Wednesday 13th December, 2023

The government is on cloud nine, having secured the passage of its VAT (Amendment) Bill. It is flaunting the outcome of Monday’s vote in Parliament as a huge victory. On Sunday, the Opposition had the public believe that the SLPP parliamentary group was divided on the proposed VAT increases, and it might be difficult for the government to have the crucial bill passed. It also succeeded in derailing the VAT debate, on Sunday, by staging a walkout and thereby rendering the parliamentary session inquorate. But the VAT Bill was put to the vote the following day, the ayes had it comfortably with 100 government MPs voting for it and 55 Opposition members opposing it.

The government will now be able to have the second tranche of the IMF loan unlocked and go ahead with external debt restructuring confidently. But it cannot wish away the political fallout of its economic undertaking, whose success hinges on its ability to adopt some extremely unpopular measures such as tax and tariff increases.

State Minister of Finance Ranjith Siyambalapitiya has told Parliament that inflation, which is currently at 3.4%, would increase by 2.5% when the VAT increases take effect. This, we believe, in an understatement. Independent economists are of the view that it is not possible to estimate the exact increase that the new VAT regime will cause in inflation, but the general consensus is that it will be much higher than 2.5%. Even the ballpark figure Siyambalapitiya has given presumably in a bid to downplay the real impact of the VAT increase from 15% to 18% on the cost of living is disconcerting. Fuel price increases alone will cause cost-pushed inflationary surges with transporters jacking up fares and freight by disproportionate amounts.

The government initially sought to do away with VAT exemptions previously given to 138 goods and services, but pressure from the Opposition, the media and civil society outfits made it reconsider its decision and leave out about 40 items. But that will not help mitigate the severe blow from the VAT hikes.

Curiously, SLPP MP Namal Rajapaksa has distanced himself from the IMF bailout programme and gone to the extent of absenting himself when votes are taken in Parliament on matters related thereto. He was absent on Monday (11) as well. Prior to the vote, he said he was against the Bill, but his father, Mahinda Rajapaksa, voted for it. He also struck a discordant note on Budget 2024, when he said he would not back it because it did not offer relief to the public.

What is up Namal’s sleeve? How come the new VAT regime which Namal is opposing is acceptable to the SLPP?

The public no doubt wants the government to succeed in straightening up the economy, but there is no love lost between them and the current rulers. Therefore, the people’s appreciation of the government’s performance on the economic front is not likely to translate into votes for the constituents of the ruling coalition; the incumbent administration is seen to be cleaning up an economic mess of its own making.

The Rajapaksas are running with the hare and hunting with the hounds. Some of them are backing the government’s economic recovery programme while others are being critical of it. They are apparently labouring under the belief that if Namal dissociates himself from the government’s unpopular policies, actions, etc., which are necessary to sort out the economy they themselves ruined, the adverse impact thereof will not affect Namal’s political future. The SLPP is believed to be grooming Namal for a leadership role. The other SLPP MPs, especially the young ones, are denied the same leeway as Namal; they have had to vote for all unpopular measures such as VAT increases, debt restructuring, etc., at the risk of incurring public anger. They could be considered the political version of cannon fodder or ‘bili boys’. But whether the SLPP leadership will be able to take the public for a ride again with the help of such ruses remains to be seen.