Murari Sharma: Make federalism sustainable or face conflict

Your idea and my idea of federalism might have been different, but you and I are now stuck with the bill. The bill will make politicians richer and everyone else poorer and sow the seeds of conflict for the future.

I have supported the idea of federalism ever since I visited Brazil in 2002. Brazil has a few, economically sustainable states that compete in delivering development and services to their denizens. For Nepal, my idea was to have fewer and largely self-sustainable states, which would compete to make us richer and our country prosperous.

Since 2009, I have been making this point along with a few others. Citing the examples of the United States, United Kingdom and India, I had argued that since federalism is expensive, Nepal must have just three — at most four — states.  Several political pundits, living in a fantasy, rebuffed my analysis and suggestion. Now the reality has just begun to bite, and it is painful.

Have you recently paid the land tax? If you have, then you would know the land tax has increased 1,000 percent under the new system. The local government used to issue several certificates to citizens free of cost before; now every service costs you. What cost 20 rupees before now costs you around Rs.500 or more.

This is just the first bite. It will be ten times worse after the newly elected central, state, and local governments envisage the expenditures needed for their new structures and human resources and for development activities. At the central and federal level, 884 politicians will be members of legislative bodies, more than ever. Ministers will have their political advisors in hundreds, most of them new posts.  All 753 local governments will have paid politicians unlike in the past when they were voluntary positions.

While some existing government employees will be transferred to the state and local levels, a large of new people will be necessary to make the new governments functional and effective. Political and bureaucratic officials require salaries as well as allowances, offices, rent, fuel, vehicles, and so no.

Nepal’s revenue is not enough to cover its pre-existing recurrent expenses if you include the stealthily hidden significant chunk of recurrent costs under capital expenditures.  Such hidden costs include the costs of buying weapons, helicopters and equipment, protecting the forest, etc. of the army; the regular salaries of teachers; the fuel and travel expenses of the ministries that have development projects, and so on.

Even if we stick to the published budget figures, the picture looks frightening. In 2015/16, Nepal’s revenue collection was Rs.4.85 billion and total recurrent expenditure Rs.3.71 billion. It left only 24 percent of the revenue for the capital expenditure — roads, new power projects, new schools, new hospitals, and so on.

In 2016/17, the revenue and recurrent expenditures were Rs.5.81 billion and Rs.5.62 billion respectively, leaving only 3 percent for development activities. In 2017/18, the estimated revenue of Rs.7.30 billion is insufficient to cover the recurrent expenditure of Rs.8.04 billion.

Evidently, all genuine development expenditures came from foreign assistance, most of it loan, and internal loan in 2015/16, all development and part of recurrent expenditures came from the external and internal loans in 2016/17, and all development and a large chunk of regular expenditures will come from those to sources in 2017/18. It is getting worse every year, and if you count the hidden recurrent expenses, the picture turns uglier.

We or our children must pay back the external and internal loans; Nepal will not be rich in next five-ten years; money does not grow on trees because we have pleased our leaders with hundreds of paid posts. So all three levels of government will tax you and me to death to pay for their expenses and to implement development projects, which take years to create jobs and earn a new stream of revenues.

When you have to choose between paying the taxes and feeding your children, you will certainly to choose the latter. Sooner or later, the increasing taxes, the declining services, and dead-end before you frustrate you so much that you will revolt, inviting a conflicting and the need for another political transition. It looks like our 30-year political transition is not the last one.

Can we prevent another revolt and another transition? If we have the will, we can. We must push our elected leaders to reduce the number of states, merge local bodies, or privatize public services.

I understand where the identity politicians come from. If we apply their logic, then Nepal should have 12o plus ethnic states. If we have accepted multi-identity states,  why the unsustainable seven and why not sustainable three — at the most four — states? The number of paid politicians and staff will be reduced by half, reducing the expenses on their salaries, allowances, offices, housing, vehicles, fuel, and so on. And such states will also offer the economy of scale.

Another choice could be merging the local bodies. Due to their financial constraints, the boroughs in the United Kingdom have been doing it, for instance. In the first round, several boroughs, facing a financial crunch, merged with the adjoining boroughs. For instance, in London, Kensington and Chelsea merged to become Kensington and Chelsea borough and Hammersmith and Fulham to become Hammersmith and Fulham borough.

In the second round, adjoining boroughs, such as Wandsworth and Richmond in London, have been merging their administrative functions to reduce the duplication of costs and services.

Yet another choice is to privatize most government activities so the government expenses in those activities are saved and taxes would not go through the roof though you pay to the private sector for the services they provide. We have privatized some of our public enterprises, but other countries have gone much further.

The United Kingdom is the case in point again. After the rise of Margret Thatcher as prime minister, most public services, including rail, prison, and some roads, were privatized. The mail service went into private hands only recently. The government is stealthily pushing parts of the National Health Service into private hands too. Chile and several other countries have gone down this route.

Sure, you end up paying more for the same services once they go to the private sector. But you would not complain about the government taxing you too much, and if you do not regularly consume those services, may not feel too bad about it.

Anyway, the federalism we have embraced is unsustainable. We have created too many states where tons of political officials and thousands of additional employees will be on the public payroll, who will demand allowances, vehicles, fuel, pension, office space, and so on, siphoning off every penny from the revenue for their own maintenance.

Unsustainable federalism is a source of conflict and secession: Look at Sudan. Nepal should strive for successful federalism, not a dysfunctional one that will only breed another revolt and another transition and will bankrupt the ordinary Nepalis.

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