Home » Eminent economist says People’s purchasing power halved at present

Eminent economist says People’s purchasing power halved at present

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By: Staff Writer

March 26, Colombo (LNW): An eminent economist and former Central Bank Deputy Governor W.A. Wijewardena says the real purchasing power of the people have halved at present in comparison to 2021.

According to him, in terms of the new series of the Colombo Consumers’ Price Index or CCPI, in January 2021 when the CCPI was 100, it cost a family of 3.8 members Rs. 91,880 to buy the basket of real goods and services involved.

In January 2024 when CCPI has increased to 200.6, the family should spend Rs. 184,311 to buy the same basket of real goods and services. That has increased the cost of living by 100%.

“If a family has the same income level as in January 2021, it amounts to cutting their real purchasing power by a half. This is an inflation tax which Sri Lankans have been paying over the period,” says Wijewardena.

Hence, it is not the current tax burden only that people should worry about. It is the total Government expenditure, known as the gross expenditure, about which they should be worried.

If the Government expenditure level is high and it is financed by taxing people, borrowing from both domestic and foreign sources, and printing money leading to inflation, people are forced to bear a burden.

Hence, higher the Government expenditure, greater the burden being borne by people.

For instance, the Budget 2024 envisages to raise Rs. 3.8 trillion by way of taxes and another Rs. 307 billion as other incomes.

But the total Government expenditure that includes the repayment of both domestic and foreign debt as well has been estimated at Rs. 11.7 trillion or 35% of estimated GDP.

It has generated a gross financing requirement of Rs. 7.4 trillion or 22% of GDP. Since the new Central Bank Act has prohibited the direct money printing to finance the budget, the entirety of the gross financing requirements should be financed by borrowing from the domestic and foreign sources and from commercial banks.

Thus, it is the total Government expenditure that should worry citizens instead of the mere tax payments.

The total expenditure of the Government, known as gross government expenditure, is made up of the recurrent or consumption expenditure, expenditure incurred for building the country’s capital stock, and money used for repaying the maturing Government debt.

Financing that expenditure, whether it is done through taxes, borrowings, or money printing, or a combination of all the three, is a burden to the people. Taxes force them to bear the burden today, borrowings tomorrow, and inflation today as well as the future. 

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