Excerpts from Justice mark Fernando's speech at the 9th Ambalavanar Memorial Lecture held at the auditorium of the Institute of Chartered Accountants on February 22nd.
The dictionary describes the "Fisc" as the public treasury, and "fiscal policy" may be described as the measures employed by governments to influence economic activity, especially by manipulating the levels and allocations of taxes and public expenditure.
The objectives of fiscal policy are to achieve full employment, a high rate of economic growth, and to stabilize prices and wages.
Fiscal policy and its implementation thus involve three aspects: First, the collection of revenue to fill the public treasury; second, the conservation and management of public funds and resources; and third, the disbursement of public funds for the public benefit. I wish to examine today some of the Human Rights issues which arise in relation to all three aspects.
Can the goals of both be achieved? Sometimes those goals coincide, and then fiscal policy will strengthen Human Rights, and Human Rights will reinforce fiscal policy. But sometimes those goals may differ. How should such conflicts be resolved?
Often when reference is made to Human Rights, we tend to think only of civil and political rights: especially, rights relating to torture, arrest and detention, and criminal trials; and perhaps also, the freedom of speech. However, fundamental rights include many other rights, and Chapters III and IV of our Constitution entrench a list of fundamental rights and language rights.
But that is not all. International Declarations and Covenants recognise other rights as well. So we need to look at these three aspects of fiscal policy - the collection, management and expenditure of public funds - in the context of safeguarding Human Rights in their broadest sense, and not only in regard to the fundamental rights which are expressly entrenched in the Constitution.
Our Courts have recognised, particularly in relation to Human Rights, that the Rule of Law is a fundamental principle which lies at the very foundation of the Constitution. The Rule of Law means that everyone, official and citizen alike, is subject to the Law; that the Law is equal in its application to everyone, and that no one is above the Law; that all the powers which the Law has entrusted to public authorities have been given in trust, so that they may be used for the public benefit, and not for personal profit; and that it is to the Judiciary that the Constitution has given the power, and the duty, of ensuring that these powers are properly used.
And in the discharge of that duty, the Courts have reviewed the acts and omissions of a wide range of public officials by reference to Human Rights norms.
In that background there seems to be no reason why fiscal policy and the implementation of fiscal policy should not be tested, in the same way, by the same Human Rights norms.
Let me give a few examples of the type of issue which may arise.
Can taxes be levied on one section of the community, but not on another? Can tax exemptions and concessions be granted to some persons - whether companies, institutions or individuals - while refusing them to others in the same class? Would any such policy amount to denial of equal treatment?
If the forms and procedures for the assessment of tax are so complicated or obscure that some citizens can neither understand them nor comply with them, are they thereby denied the equal protection of the law?
If direct and indirect taxation results in essentials being outside the reach of the ordinary citizen, can it be said that such a fiscal policy impairs the right to life?
If restricting quotas or increasing tariffs on newsprint, results in newspapers being forced to close down, or to become prohibitively expensive, does that abridge the freedom of speech? The withholding of State advertisements or subsidies from newspapers which publish news or views which are unacceptable?
If in public tenders preference is given to local tenderers or to local products, will that be unequal treatment contrary to the Constitution?
If public funds are used to continue - and not to reduce - existing inequalities, whether in access to education, health, or other facilities, would that be a fiscal policy contrary to Human Rights?
If in order to encourage investment, fiscal policy freely allows the establishment of industries which pollute the environment, is that an infringement of the citizen's right to a clean environment?
Are there Human Rights considerations relevant to investment decisions as for instance, when the funds which employees are required to contribute to State Provident Funds have to be invested by those entrusted with such funds; in such situations, how should the interests of the national economy be balanced as against the interests of contributors?
Equality in collection
Perhaps the most controversial fiscal issue involving equality is the exemption of public sector salaries from income tax. Why, it is asked, should persons doing similar work in the private sector be subject to tax? The relevant legislation was not challenged at the Bill stage, and it is now too late to get a judicial determination of the question. Nor will I venture an answer this evening.
But there are strong arguments on both sides. In support of tax exemption, it is argued that the public sector is not profit-oriented, but service-oriented; it cannot afford to pay high salaries to attract the best talent, and hence has to offer tax exemption instead; if not, the quality of service will deteriorate, and the public will suffer; on the other hand, if higher salaries are paid, then the costs of public services will also have to be increased, again to the detriment of the public.
It is also argued that with increasing privatization and with a higher tax threshold, the disparity will gradually decline. On the other hand, it is contended that the public sector enjoys other benefits - such as security of tenure, and pensions - which the private sector does not have; that logically there should be no difference in regard to tax at least in those instances where public sector employees are paid as well as their counterparts in the private sector.
It is also pointed out that the tax exemption is available even for those public sector institutions which are not only profit-oriented but are directly engaged in commercial activities in competition with private sector businesses: thus making competition unequal.
Thus the Human Rights issue which arises is whether public sector employees do constitute, in law, a distinct class, and if so, whether there is a rational basis for exempting their salaries from tax.
Another question which involves the equal protection of the law relates not so much to the fiscal levies themselves, but to the inconvenience and obstacles which the citizen faces when he tries to make payment. And sometimes the amount of such a levy is so small that to the citizen the cost and the inconvenience of making payment is disproportionately high; and even to the taxing authority, the direct and indirect costs of collecting such levies far exceed the amount of revenue realized.
A good example is the annual bicycle license fee of Rs. 5/= levied by some local authorities. Do such levies help to achieve the fiscal goal of stimulating economic growth and development?
However, when that decision was given, "equality before the law" was not entrenched in the Constitution. Today it seems that a question of equal treatment may arise. Suppose, for example, the tax authorities treated a particular trust as being charitable in one year, and thereupon another trust, having identical provisions, also made a claim for exemption from tax - either in that year or in another - on the ground that it too was a charitable trust. If the tax authorities were to refuse that claim, would they not be denying equal treatment?
While we generally think of equal treatment as requiring that one person should be treated in the same was as another, the question arises whether the concept of equal treatment is wide enough to require that a person be treated in the same way on different occasions - unless, of course, the circumstances have changed so much that there is a rational basis for different treatment.
Such issues suggest that a new approach to Equality and fiscal policy may be needed.
Equality in management
Human rights issues also arise in relation to the way public funds are managed.
The State is under a duty to provide social security benefits. Accordingly, the law has imposed an obligation on employers and employees to make contributions in order to provide for employees on retirement. Such contributions and the accumulated interest thereon will constitute an employee's benefits on retirement. The State's concern for the interests of employees is such that contributions can be made to private provident funds, instead of the Employees' Provident Fund, only if such other provident funds are not less favourable than the Employees' Provident Fund. That provision reflects a legislative intention that employees be treated equally (cf Blanka Diamonds V Coeme, SC 52/95 SCM 15.2.96).
Very large funds so contributed are thus held in trust for the benefit of the employees who contribute, in private provident funds and the EPF. Questions of fiscal policy arise in relation to the investment of such trust funds. If equality of treatment is to be maintained as between all employees, whether they contribute to private provident funds or not, should investment policies be directed to that end? Or can other criteria be taken into account? Would fiscal policy justify a different approach in the interest of the national economy?
Since the Internatinal Fiscal Association is also concerned with fiscal policy at an international level, let me raise a Human Rights issue in relation to the fiscal policies applicable to the globalization of the economy.
Today fiscal policy, internationally and nationally, is to make markets free. Those that are closed must be made open, and those that are open must be made even more open. To increase the production of goods and services, the components of the processes of production must be able to move freely across national boundaries. Money for investment - capital, equity and loans - must be able to come in freely, and to go out equally freely. Exchange controls must be eased.
Tariff and quota restrictions on the import and export of raw materials and finished products must also be eliminated. Free transfer of technology is to be encouraged, and with a view to protecting intellectual property rights, when such transfers take place, developing countries are to be encouraged to grant recognition to rights protected in the developed world.
But are there not some Human Rights implications in this globalisation policy, especially for the developing world? If money, and machines, and materials, and technology, which are all essential for production of goods and services, enjoy such freedom of movement, and protection, across national boundaries, what of the freedom of movement of the most essential part of the production process: Labour?
If international fiscal policy promotes freedom of movement for the factors of production in which the developed world is rich, should there not be - at least for the sake of equality - the same freedom of movement for the one resource which most developing countries have? Apart from equality, can fiscal policies in regard to globalisation be truly free, and sensitive to Human Rights, if material things enjoy greater freedom of movement than human beings? Is it right that immigration policies should allow, and even induce, the migration from developing countries only of those sections of the workforce which they can least afford to lose? The International Covenants recognise that every one has the right to an adequate standard of living: should international fiscal policy on globalization run the risk
Continue to Business page 3
Return to Business contents page
Please send your comments and suggestions on this web site to
info@suntimes.is.lk or to
webmaster@infolabs.is.lk