Sri Lanka opposition backs news state salary hike
July 07, 2008 (LBO) - Sri Lanka's main opposition United National Party (UNP) is backing calls for new salary hikes for the island's already bloated state sector, continuing a tradition that has created a class of super citizens and high inflation in the country.
The UNP and its trade union arm, the Jathika Sevaka Sangamaya (JSS), said it was joining a token strike called by the Marxist-Nationalist Janatha Vimukthi Peramuna (JVP) party.
Economic policies based on unchecked state sector expansion and indiscriminate subsidies promoted and devised by the JVP in 2004 and extended in 2006, have now landed the country in the highest inflation in its history of close to 30 percent.
The state salaries and pensions bill now eat up more than half the tax revenues of the government.
But the UNP says more resources should be spent on state workers.
"Private workers like masons and carpenters get about 800 rupees compared to 300 rupees earlier, but it is government employees who find it difficult to feed their families," UNP Parliamentarian Johnston Fernando told reporters.
Feudal Society
State workers get tax free salaries, a perk given in the 1980's by the UNP which has now created a feudal society of a non-tax paying patrician ruling class and toiling private sector working class plebeians that slave long hours in factory floors and plantations to keep the economy ticking.
Their workplaces have to fork out taxes to pay the government, while state enterprises that compete with them get Treasury hand outs and tax rebates when they run losses, which they do often and in large scale.
State workers have enormous political clout among all political parties in a bizarre democrazy of representation without taxation.
The UNP also gave parliamentarians and their personal staff pensions after five years and tax free super luxury vehicles every few years.
Over the past year state-workers also got permits to import 17,000 tax slashed vehicles and the national carrier which passed on to government management in March 2008 is now offering cut-price air tickets to state workers.
State workers also get cut-price season tickets to travel on state-run loss-making bus services and rail services. They also get housing loans at 4.0 percent from state-run banks while ordinary productive workers now pay 20 percent on housing loans.
State workers strike often for massive salary increases and what are quaintly called 'salary anomalies' after increases are given.
State doctors are usually in the lead, holding the lives of patients to ransom. In 2003 doctors struck and got a salary increase while an entire state sector waited patiently till the end of the year to get a salary increase in the budget.
Doctors are also allowed to practice and earn money privately, but they work long hours to do so.
In 2007 Sri Lanka earned 508 billion rupees in taxes, but 282 billion rupees went for the salaries and pensions of state workers, indicating that 55 cents out of every tax rupee collected were consumed by state workers.
The government held state salaries steady in the 2008 budget with a small increase. President Mahinda Rajapakse, who met state sector unions last week has offered a thousand rupee salary hike which is expected to cost another 7,000 million rupees.
But state trade unions have rejected the offer. Information minister Anura Yapa said the government had increased the state sector to over 1.1 million people while a previous administration had tried to trim the public sector.
"State workers now get a minimum salary of more than 11,000 rupees which is more attractive than the private sector, which was given by President Mahinda Rajapakse who was a trade union champion."
Inflation Tax
In the past two years state workers got salary increases in excess of 20 percent a year while workers in productive sectors found the real value of their salaries disappear in real terms when compared to inflation.
Inflation in Sri Lanka is fired to high levels because the government prints money to make up shortfalls in tax revenues.
The ability to print money was also given to the government by the UNP in 1950, when then finance minister J R Jayewardene abolished a currency board and created a central bank with money printing powers.
This allowed the government to confiscate the earnings of the population in general and the savings of older citizens through inflation, secretly appropriating what it could not get openly through taxes.
Sri Lanka's cash-strapped government is now finding it increasingly difficult to print new money in the face of rising inflation and growing public awareness that inflation is generated from the central bank.
Borrowing abroad has also been made difficult, in the face of credit downgrades and a risk averse international market. Domestic interest rates are also going up.
In Sri Lanka politicians in particular and the public in general have been led to believe that inflation is a petroleum phenomenon specifically originating through price increases of one refined product - diesel.
Governments go to bizarre lengths - giving tax breaks and even printing money - to keep diesel prices low. In 2004, the JVP popularized a strategy called 'removing the plug' which involved fixing oil prices to keep down price levels.
Inflation promptly rocketed up and the rupee collapsed.
Pension Theft
While the state sector gets inflation protected salaries, workers have been facing a steady erosion of salaries. Older state workers have also found that pensions do not keep up with inflation.
But without the threat of strikes they have no clout to top up pensions.
The main pension fund of private sector workers, the Employees Provident Fund, has suffered a loss of about 60 billion rupees when compared against the Colombo Consumer Price Index (CCPI) in the past two years.
By pushing inflation up and keeping interest rates low a government can confiscate the savings of private citizens and old people that lend money to the government through treasury securities.
In 2007 the Employees Provident Fund lost 23 billion rupees when its managers only gave a return of 11.4 percent against an increase in the CCPI of 16.5 percent in the year.
In 2006 it lost 37 billion rupees in real terms on a return of 10.2 percent against an increase in the CCPI of 19.3 percent.
The EPF is also managed by state workers who get separate pensions and do not have to suffer the consequences of real losses suffered by the fund. The International Monetary Fund has said that the EPF needs independent governance.
So far, the opposition has not done anything to counter the mis-use of the Fund.
"We will be bringing the issue up in parliament," insists Fernando.
In 1989 it was a UNP administration that started taxing the fund, while state workers get tax free unfunded pensions, paid from taxes and inflation.
In 2004 however a UNP led administration did try to set up a funded pensions scheme for new state workers which was scuttled by the next administration, egged on by the JVP.
In a bizarre irony however workers of private sector firms join JVP controlled unions despite high inflation coming from policies promoted by the party robbing them of both their salaries and pensions.
Wage Spiral
Opposition lawmaker Joseph Micheal Perera says they are also asking for a 5,000 rupee salary increment for the private sector, and plantation unions are joining the strike. Plantation workers have been among the hardest hit by recent inflation.
But many private sector firms are now caught between a topline that has been hit by markets weakened by inflation and a bottomline that is thinning from high interest costs.
Private firms can collapse under the weight of mandated salary increases, leaving workers jobless, though the state sector including enterprises can survive with central bank funded Treasury handouts at the cost of inflating the rest of the economy.
Trade minister Bandula Gunawardena has said that giving constant salary hikes is not the answer to the problem as salary increases without productivity only fuels inflation.
He told The Sunday Leader newspaper that from 2002 to 2003 state employees were reduced by 121,000 but about 300,000 had been added since then.
In 2004 the JVP carried on a campaign to hire tens of thousands of graduates who had got an education from the taxpayer and inflation funded tertiary education system.
The salary bill which was 91 billion has now increased to 214 billion rupees. The pensions bill had more than doubled.
Gunawardena says that if the salaries were increased, the government would have to recover the additional expenditure from the people.
Politicians usually oppose even small increases in value added taxes which falls equally on state workers and ordinary citizens in the private sector. They prefer to raise direct taxes which are only charged on the salaries of private sector workers.
The pay as you earn taxes of state enterprise workers are paid by the institutions they work for.
The shortfalls are made up with printed money, giving rise to high inflation and new demands for state wage hikes.
GOD HELP NXT ZIMBABWE
July 07, 2008 (LBO) - Sri Lanka's main opposition United National Party (UNP) is backing calls for new salary hikes for the island's already bloated state sector, continuing a tradition that has created a class of super citizens and high inflation in the country.
The UNP and its trade union arm, the Jathika Sevaka Sangamaya (JSS), said it was joining a token strike called by the Marxist-Nationalist Janatha Vimukthi Peramuna (JVP) party.
Economic policies based on unchecked state sector expansion and indiscriminate subsidies promoted and devised by the JVP in 2004 and extended in 2006, have now landed the country in the highest inflation in its history of close to 30 percent.
The state salaries and pensions bill now eat up more than half the tax revenues of the government.
But the UNP says more resources should be spent on state workers.
"Private workers like masons and carpenters get about 800 rupees compared to 300 rupees earlier, but it is government employees who find it difficult to feed their families," UNP Parliamentarian Johnston Fernando told reporters.
Feudal Society
State workers get tax free salaries, a perk given in the 1980's by the UNP which has now created a feudal society of a non-tax paying patrician ruling class and toiling private sector working class plebeians that slave long hours in factory floors and plantations to keep the economy ticking.
Their workplaces have to fork out taxes to pay the government, while state enterprises that compete with them get Treasury hand outs and tax rebates when they run losses, which they do often and in large scale.
State workers have enormous political clout among all political parties in a bizarre democrazy of representation without taxation.
The UNP also gave parliamentarians and their personal staff pensions after five years and tax free super luxury vehicles every few years.
Over the past year state-workers also got permits to import 17,000 tax slashed vehicles and the national carrier which passed on to government management in March 2008 is now offering cut-price air tickets to state workers.
State workers also get cut-price season tickets to travel on state-run loss-making bus services and rail services. They also get housing loans at 4.0 percent from state-run banks while ordinary productive workers now pay 20 percent on housing loans.
State workers strike often for massive salary increases and what are quaintly called 'salary anomalies' after increases are given.
State doctors are usually in the lead, holding the lives of patients to ransom. In 2003 doctors struck and got a salary increase while an entire state sector waited patiently till the end of the year to get a salary increase in the budget.
Doctors are also allowed to practice and earn money privately, but they work long hours to do so.
In 2007 Sri Lanka earned 508 billion rupees in taxes, but 282 billion rupees went for the salaries and pensions of state workers, indicating that 55 cents out of every tax rupee collected were consumed by state workers.
The government held state salaries steady in the 2008 budget with a small increase. President Mahinda Rajapakse, who met state sector unions last week has offered a thousand rupee salary hike which is expected to cost another 7,000 million rupees.
But state trade unions have rejected the offer. Information minister Anura Yapa said the government had increased the state sector to over 1.1 million people while a previous administration had tried to trim the public sector.
"State workers now get a minimum salary of more than 11,000 rupees which is more attractive than the private sector, which was given by President Mahinda Rajapakse who was a trade union champion."
Inflation Tax
In the past two years state workers got salary increases in excess of 20 percent a year while workers in productive sectors found the real value of their salaries disappear in real terms when compared to inflation.
Inflation in Sri Lanka is fired to high levels because the government prints money to make up shortfalls in tax revenues.
The ability to print money was also given to the government by the UNP in 1950, when then finance minister J R Jayewardene abolished a currency board and created a central bank with money printing powers.
This allowed the government to confiscate the earnings of the population in general and the savings of older citizens through inflation, secretly appropriating what it could not get openly through taxes.
Sri Lanka's cash-strapped government is now finding it increasingly difficult to print new money in the face of rising inflation and growing public awareness that inflation is generated from the central bank.
Borrowing abroad has also been made difficult, in the face of credit downgrades and a risk averse international market. Domestic interest rates are also going up.
In Sri Lanka politicians in particular and the public in general have been led to believe that inflation is a petroleum phenomenon specifically originating through price increases of one refined product - diesel.
Governments go to bizarre lengths - giving tax breaks and even printing money - to keep diesel prices low. In 2004, the JVP popularized a strategy called 'removing the plug' which involved fixing oil prices to keep down price levels.
Inflation promptly rocketed up and the rupee collapsed.
Pension Theft
While the state sector gets inflation protected salaries, workers have been facing a steady erosion of salaries. Older state workers have also found that pensions do not keep up with inflation.
But without the threat of strikes they have no clout to top up pensions.
The main pension fund of private sector workers, the Employees Provident Fund, has suffered a loss of about 60 billion rupees when compared against the Colombo Consumer Price Index (CCPI) in the past two years.
By pushing inflation up and keeping interest rates low a government can confiscate the savings of private citizens and old people that lend money to the government through treasury securities.
In 2007 the Employees Provident Fund lost 23 billion rupees when its managers only gave a return of 11.4 percent against an increase in the CCPI of 16.5 percent in the year.
In 2006 it lost 37 billion rupees in real terms on a return of 10.2 percent against an increase in the CCPI of 19.3 percent.
The EPF is also managed by state workers who get separate pensions and do not have to suffer the consequences of real losses suffered by the fund. The International Monetary Fund has said that the EPF needs independent governance.
So far, the opposition has not done anything to counter the mis-use of the Fund.
"We will be bringing the issue up in parliament," insists Fernando.
In 1989 it was a UNP administration that started taxing the fund, while state workers get tax free unfunded pensions, paid from taxes and inflation.
In 2004 however a UNP led administration did try to set up a funded pensions scheme for new state workers which was scuttled by the next administration, egged on by the JVP.
In a bizarre irony however workers of private sector firms join JVP controlled unions despite high inflation coming from policies promoted by the party robbing them of both their salaries and pensions.
Wage Spiral
Opposition lawmaker Joseph Micheal Perera says they are also asking for a 5,000 rupee salary increment for the private sector, and plantation unions are joining the strike. Plantation workers have been among the hardest hit by recent inflation.
But many private sector firms are now caught between a topline that has been hit by markets weakened by inflation and a bottomline that is thinning from high interest costs.
Private firms can collapse under the weight of mandated salary increases, leaving workers jobless, though the state sector including enterprises can survive with central bank funded Treasury handouts at the cost of inflating the rest of the economy.
Trade minister Bandula Gunawardena has said that giving constant salary hikes is not the answer to the problem as salary increases without productivity only fuels inflation.
He told The Sunday Leader newspaper that from 2002 to 2003 state employees were reduced by 121,000 but about 300,000 had been added since then.
In 2004 the JVP carried on a campaign to hire tens of thousands of graduates who had got an education from the taxpayer and inflation funded tertiary education system.
The salary bill which was 91 billion has now increased to 214 billion rupees. The pensions bill had more than doubled.
Gunawardena says that if the salaries were increased, the government would have to recover the additional expenditure from the people.
Politicians usually oppose even small increases in value added taxes which falls equally on state workers and ordinary citizens in the private sector. They prefer to raise direct taxes which are only charged on the salaries of private sector workers.
The pay as you earn taxes of state enterprise workers are paid by the institutions they work for.
The shortfalls are made up with printed money, giving rise to high inflation and new demands for state wage hikes.
GOD HELP NXT ZIMBABWE
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