even in residential areas.

Cannot some steps be taken to relocate them in economical manner to minimize costs?
Petroleum products, wheat grain and milk products constitute the major components of the import bill. Market determined price mechanisms responsive to international prices are unavoidable to absorb price increases of these and reflect their true cost to the consumption.

The mechanism adopted in 2003 for fuel pricing needs to reintroduced as against what was practiced recently. Despite many moves to boost local dairy industry imports comprise a significant portion of the consumption, however opportunities yet exist to seek improved production in this sector.

Improved productivity with high yielding varieties, transportation, packaging and storage in the long run should contribute to price stability of locally produced food items. This is a task for the scientific community. To curb wasteful government expenditure, enhance tax revenue and formulate right policies, the country needs a efficient public service especially at the ministry secretary level and in this context reverting back to the permanent secretary system which operated without political bias may be an idea.

There is no simple path to glory; strong sincere leadership is needed to take hard decisions for the benefit of the majority and not only for their party faithfuls.

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