The letter from the ministry of transport is published in full below with LBO's observations on the underlying nature of government finance:-
Lanka Business Online
Comment to the article “Sri Lanka to build US$ 1.3bn monorail with Japan finance” published on Feb 21, 2014
Thank you for giving publicity to the proposed monorail system which the Ministry of Transport plans to implement to facilitate smooth access to the public to the Colombo metropolitan area. While your article correctly quotes the interview of Eng. Rohan Seneviratne, Additional Secretary (Technical) of ministry of Defense and Urban Development, we find some other views expressed in the article may mislead the public about the proposed project.Your article mentions that a “government” subsidy will have to be financed through other tax sources including foods consumed by people in the rural regions who do not travel on the monorail.
I would like to draw your attention that actually, inclusive and equitable development is the core objective of our Transport Policy. This is to ensure that all citizens are provided with adequate levels of access to basic needs such as, to places of employment, markets, and to public services etc.
Precisely for that objective, we intend to set the fares for the monorail at a level affordable to the widest possible cross section of the public.
In Sri Lanka (as in many other countries), provision of a good public transport service is considered one of the prime responsibilities of the Government. As such, the Sri Lankan Government is already subsidizing the public transport system such that the train and bus fares could be maintained at relatively low levels. This subsidy benefits people throughout the country directly and indirectly, through reducing the transport and travel costs. The proposed monorail project will enhance this public service.
While the monorail users will get the direct benefit of an affordable, high quality and comfortable public transport service, the non- users will get the benefits of reduced congestion and transport costs.
Within the project, we also expect to enhance multi-modal connectivity through multi-modal terminals and the Colombo Transport Hub in Pettah such that the service delivery of existing public transport modes could be improved as well.
Finally, I think the needs for each region of the country differ. People in the rural regions will not need a monorail since there is no congestion. Rural water supply and school facility are much more necessary for them and will be provided by tax sources which benefit people in Colombo region cannot enjoy. It is a matter of balance and we need to realize a “Balanced National Development”.
It is also true that Sri Lanka is entering a new era that urban problems might hamper its economic development. Investment to urban regions will also be important just the same as to the rural regions.
Keeping the above situation in mind, I appreciate if you could correct the contents of your article which we have pointed out. If you have further inquiry, please feel free to contact us.
Ministry of Transport
The response from the Secretary to the Ministry of Transport has explained the aims of its transport overall policy, the benefits of a monorail system, particularly positive fallouts that could be expected from a high quality urban public transport system in congested areas of the capital city.
However, in the interests of furthering economic literary in Sri Lanka we would like to point out the following, on the use of tax payer money to subsidize the day-to-day operating expenses of a state-run transport firm or any other state service:
a) The state gains spending power from three main sources: taxation of citizens, which is the most transparent and perhaps the least harmful; borrowings, which have to be repaid from future taxes, perhaps by a subsequent generation; and printing money, which causes currency depreciation and inflation and harms the poor the most.
In Sri Lanka the state has control of commercial enterprises but many of those make losses instead of profits and only a few pay dividends.
b) But borrowings that finance capital expenditure in long-term infrastructure projects including in transport, can be serviced and repaid from taxes charged in the future as citizens use the facilities to engage in economic activities.
c) Any 'government' therefore does not bear the actual cost of a subsidy or any other expenditure. It has to be borne by the citizens themselves. The same citizen who gets the impression of gaining a benefit from consuming one service apparently provided by the state 'free' or 'subsidized' may be in fact be paying for it through the purchase of some other service or product, such as food.
d) For one section of citizenry to gain an actual net benefit from a 'subsidy', a part or all of it has to be necessarily borne by someone else who does not consume the subsidized product or service. A modern state therefore simply engages in income re-distribution.
e) States (mainly starting from Europe in the last century), have taken over many functions from citizens, some of which they carry out well and some of which they fail miserably. Some learn lessons and reform, while others do not. It is also doubtful whether extant large operational losses, excess staff in state transport companies in Sri Lanka which are passed on to tax payers year after year through subsidies can be used as a reason to justify more subsidies.
f) Unlike mass transit systems in Europe and the US, many Asian ones (including Japan recently) have tended to depend less on tax payer funds and have made greater use of private management or ownership with revenues supplemented by advertising and other means. In the US, some local authorities who find it difficult to tax citizens further to operate mass-transit authorities in the current downturn with many benefits to unionized workers are also trying to change the model.