Financial Times

Cost of living doublespeak
It was not too long ago that the government's garrulous deputy minister of finance, Bandula Gunawardena, announced that he would resign if it could be proved that the cost of living had gone up by a specified amount owing to the shift to a single Value Added Tariff band in which certain consumer items would be taxed at the higher 15 percent rate instead of 10 percent.

He made it look as if he was prepared to make a great sacrifice, although he seems to have left himself an escape route given the fact that the increase in cost of living could be calculated in different ways, depending on what items are considered. In reality, however, the sacrifice Gunawardena appeared to be prepared to make was rather small because on closer inspection of his announcement one finds that he was prepared to resign only from his post as deputy minister of finance.

Presumably he was too enamoured of the perks and privileges that go with full Cabinet office to want to give them up all that easily - certainly not for being proved wrong on such a mundane thing as an increase in the cost of living!

However, it is exactly the government's position on the increase in the cost of living that we take issue with. Gunawardena's stance at that time was that the cost of living had not increased significantly on account of the higher VAT. If that was true why is the government now announcing a 'relief package' to the public - all in the name of reducing the cost of living? The week before last, the government announced that it was going to remove or cut import duty on a range of food items to provide relief to the masses in the face of rising domestic and international prices. Among the items are wheat, milk powder, dhal, potatoes, chillies and big onions. We certainly welcome efforts to reduce the cost of living but prefer them to be done in a planned and responsible manner.

The loss of income to the Treasury from the tariff cuts was estimated at Rs 400 million a month but the government said it has other methods to recover the lost revenue. What these are were not specified despite much government ballyhoo about the 'historic' fiscal responsibility act and its professed commitment to it. There have been vague references to making up for the lost revenue by increased reliance on privatising state assets. But no mention of the fact that the fiscal responsibility act prohibits election 'gundus' or sops to the masses ahead of elections.

Nor have the donor agencies made a fuss about it or the fact that government revenues will be affected. The move to cut import tariffs was announced by finance minister K. N. Choksy who attributed the need for the relief package to the drought, rising prices of petroleum and foodstuffs and the political crisis, which has put upward pressure on interest rates and weakened the rupee, resulting in inflation. It came, by a strange coincidence, on the eve of provincial council elections.

Meanwhile, there are looming signs of an impending snap general election - a group of SLFP parliamentarians and organisers have strongly urged President Chandrika Kumaratunga to immediately dissolve parliament and go for an election, the move is given prominence by news organisations under Kumaratunga's direct control with the president herself being quoted as telling her party to be prepared. Of course, it could all be typical Kumaratunga disinformation to keep the UNP guessing and to put pressure on the government. Whatever it is, the sooner the uncertainty is ended, the better it would be for the economy. Investors don't like uncertainty.

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