State and govt. not interchangeable: Same goes for revenue and income hoax of free education and free health services
Posted on December 5th, 2017

By Usvatte-aratchi Courtesy The Island

On 11 November in the evening news, President Maithripala Sirisena claimed that his state (mage rajaya) would not permit anyone who fought in the war against LTTE to be brought to court for his conduct in battle. Leave aside the legality and morality of that statement, no President can claim ownership of this state. Nor can Xi Jining claim that Chong Guo is his state. Sri Lanka is not the President’s state.

A few years ago, there was a President who acted as if this state was his estate and paid dearly for his folly. Four centuries ago, there was an unwise king dubbed Sun King who claimed ‘L’ etat c’est moi’ (The state, am I) and his successors paid for that folly with their heads on the guillotine. In contrast, this government is the President’s. He created it, at least in law, he preserves it and may destroy it, a sort of three in one, a tihai, of which the President is very fond. He would have been perfectly lawful had he said, ‘My government will not permit …’, although whether that statement is right or wrong is another matter. In Britain there is no government but Her Majesty’s. That is because for everything that the queen does, there is one of her ministers legally responsible, beginning with the First Minister.

In the US, there is the President’s Administration, with ‘government’ rarely used in that context. This practice, where a President appoints his Cabinet of Secretaries (as they are called, derived from 18th century English usage) subject to approval by Congress (Parliament), is a practically useful one. It is a part of the principle of separation of powers in practice. It answers, in part, to the murmur here that professionals take part in government. (I do not have that faith that professionals are men and women of high integrity implicit in this argument. There are too many instances of corruption and dishonesty among them for me to accept that. In Cabinets we have had professionals, who have displayed the most deplorable traits of character!) What is significant is that given pervasive jealousy in this society (no matter, the recitation several times a day ‘suvaco ch’assa mudu anatimani), members of Parliament, who will have lost opportunities to make money hand in fist, will swell to go after ministers to get them by the throat. We may be able to set thieves to catch thieves.

Perhaps, we may be able to reduce abuse of power in including corruption – a double perhaps – because corruption seems to be something well entrenched. (Do we say well enshrined?) in Sri Lanka culture. Abuse and misuse of terms, either out of ignorance or with malice forethought, is quite common here and it is a good beginning to start correction with an instance from the President of the Republic.

Governments, the most stable of them, are short-lived. In some states, it is written in to the basic law of the state that government shall not live beyond a short specified period of time, for instance four years in US. In others, governments end when those who created a government indirectly, tell it that they do not support it to last anymore. That happens when a majority of members in Parliament pass a vote of no confidence in a government. In some, a government may end when the army or the people rebel against the continuance of that government. The most recent instance is the revolt against Robert Mugabe of Zimbabwe. We have seen many times over governments in Asia change in similar processes, Thailand most frequently. The state of Lanka has existed for a very long time, although with interruptions. The state of the United States of America has existed continuously since 1776. The Republic of India is a young state. Some states have disintegrated as did USSR in1989 and Yugoslavia a few years later. Others have merged with another, e.g. GDR with West Germany. State and government are separate and distinct entities and to confuse one with the other misleads the reader. The terms in Sinhala are rajaya (state) and anduva (government) and are used entirely without care.

Government revenue and income

That same day in Parliament, Minister Pathali Ranawaka, one of the most intelligent and well instructed men in the House, spoke of income of government from taxation. A highly reputed tuition master in economics made the same remark at a press conference. Surely, both these men knew, better than most, that revenue of government was not its income. Anyone who runs a kade (chaiwala) knows that revenue is different from income. Income comprises wages, profits, interest and rent. Tax receipts of government are none of these and are a part of the income of taxpayers. A government collects profits when an enterprise it owns, earns them. It collects interest on the money it lends to its employees. It collects rent when it leases its buildings or land. It does not earn wages though it pays out a lot. Total annual income of government in our country does not exceed 4% of its annual revenue. All students in Year 12 in school and university men and women who study Economics or Commerce know that. Why confuse everybody when with a little bit of sense (a little bit of sense, as Alfred Doolittle, the dustman, might have sung, with a step, after a beer, which the good minister has made cheaper) in the use of common terms, that confusion can be avoided?

All taxes are paid by people. Neither commodities (commodity taxes or goods and services taxes) nor corporations pay taxes. Taxes on imports as well as income taxes are paid by people. All taxes on corporations are paid by its owners. All taxes, however collected, transfer a part of people’s income to government. So, all taxes, no matter direct or indirect or inflation, call forth the same reactions from taxpayers. Consequently, the claim by government that they imposed taxes without burdening the people is baloney. If a government increases the ratio (note well, ratio not proportion) of tax revenue to GDP, there is no way it can do so without increasing the burden of taxation on the people. That verse in budu guna alankaraya, ‘ron aragena semin-yana bingu lesin kusumin- satata duk no demin- ganiti puda panduru pera niyamin’, which some in Parliament sometimes quote, is written out of poetic licence and has no practical relevance. The idea that government earns income may lie behind the common clamour for larger layout for education, health or for higher wages to government servants, without making it explicit that that demand requires that either less is spent on other functions and more commonly that the burden of taxation on the people increase. I am perplexed every time that the President, who is the Head of Government, offers to spend large sums of money without reference to the Ministry of Finance. How can the head of government put his own government in jeopardy with such cavalier commitments? Every demand by the public for increased expenditure by government is by itself (ipso facto) a demand for raising the burden of taxation. When present day citizens pay increased taxes they bear the burden of taxation. People who will live in future will pay out of their earnings when a government borrows now and spends now and pays back the lenders from future tax revenue. Some might find this immoral and unfair. How dare we compel future generations who cannot vote now to pay for our expenses now? One answer could be that we borrow now for repayment later to create irrigation works, power plants, universities and factories all of which will raise incomes of people in the future. That is why it is doubly criminal, when borrowed money goes to add to the private wealth of those now in government and that that money which is black is held overseas providing investible resources in those countries or held in secret domestically, producing no capital. Government may raise expenditure by printing money. That expenditure will permit government to take away real resources from the public. This competition for resources between government and the rest of the economy will raise prices. Resources pass on to government in the same way as taxation does. But unlike taxes which are designed by government to distribute the burden of taxation in some manner, the burden of taxation with price inflation will be distributed haphazardly and probably most unfairly. Inflation is the most unfair tax of all!

Direct and indirect taxes

Most people, both inside and outside Parliament, ask that the proportion of revenue collected from direct taxes be increased because indirect taxes allegedly distribute the burden of taxation unfairly. A friend of mine, last month, bought a small Japanese car, paying $57,000.00. (These prices are crazy, as Crazy Eddy might have said.). His daughter in the US, three months earlier, bought a slightly better car paying only $22,000.00. The father paid $35,000 (= Lkr. 5.2million), more as taxes to government. If he takes a meal at a restaurant, he pays some 12 percent of the bill as taxes to government. His utility bills include high taxes to government. Now my friend is not among the high income earners in this country; nor does ne derive any income from property but lives on savings from earlier employment. High income earners probably pay much more, all as indirect taxes, than low income earners. Those that pay taxes on their income also pay taxes on their expenditure because they like all others pay indirect taxes as well. Taken together high income earners probably pay a greater portion of their income than taxpayers in lower income brackets. Consequently, you cannot say simply that this scheme of taxation is equitable because it relies heavily on direct taxes and that is not equitable because it relies heavily on indirect taxes. It all depends on who pays how much and that you would not know, even approximately, until you have the results of a reliable survey. There is no necessary consequence that all indirect schemes are iniquitous. Even if you have information on which income groups pay what proportion of their income in taxes you cannot conclude that that scheme of taxation is iniquitous. (That income in this country is distributed unequally is a different matter altogether.) Tax revenue is spent to pay for goods and services, provided by government and, of course, for bribes to politicians and bureaucrats. We have to know the benefits that accrue to each income group from government expenditure to know whether fiscal operations increased inequality or reduced inequality.

One of the wise men at a recent seminar sagaciously observed that in our country government expenditure benefited mostly the higher income groups. Where is the information? My casual observation does not support that contention. If you walk past the National Hospital in the morning on a working day you would see mostly poor people waiting in queue to see medical personnel. When the GMOA called out doctors in government hospitals on strike, the men and women who complained before television cameras were mostly poor people. There were no masses of people with capacity to pay who flocked to private sector hospitals, because those people had suffered from the strike of doctors. The rapid fall in average infant, child and maternal mortality rates could not have come about without widespread availability of public health and medical care services. (The rationale for taxing people to provide them with certain services is that some services must be provided collectively. You cannot live free of dengue fever by keeping your own compound free of mosquitoes without our neighbour and his neighbour and so on keeping their compounds dengue mosquito free.) It is at best careless to assume simplistically that any indirect tax is iniquitous. A whole lot more work needs to be done to pronounce on the re-distributional effects of government fiscal operations.

There is no way that the wide variety of services provided by government in this country can be paid for without the large mass of people paying for it. It is a matter of administrative feasibility how you collect those payments. When a large part of the economy runs without its transactions in written form, there is no way that income taxes can be administered effectively. Hence, indirect taxes! Yet, there is much tax evasion and avoidance.

‘Attack on free education’ hoax

A hoax, when used to deceive people, is in a category somewhat but not entirely, different from the earlier concerns. The foundation of Free Education laid by Kannangara was that education was available free of payment of tuition fees from kindergarten to university. Sirimavo Bandaranaike buttressed that edifice when her government took over many schools in the private sector. It follows that major attacks on this massive structure must consist of a denial of that foundation and the weakening of those buttresses that strengthened the edifice. Facilities for education at the primary level became universally available as is evident with the universal enrolment in school of children aged 5-10. From age 11 years, opportunities are not available evenly over the country.

Educationally disadvantaged districts in the country are evidence of the uneven distribution of educational facilities at higher levels. This problem was to be resolved partly by providing scholarships, enabling bright children from poor families to seek education in higher quality schools. That process ran into problems as children of better off families grabbed opportunities to study in better schools using various subterfuges and by performing better at scholarship examinations. That opening was enough for Panzer Division attacks on the lightly fortified structure that was free education. Expensive private tuition as a determinant of how well a student performs at examinations dug in with mighty guns, with spies and weapons both light and heavy. It was teachers (spies and fifth columnists) in government schools who neglected to teach students well in schools and opened the gates to the citadel and dropped the bridge to permit the invasion. Teachers themselves put up shop to provide the market for private tuition. So died the scheme for free education that Kannangara had set up! It was then necessary to set up camps from where what was left of the free education system could be weakened. Those camps came disguised in the form of ‘international schools’, a misnomer if there ever were one.

Almost every member of the Government Medical Officers Association (GMOA) came into medical schools because their parents spent their private funds to pay to enter good schools and spent lavishly on private tuition classes. What more direct assault on Free Education? It is true that those who enter a medical faculty have scored the highest marks at the relevant examinations. It does not follow that they were the most intelligent students in their age cohort. They were the most intelligent and tenacious students1} in their age cohort whose parents could afford to get them into good schools and pay the high fees charged by tuition masters, precisely the situation that prevailed before 1944 and which the Free Education Scheme was designed to end. (It is necessary to bear in mind that before severe competition to enter medical faculties emerged, a few schools in Colombo and Jaffna sent whole broods of students to medical faculties. [The information is in the Annual Reports of the Director of Education for those years.] They did not have to cross a high bar of a Z score. The great advances in health conditions in our country were made under the care of these men and women and now we speak of them with the highest adoration. These graduates have done exceedingly well whether at home or abroad. The levels of intelligence and education were no bar to high performance in the profession.)The fundamental principle of Kannangara’s FREE EDUCATION scheme buttressed by Sirimavo Bandaranaike’s takeover of private schools was that education was free, free from the payment of tuition fees from kindergarten to university. The irony of it all lies in GMOA and university students parading streets in support of GMOA and in defence of ‘free education’, when every member of GMOA had entered the medical faculty by joining forces that brazenly attacked the free education scheme! The participation of the Inter-university Students’ Federation is an exhibition of the poverty of cognitive skills that they have developed at school and university. The irony of ironies is that the most successful tuition master was the Minister of (Free) Education in the country with the most successful entrepreneur with fee levying schools was a Deputy Minister of (Free) Education! That minister, faithful to his profession, now supports the claims of GMOA! SAITM was a logical extension of the market for higher secondary education that had developed to satisfy the demand by parents with sufficient resources (not necessarily rich) to buy the services offered. All kinds of shops with fanciful names have come up to teach other disciplines. If one conducted a survey to find the social and economic characteristics of parents of students who entered government medical faculties and SAITM medical school, say in 2016, he/she would find no statistically significant differences between the two groups. Members of the GMOA stopped paying for education when they entered medical schools and now want to prevent their erstwhile colleagues from continuing the practice in which they were colleagues. These doctors are perpetrators of a mighty hoax that has brazenly attacked the scheme of free education and now stand as a phalanx to guard their monopoly to earn rent on the scarcity that they were heir to.

Look at the business model that most medical practitioners follow. The exceptions are medical practitioners entirely in the public sector (of whom there are many) or entirely in the private sector (of whom there are a few). Most practitioners work in both sectors. They are in the nature of independent contract workers who work for a multiplicity of employers with different employment contracts with each. Take someone who teaches in a Faculty of Medicine. She has an employment contract with the university in which she undertakes to teach in the university and to participate in other functions of a university teacher. She might function as a Dean of the Faculty, Head of a Department and in many other roles. A part of that contract may be that she receives a monthly salary and a pension on retirement at a stipulated age. She might also work in a number of hospitals, not necessarily teaching hospitals, and enter into a different contract with each employer. She would work at a private for-profit hospital for an entirely different pay structure. She would earn as much as she would like depending on the demand for her services. She would earn depending on the quality of services she sells in contrast to the contract with the university where she has permanent tenure of employment and it is very rarely that her employment contract would be terminated for incompetence.

A medical practitioner working in a government hospital and a private sector hospital has a very busy schedule. How much more busy would be a person teaching in a university, working in a teaching hospital and working in several private hospitals, all within the twenty four hours of the day? It is not rare, though perhaps uncommon, for a patient to see a consultant at 11.45 in the night after that doctor had taught in the university and worked in a private hospital, since morning. He surely must need time to renew his lecture notes, which he began writing some15 years ago. The cost to the medical practitioner is his health, his leisure and any social life. (Try inviting them to an evening meal!) The costs to society are the services of an experienced doctor working with a relaxed and lively mind and time to spend more than three minutes seeing a patient, a university teacher abreast of writings in the advanced medical journals and someone who has the time to contribute to growing knowledge in his own field. Not even a common practitioner of medicine can effectively function now without acquiring new knowledge emanating from universities and labs and disseminated faster and wider than we have ever earlier. (The tendency to prescribe antibiotics in large quantities to patients is partly an outcome of this practice of not keeping up with developments in their field of work.) Yet, the best minds in the country can find hardly eight hours to sleep because of pre-occupation with concerns other than the pursuit of knowledge. Some scientists in the Faculty in Colombo are reputed to write good papers in micro-biology. It is common to speak with derogation about the lack of research by university teachers in the humanities and social studies. With the business models that teachers in the Medical Faculty follow, I cannot see how they can even keep abreast of writings in their fields, far from undertaking any research. The GMOA was vociferous in their denunciation of private sector medical education lest people’s lives should be in danger. Did they ever examine the ever present danger to patients consequent upon the business model that their members follow?

Robber barons, robber knaves and robber knave-barons

I am aware that robber barons inhabit the private sector of the economy. (This genus first appeared in the late 19th century in the Eastern sea border of US.) I am also aware that robber knaves grow and thrive in the public sector of the economy. Both politicians and bureaucrats are members of this Contemptible Order of Robber Knaves (CORK/with sash). Haven’t we learnt that lesson when a mansion appeared with no owner or when an expensive pent house changed hands with a third party paying some Rs.175 million for it? Haven’t we learnt that lesson when a court convicted two senior bureaucrats of malfeasance in the use of public funds, of course to shorten to their journey in sansara? (Can’t we draw a new map that shows a shorter and less arduous route subject to the proviso that one used one’s own resources?) A robber knave-baron is born when e. g. a primary dealer in government bonds in the private sector is in miscegenation with bureaucrats in the government sector (even with the danger of incest) to do precisely what Raj Rajaratnam did in the New York stock market to enjoy the privileges of a long prison term. We, in Sri Lanka, are reputed for greater hospitality and it would displease many, especially those from the deep south if our courts did not uphold that reputation.

Conclusion

The abuse of terms when it is not due to unfamiliarity with them is a clever but contemptible way to confuse and mislead the public to get them to believe that what the perpetrators say is true. This is ‘1984’, déjà vu, all over again! To betray one’s state as Velupillai Piripaharan did is a heinous crime with grave consequences. But to betray a government and switch to the opposition to bring down that government is not. It is noble to defend one’s state but to defend a government may be to serve selfish ends. For a private sector organisation to sell medical education under any conditions is anathema. It is fine for private sector establishments to sell medical care services for a fee and run at a profit. There is the same irresoluble conflict in objectives when providing medical care in private sector hospitals or under other arrangements or when providing medical education under parallel arrangements. The public has been massively confused and grossly misled by GMOA and university students simply for the benefit of agents who send students to second rate medical schools overseas to collect fees from such schools as well as from students and for the GMOA to perpetuate the monopoly of medical practice to maximise earnings for its members. Their pretence that they protect free education and free health services has been a clever hoax. If the objective of GMOA were to ensure high quality medical education, there would be far less stupid ways to achieve that. These men shout themselves hoarse that government expenditure on education and health must increase and, unbelievably, at the same time, castigate government for raising tax revenue to pay for that increased expenditure. Keep your eyes peeled lest these hypocrites, robber barons, robber knave-barons and robber knaves should steal everything that you value.

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