Despite the Government’s progress on the debt restructuring process and securing assistance from the International Monetary Fund (IMF), Sri Lanka’s working classes once again took to the streets over the past couple of months, led by a number of prominent Trade Unions (TUs) representing various sectors, primarily demanding economic relief and wage increases.
However, criticism levelled at this TU action notes that the present time isn’t the ‘right time’ to be demanding salary hikes, describing TU action as counterproductive.
Burden distributed, belts tightened
Political Scientist Prof. Jayadeva Uyangoda, speaking to The Sunday Morning, said that strikes were a “product of the economic crisis,” since it was very difficult to expect the people to be silent in the face of unprecedented economic hardships.
“The upper middle classes are benefiting through the Government with businessmen being linked to the international economy and dollars being accumulated in foreign accounts. They don’t want a change in the Government or in the office of the President. But in general, 75% of people are facing many hardships, especially families with school children.
“Unfortunately, the Government, and particularly the President, is not sensitive enough to listen to the people who are forced to bear the burden of the economic crisis. That is why there is so much anger – the consequences of the economic crisis are not shared. The burden has fallen on the poor, the middle class, and the professionals.”
He also said that it was incorrect to say that TU demands for higher economic benefits were bad for the economy.
“From the beginning of the economic crisis, the Government’s reluctance to provide any relief to the workers has led to this state of TU uprising. The Government has also imposed many taxes on the ordinary people – both direct and indirect, especially the high Value-Added Tax (VAT).”
Colombo University Economics Department Head Prof. Chandana Aluthge said that although people had been patient for some time following the crash of the economy, the trust in the State had been significantly eroded.
“This is especially because the public has to witness proposals being made to increase salaries of Central Bank of Sri Lanka (CBSL) employees while the public is being asked to tighten their belts.”
“In such instances, people may think the burden is not equally distributed,” added Prof. Aluthge.
TU politics, elections, and the UNP
Meanwhile, Prof. Uyangoda also pointed out that TUs demanding higher salaries and economic benefits just before an election was part of TU politics: “That is the only time TUs can win their economic demands, since otherwise governments won’t listen to them.”
Thus, he said that the current TU actions were “nothing new,” adding: “This is part of Sri Lanka’s political history.”
Prof. Aluthge cautioned that since a crucial election was around the corner, “someone may think this is the right time to get their work done”. However, he noted that those who were at the helm when the economy crashed were currently living with State benefits, which meant that the public would inevitably focus on the injustice of the situation.
In this context, Prof. Uyangoda said that the Government had two options: either to provide some relief to the public sector to temporarily resolve the issue or to ignore TU demands and be highly repressive.
“Repressive actions such as firing those who did not report to work was what President J.R. Jayewardene did in 1980. However, when a crucial Presidential Election is about to happen, the Government wouldn’t want to anger the public unless it is not thinking of holding the elections. That would be their second option – to be repressive, follow IMF guidelines to the letter, and not hold the Presidential Elections.”
He also said that United National Party (UNP) governments had never supported TU action unless initiated by their own TUs. “The UNP is very hostile to TUs – this is in the UNP’s DNA.”
Adjusting to a new reality
However, Prof. Aluthge urged the public to understand the reality of fulfilling their demands.
“Our economy was always a subsidised economy for primary goods such as fuel, which made their prices very cheap. Governments did that and then ultimately they reached a point where they couldn’t do so anymore, with Covid-19 and other international issues, including the very unskilled government management at that time. Now our economy is adjusting to a new reality and that is not easy – that is the real challenge.”
Therefore, he pointed out that if people were demanding higher salaries, these would also likely have to be sourced from the people themselves.
“There are different proposals like stopping corruption, stopping waste, and collecting taxes, but those cannot be done in an instant, while the demand for salaries is immediate. People are finding it hard to live as their incomes haven’t increased in the past four years while living costs have increased steadily.
“To increase incomes, the manufacturing economy should improve and we see certain steps being taken by the Government in this regard. We also recovered very fast unlike countries such as Zimbabwe.
“I know that fighting for our rights is important – in fact, our country is such that we have to fight for everything. However, we also need to understand the reality of our demands and how our demands can be fulfilled. I feel that instead of fighting for one thing for a certain segment of people, fighting for a fairer economy for everyone might also be a good thing.”
VAT and its benefits
Meanwhile, TU leader Joseph Stalin questioned whether the benefits of the recently-increased VAT had reached the people yet.
“Key sectors such as health are still suffering. The burden of educating children is still being carried by parents,” he said, adding that the Government was engaged in a dangerous game of bribing people who did not engage in TU actions.
“They have said they will give benefits to those who report to work instead of striking. Where is the Government getting money to do that? They have money for that.
“People should live first. The Government hasn’t increased anyone’s salaries – the cost of living has increased while the Government has given Rs. 10,000 and wiped its hands of the responsibility.”
State expenditure vs. tax revenue
Frontier Research Head of Macroeconomic Advisory Chayu Damsinghe, commenting on State expenditure, said that although there were many conversations about how Sri Lanka had high State expenses, that wasn’t necessarily true.
“We are somewhere in the bottom 25% of countries when looking at State expenditure, excluding debt,” he said, adding that State expenditure would have to rise in order to increase salaries for essential State sector workers, but that it would have to be financed by tax revenue.
“In the past we were borrowing money to finance this, but now we have to bear the cost of it. The question is how to design the taxation structure fairly because that is also a cost to the economy – we have to ensure they balance out.”
Acknowledging that increased taxation in the past year may not have necessarily translated to tangible benefits to the working class yet, Damsinghe said: “The benefit to the people is not having to deal with the consequences of borrowing, but that is a negative you don’t have rather than a positive you do have. Whichever Government is in power has to properly communicate this to the people.
“The fiscal performance has been better than expected so they do have some extra cash. Therefore, the question is what they would use it for. That is a decision for the Government – it can use it as a buffer or for salary increases.
“From what I understand, the Government is doing a bit of all those – salaries were increased and will likely be increased again next year. Both the Government and average citizens have to figure out these new paradigms of Government capabilities, which will take some time.”
Damsinghe added that presently, it was not just that the Government was not spending, but also that the private sector – the “engine of the economy” – was not functioning in a stronger manner.