Do Ranil Wickremesinghe’s economic policies reflect neoliberalism?

Since the structural economic reforms got underway when the IMF arrangement was approved last March, the political opponents of President Wickremesinghe has often used the term Neoliberalism to demean unpopular policy measures the Government has been compelled to undertake. Chief among them is NPP Spokesman on Economic Affairs Chaturanga Abeysinghe, who is using the catchy phrase with gay abandon over the social media in a derogatory manner to scorn the President’s policies.

Nevertheless, it appears that many who are referring to the school of economic thought are not aware of its exact connotations. Neoliberalism is regularly used to define market-oriented economic policies such as reducing the State domination of the economy via privatisation of SOEs, promoting international trade by removing trade restrictions, lowering income and corporate taxes, apart from curtailing social welfare programs. The policies implemented by Margaret Thatcher and Ronald Reagan in the ’80s are cited as exemplifications of Neoliberalism by economists. Critics argue that such policies (particularly, income tax cuts) tend to favour the rich, while exacerbating class and income disparities in the society.

The increase in the rates of income and corporate taxes is a noteworthy feature of President Wickremesinghe’s economic program as part of addressing longstanding shortcomings. Much has been discussed about the reckless tax cuts that were given by former President Gotabaya in late 2019 in favour of the billionaires who funded his campaign and were associated with Viyathmaga. Personal income tax rates were reduced while the tax-free threshold income was raised in addition to removing the withholding tax on dividends and interest as a bonanza to the rich. To enrich the corporate sector, the standard income tax rate was reduced from 28% to 24% while the tax rate applicable for the construction industry was brought down from 28% to 14%. In a naive move, IT and software companies which earned billions of profits were completely exempted from income tax.

All the aforementioned tax reductions and exemptions have now been reversed by Wickremesinghe, and both personal as well as corporate income tax rates have been raised considerably to the anger and frustration of the rich and privileged. Financially well-off professionals like GMOA bigwigs frequently chastise the Government over the PAYE tax. Ironically, people in the calibre of Chaturanga Abeysinghe, who are opposed to neoliberalism, are vehement critics of such taxes imposed on individuals who earn substantial income. Therefore, it was the tax policy of Gotabaya which represented the elements of neoliberalism and not that of Wickremesinghe.

Meanwhile, Aswasuma – the newly launched social security program of the Government – intends to provide financial support to 2 million families, exceeding the 1.68 million families who received benefits from the earlier Samurdhi program. The Government has allocated Rs. 205 billion for the payment of Aswasuma benefits in 2024. A survey carried out by LIRNEasia – a noted think-tank – revealed that 4% of the richest 10% of households in the country too received Samurdhi due to political reasons, whereas Aswasuma aims to rectify such anomalies and serve as a genuine social security mechanism devoid of politics. 

The aforementioned initiatives that represent classic redistribution of income/wealth are manifestations of social democracy that are known for being anathema to neoliberals. Be that as it may, certain measures initiated by Wickremesinghe like divesting SOEs are tenets of neoliberalism, but it is widely recognised that selling off State commercial enterprises is a dire necessity owing to the fiscal mess the country has got into. 

In the backdrop of the perilous economic circumstances we are experiencing, it is unwise to be engrossed with ideologies or various isms. Rather, we must embrace practicality instead of ideology like Singapore, as Lee Kuan Yew stated in an interview with the New York Times during 2007. That approach was successfully adopted by Den Xiaoping, who famously said “it doesn’t matter whether a cat is black or white, as long as it catches mice.”