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Once again, in the run-up to the forthcoming elections, we are witnessing political parties making extravagant promises for which the country has no resources. They are also promising to reduce taxes without explaining their proposals to increase revenue. Singapore’s former prime minister, Lee Kuan Yew, characterised this feature of Sri Lanka’s politics as an auctioning of unavailable resources.

Finances

Fulfilling the extravagant election promises of higher wages, social welfare, ambitious development projects, and lowering taxes is impractical given the financial bind we are in.

We are in an economic situation where even the current expenditures of the government are difficult to finance. Our revenue has to be increased to much above its current low figure to bring down the fiscal deficit. Higher expenditures are only possible with increased revenue.

Those who make these promises that they will increase government expenditures do not mention how they would find the funds to finance the extravagant promises.

Massive task

Whoever wins the elections will be faced with the challenging task of finding the money, or, as has happened often, they will have to keep the promises unfulfilled.

The government revenue will have to be increased substantially to give the people the promised benefits. Increasing revenue much above its current low amount without burdening the people would be difficult, if not impossible. The election promises are to reduce taxes and increase expenditures.

One better

The President has done one better. He is distributing title deeds, increasing the wages of plantation workers, and conferring other benefits. The recent directive to increase the daily wage of plantation workers by as much as 70 percent to Rs. 1,700, discussed in the June 2nd column, is a clear example of a promise with unavailable resources. As we pointed out in that article, the increase in the daily wage of plantation workers is desirable, but is it financially feasible?

President

If these favours were bestowed after the presidential or general election was called, they would be a violation of election laws. Now, it is not a violation. There have also been reductions in the prices of petrol, diesel, and gas. The electricity tariff is expected to come down. These moves favour the president’s election campaign.

Fallacy

Undoubtedly, we are a people who believe that the government has inexhaustible resources to distribute among people. The notion that what the government spends has to be extracted from the people is alien to our thinking. People think the government can give people unlimited benefits because it has inexhaustible resources. Promises win elections.

Free lunch

Sri Lankans have been made to believe that the government has inexhaustible resources and could confer benefits without people having to bear the costs. Our people do not believe in Milton Friedman’s famous proposition that “there is no such thing as a free lunch.”

Economist

The renowned Cambridge economist, Joan Robinson, who was among several economists who came to advise the government in preparing the Ten Year Plan, said that we were a people who wanted to taste the fruit before planting the tree and nurturing it!

Extravagant promises

Once, we were even promised rice from the moon. A large monthly allowance given to low-income earners once won an election. Candidates believe that promises win elections.

As in past elections, many of the extravagant promises made at this election cannot be fulfilled as the government does not have the finances. The government lacks finances for its current expenditures. It does not have the finances to meet essential government expenditures on health and education.

Social unrest

In the current mood of the people, the nonfulfillment of promises could lead to mass protests and social unrest. A disillusioned public could rise against the government, starting another Aragalaya. Will the masses have the patience to wait till the economy becomes strong enough to fulfil election promises?

Elections

If the presidential election precedes the parliamentary election, the newly elected president would have the onerous task of fulfilling extravagant promises. This could usher in a period of disillusionment that affects the fortunes of the President’s party’s parliamentary elections. A president without a parliamentary majority would destabilise the economy.

Finances

Neither of the two opposition presidential candidates has spoken about how they would find the finances to fulfil their promises of reducing taxes and increasing wages. They promise that the Value-Added Tax (VAT) will be removed from many items of consumption and that the income tax threshold will be raised.

How will the shortfall in revenue be found? How will the increased expenditure on social services and funds for the increased financing of small and medium industries be mobilised and how will the development of agriculture and industry be financed? Furthermore, there have been promises of salary increases for teachers, university staff, doctors, paramedics, and public servants.

We are not suggesting that these should not be done. However, they can be implemented only after the resources of the government are significantly enhanced.

Fiscal deficit

The narrowing of the fiscal deficit is vital for economic stability and growth. Will the new government’s economic policies lead to financial difficulties that could once again bring about an economic crisis?

Political instability

Apart from the destabilisation of the country’s public finances, the impending elections could pose serious threats to the economy. If the presidential election does not result in any candidate obtaining over 50 percent of the votes cast after the counting of the preference votes, there could be a stalemate that jeopardises the economy. A similar result in the parliamentary election could lead to a coalition without an agreement on key economic policies. The economic consequences of such governance could lead to economic instability and a serious economic crisis.

Summary and conclusion

As is usual at elections, parties would promise a multitude of benefits to people but not tell them how they would find the finances to implement them. Over time, the promises are not likely to be implemented owing to a lack of finances. Our elections are an auction of unavailable resources. If the elections result in a stalemate, then the economic consequences could be horrendous.