National Budgeting Basics!

By Hema Senanayake –October 30, 2015

Hema Senanayake

A discussion on the subject of taxation might be appropriate at this point of time as the parliament is getting closer to debate the budget for the year 2016. The budget is all about taxes if the small portion of debt-free foreign grants is ignored. Perhaps, one might think that national budget is about taxes and debt because the budget deficit would mostly be financed from borrowings. However, since current loans will have to be paid back through future taxes, I prefer to suggest that national budget is all about taxes to be levied at present or future.

Let me begin by pointing out an important assertion about taxes. For administrative purposes the point of the collection of taxes may vary but all taxes are truly paid by the producers (employees and owners) of revenue generating enterprises if expatriate remittances are not taxed. As far as I know, Sri Lanka does not tax expatriate worker remittances. Therefore, again, I insist the point that, “all taxes are paid by the producers of revenue generating enterprises.

Now, one might think that not only the producers of revenue generating enterprises are paying taxes, but some employees of the government do pay taxes. The simple explanation for this argument is this: the producers of revenue generating enterprises are paying taxes to enable the government to pay its employees a sum that includes a portion of disposable wage income and a sum for the payment of tax. Perhaps this arrangement might be useful to implement an equitable tax policy. However the ultimate truth is that only the revenue generators can pay real taxes.

Therefore, clearly, tax is a part of income deprived to direct producers of revenue generating enterprises. However, the tax money is expended by the government in producing things of common interest of the society such as general administration, law and order, judicial services etc. Karl Marx explained this story of tax clearly. He said that, “What the producer is deprived of in his capacity as a private individual, benefits him directly or indirectly in his capacity as a member of society.” (www.marxists.org); this is the basis and purpose of taxation. Taxation is a mechanism to distribute the means of consumption in any given period while producing common interest. Is the Jumbo Cabinet a common interest of Sri Lankan society? I do not know.

Revenue generating enterprises in the real economic sector play the most important role in our economic system. It is where the economic system’s “capital money” and “consumption money” are produced. Perhaps these terms might be uncommon in economics but they make sense in making economic policies and in making structural adjustments to our economic system. For an example let us take the term “consumption money.” What is this?

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