14 April, 2024

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Citizens Should Be Aware Of The Burden Of Total Government Expenditure

By W A Wijewardena –

Dr. W.A Wijewardena

Budget maximisation by governments

American economist William A. Niskanen, writing to the American Economic Review in 1968 presented a model in which the governments and government agencies have incentives to enlarge their budgets. He called this the budget maximising behaviour of bureaus – spending units in the governments – to enhance the personal benefits for themselves rather than for the citizens. This model, further developed by him, was published later in 1971 in book form under the title “Bureaucracy and Representative Government” and in 1973 as a Hobart Paperback edition under the title “Bureaucracy: Servant or Master?”.

Principal-agent problem in budgeting

The gist of Niskanen’s arguments is as follows. The governments provide services to people through spending units – called bureaus – operated by public servants known as bureaucrats. There are three parties involved in this game, bureaucrats, politicians, and the people. People demand public services and politicians as holders of the public purse agree to supply them. They have the power to tax the people to finance such public services. Hence, eventually it is the people who bear the cost. Accordingly, in this model, people are the principals and politicians and bureaucrats are the agents. In any contract, agent is required to meet the goals of the principal. That rule applies in this case too. Thus, politicians and bureaucrats are to meet the goals of the people and not their personal goals.

But what the experience shows is that bureaucrats work toward the attainment of their own personal goals instead of meeting the goals of the people. In economics, this is known as the principal-agent problem. But the bureaucrats maximise their budget or the total expenditure involved in the supply of the expected public service. Though Niskanen has not mentioned it, in countries like Sri Lanka, both politicians and bureaucrats work collusively to enhance the budget to serve their own interests. The people have no power to control it and hence, the augmented budgets are forced upon them by the two categories that work for their own personal interests. Hence, the total Government expenditure in the budget is much more than the true cost of providing various public services.

Public monopolies are not so virtuous

Niskanen in this model challenges the traditional view that public monopolies are better than private monopolies because the former can be controlled by the people. But since they have no power to do so and both politicians and bureaucrats work collusively against them, it becomes just a fiction rather than a fact. Hence, he suggests that public monopolies should be broken by getting the competitive private service providers to work along with them. It would establish benchmarks to assess the performance of the public monopolies. Niskanen concludes that most bureaus are too large, use too much capital, grow too fast, and exploit the people who supply funds for running those bureaus. The absence of good governance within the public sector makes the matters too complicated. If the budget of the government is enlarged due to the unchecked corrupt practices, that burden too is passed on to the people.

Burden of budgets

What this means is that the Government expenditure rises above the levels which it should be under the competitive conditions. This poses a serious problem for the bearing of the burden by the people who are the sponsors of numerous public services. The general belief by people is that it is only the taxes that they pay – either direct or indirect – that constitutes their burden. Taxes are a burden because those who pay them are left with a lesser amount for their own welfare, current or future consumption, on one side, and the ability to make more money in the future through income generating investments, on the other. If the public services are produced by minimising the budget, the people will get back what they have sacrificed. But if the budget is maximised by the two agents, politicians and bureaucrats, the people will have to pay more. Hence, even if the budget is fully funded by taxes, it is an unnecessary burden being borne by people.

Taxes only one source

Taxes constitute the only source of financing the budgets if they are balanced budgets. That is because in balanced budgets the total expenditure of the budget is equal to the total revenue. But if the budget runs a deficit, that is, the total expenditure is more than the total revenue, there are two other important sources of financing the budgets. One is borrowing from the domestic or foreign, or a combination of both. The other is the money printing power of modern states.

Burden of foreign debt

When a country makes a foreign borrowing, resources are transferred from the rest of the world to the country concerned increasing its total welfare levels. Foreign borrowings delivered in the form of foreign exchange helps a country to finance investments if the domestic savings are not sufficient, increase consumption through a higher inflow of imports, and build a buffer stock of foreign assets to meet unforeseen negative external shocks such as increases in the prices of essential raw materials. But when the foreign loans are repaid, there is a corresponding resource outflow from the country. It reverses the original welfare gains by forcing the citizens to sacrifice the current consumption or investments unless the country has gained capacity to repay those loans through increased foreign exchange earnings. If that capacity has not been increased, as in the present case in Sri Lanka, foreign borrowings constitute a burden for the people. This is true if the foreign borrowings have been used for current consumption or for wasteful projects or for destructive wars.

Domestic debt not mere redistribution of assets

Domestic borrowing by the governments have been viewed for long by economists as a mere redistribution of assets involving no burden at the national level. When the government borrows domestically, it issues bonds. The lenders to the government will convert their cash assets to bond assets. When those bonds are repaid, the people will reconvert the bond assets back to cash assets. Hence, it is an instance of people owing to themselves. As a result, it was long held by economists that domestic borrowings do not constitute a burden to the people.

No difference between debt financing and tax financing 

But in early 19th century, the English economist David Ricardo disputed this theory. Suppose the Government has financed its expenditure by borrowing domestically so that the people will have to pay less taxes in the current period. Thus, the burden of tax payments is eased. However, at the time of repaying the bonds, the people are required to pay more taxes to provide funding for the bond repayments. Hence, it is simply a postponement of the current tax liability to the future generations which economists have termed as ‘intertemporal burden bearing’. As such, Ricardo’s position was that there was no difference between the bond financing and tax financing. Hence, it is known as Ricardian equivalence.

Huge profits in money printing

During Ricardo’s time, there was no money printing as a method of financing budget deficits as a routine matter. It was used in exceptional circumstance like waging a war against another country. Hence, Ricardo did not look at money printing as a burden to be borne by the people. Money printing became a mode of budget financing after the Governments started issuing paper currency of which the cost of printing was less than the face value of the note concerned. For instance, if the printing cost of a 5,000-rupee note is Rs. 20, for every note issued by the Government generated a super profit of Rs. 4,980 called seigniorage by economists. Since there was no visible burden involved, it was also believed that financing the budget deficits did not impose any burden to citizens.

In fact, it is this logic which is being presented by those who advocate Keynesianism as a policy guide for governments to run budget deficits. Hence, today, when the Governments use this source to finance the budgets, if it is used excessively over the real growth in the economy, it will lead to the imposition of a new type of tax called the inflation tax. Money is needed to allow the growing volume of transactions in an economy supported by the real growth. For instance, if the real growth is 5% and the money supply growth is 5%, it will not cause inflation since the new money is needed to have a smooth flow of transactions in the country. But if it is done excessively over the real growth, it will lead to inflation which is a method of transferring resources from the citizens to the Government.

Inflation tax 

How the inflation tax operates can be explained by a simple example as follows. Suppose the Government gets the central bank to print a 5,000-rupee note and uses it to buy the services of a teacher for one month. The teacher sacrifices her real labour for this 5,000-rupee note but the Government sacrifices only the printing cost, say Rs. 20, in real terms. Hence, it is an unequal exchange in which the teacher makes a bigger real sacrifice than the real sacrifice made by the Government. But why should the teacher agree to this unequal exchange? That is because she is told by the Government that with this 5,000-rupee note she can command a basket of real goods from the market.

For simplicity, let’s assume that there is only one real good and that real good is milk food. If a kilogram of milk food costs Rs. 5,000, this teacher exchanges one month’s real labour not for a piece of paper but for a kilogram of milk food. But if the Government has given these 5,000-rupee notes to others also – which is the case always – they also go to the market to buy milk food raising their price to say Rs. 10,000 a kilo. Now the teacher can buy only half a kilo of milk food for her 5,000-rupee note. The other half of a kilo she has lost is a tax she has paid to the Government. Since it arises from inflation, it is known as inflation tax.

CCPI and elevated cost of living

Let’s take an example to illustrate this point. 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.

Burden of gross expenditure

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.

The last item is money creation and, therefore, it leads to an inflation tax imposed on citizens.

Cut the gross expenditure and not the budget deficits

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.

Hence, the unwarranted increase in the Government expenditure is a worrisome matter for the people of a country.

*The writer, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at waw1949@gmail.com

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Latest comments

  • 17
    0

    “Consider paying all people a “universal basic income” and encourage them to stay at home in order to minimise damages to the country and themselves. It would be cheaper to keep the entire Sri Lankan population at home than providing them with jobs prolonging the period of bankruptcy and agony.”

    Native,

    That’s what you wrote …….. Isn’t that’s what the country/people have done to the 3 people seated in the main photo – paid them well above the basic wage to do nothing?

    Are you cock-a-hoop ……… that your wish has come to fruition …….. if not for all …… but at least for your favourite people of the moment?

    You walk around with a sense of entitlement ……… showing utter disdain for the hard-working sweaters …….. while turning a blind-eye to your favourites!

    That’s how your “Lankan-mind” works ……. look down on the lowly ……. get down on ye knees and worship the high and mighty.

    Typical Lankan! …….. How can/will Lanka ever progress?

    • 14
      3

      nimal fernando

      ““Consider paying all people a “universal basic income” and encourage them to stay at home in order to minimise damage …………………………………”

      Did I say that, oh gosh, isn’t it a realistic assessment/review of what the island has been experiencing since it was liberated by Hindians in 1948? People love to eroneously think the island was liberated by Anagarika, DS, Ponnampalam, Bandas, .. ….. and others.

      “…. get down on ye knees and worship the high and mighty.”

      This was what Anura Kumara Dissanayake did in front of a saffron clad person in a hall of hundreds of his supporters in Toronto a couple of days ago. They need Saffron Blessing. Even the Marxist/Maoist is no exception.

      Now it appears you are with them.
      Think of the country, you will agree with me.

  • 14
    2

    The main problem faced by the Public is that their Parliamentarians and Government Employees don’t think /realise that they are in these positions to SERVE the Public.
    We need a new lot of parliamentarians to guide our country to prosperity

    • 14
      1

      Hello Naman:

      Election after election, has the public been electing worthy politicians? Has the public been electing politicians who respect law and order?

      Was Gotabaya Rajapaksa even remotely qualified to be our executive President? Were the SLPP and allied party MPs who were awarded a parliamentary majority in the last election capable of progressing the country?

      Deeply ingrained majoritarianism has been the foremost priority for the citizenry and has dragged the country down to where we are today. The citizenry earned every bit of its string of failures and suffering.

      • 9
        0

        “Was Gotabaya Rajapaksa even remotely qualified to be our executive President?”


        That’s because Ranil was/is unelectable!

        Just observe, after becoming the president by the backdoor ……. due to some zany situation …….. how he is enjoying the perks of the position. …… For him, it’s not the country or the people but himself.

        The problems of the country, for all these years, was not the Rajapakses but Ranil and his un-electability. Nowhere in the “free world” will any political party let an unwinnable leader hang on for so long.

        It wasn’t the popularity or the abilities of the SLFP-side-of-politics or the Rajapakses that enabled them to rule for so long ……. it was the justified unpopularity among the people of Ranil and his unbelievable long-term stupidity that he masks with little short-term trickery/tricks: people easily saw through him.

        • 10
          0

          cont,

          Mahinda/Rajapakses had to be mindful of his “popularity” among the people, to go back and ask for their vote over and over. …… Ranil doesn’t care for people’s vote because he can’t get it. So he does as he pleases …… sell anything, take any loan, scuttle elections, pass any draconian law ……. hang on by force and any means possible. ……. Of course to serve the country and the people! ……. What else?

          Truth be told, I was once a believer in Ranil ….. but now after observing him firsthand as the president ……. realize that the people who never voted for him were smarter.

          Some live and learn. Some don’t.

          • 10
            0

            Nimal, I too was a believer in Ranil as were many of us.

            Post war, Ranil had repeatedly enticed the North and East with assurances but delivered little.

            Ranil-Sirisena duo self-destructed, Ranil destroyed UNP, and Gotabaya appeared alongside the Easter Sunday terror attacks in 2019, and here we are today.

            Today, it makes sense for the citizenry and industries to rally behind NPP, and support NPP through pre-election and post-election in terms of bridging the gaps on experience and expertise.

            Would the author, Dr. W.A Wijewardena, volunteer?, I wonder!

    • 8
      0

      N
      We the public don’t vote traditional candidate we bring new faces too like
      Weerawamsa, Johnston,weerasekara,Athuruliya thera, Mervin ,Pillyan…..Sir took over the by blessings of Sri Mahabodhi
      ..
      Cut all the perks and privileges just a basic salary happy to serve the people come forward like Grama Niladaries if they needs body guards pay and appoint, police forces are trained to serve the public
      Time after time they focus big religion and the people belongs to ignore the ortheres.

  • 2
    15

    THE STORY OF OUR LIVES

    How Vedda colludes with Ranil to screw us and then tell it’s all our fault – or rather Sinhalese Buddhists’ fault….
    .
    “In economics, this is known as the principal-agent problem.”
    .
    “…. the experience shows is that bureaucrats work toward the attainment of their own personal goals instead of meeting the goals of the people. […] in countries like Sri Lanka, both politicians and bureaucrats work collusively to enhance the budget to serve their own interests.”
    .
    It’s getting clear why they don’t like people learning…the…truth…and speaking…up…against them… such efforts must be crushed at any cost….

    • 13
      0

      Ruchira

      “How Vedda colludes with Ranil to screw us and then tell it’s all our fault – or rather Sinhalese Buddhists’ fault….”

      If Vedda is so powerful why don’t you visit him and worship him? What does stop you from giving Vedda the due respect, honour, donation, …. ?
      You aren’t serious are you?

      • 10
        2

        Native,
        “such efforts must be crushed at any cost…”
        With the customary veiled threat at the end, worthy of the gamey-chandiya they like to vote for….
        No, he isn’t serious. He’s been drinking. With his long-suffering father.

        • 13
          0

          old codger

          ” He’s been drinking. With his long-suffering father.”

          By the way kasippu brewed/distilled in Negambo is supposed to be the best in the land. If he is drinking the cheap brew just to avoid financial bankruptcy no one could help him or his father.

          I wish him well.

      • 2
        9

        Vedda – I don’t think you understand concepts like symbolism in literary expressions. That’s why you take everything literary. That perhaps explains why you seem to think so high of yourself. My comment hasn’t got anything to do with you. Don’t get your whatevers twisted.

        • 1
          12

          The other old donkey has comprehension problems too. Never seem to be capable of understanding anything.

          • 1
            9

            Both seem to have run out proper arguments… well, none ever had any to begin with, I guess…

        • 8
          1

          Native,
          Would a guy who actually knows anything about literary symbolism write this?
          “That’s why you take everything literary.”

          • 10
            1

            Native,
            Is the guy accusing you of stealing books? That’s a new one. 🤣🤣🤣🤣🤣🤣🤣🤣

        • 4
          0

          Ruchira,
          .
          Spelling suggestion for you!
          .
          You have used the same spelling twice. Having tried “literary” the first time, why not make it “literally” the second time?

          • 0
            8

            Thank you Panini. Most of them are due to carelessness while one or two (or atleast one so far) I agree was due to sheer unawareness. This one belongs to the former. I am mostly on my mobile and I think faster than I can type both makes them frequent. I usually, in other forums, overcome it, by using the edit button following posting a comment, but here the feature is absent. A mojor draw back for me. I also have some memory and attention issues that have been worsened by some unfortunate recent events, to which there also is a rather tragic history. None are topics to be discussed here. Anyways thanks for your feedback you’ve been very kind and a good sport. I didn’t try to adress them in each case because the attackers here have a different agenda. It I am sure will get exposed eventually. Sooner if AKD wins, because attacks come from a UNP base (among other places) and has been going on for about 15 years now. So I’m quite used to them. I can clearly see that it’s the same play book. Just different players. I hope your friend in Jaffna is a man of integrity. Coz this time UOJ too seems to be involved … given some of my views expressed here on the so called Tamil National Question. I am waiting for things to surface more…. before jumping to any conclusions.

            • 0
              8

              *major draw back! 😀 I don’t even know how that happened!

              • 4
                0

                Drinking for sure will not help with impaired attention or memory. (professional,
                not my personal opinion )

        • 5
          0

          Ruchira

          “I don’t think you understand concepts like symbolism in literary expressions. “

          Yes I don’t. At least for ones you are right, please explain to us what you meant by symbolism in literary expressions.

          “That perhaps explains why you seem to think so high of yourself. “

          As usual you are wrong. I know and I have said this many times, I am thick. Go back and read what I have always said since 2013.

    • 14
      2

      The same old story of Sinhala Buddhist fascists trying their hardest to rid the blood off their hands, revise history, and make utter fools of themselves. A path of self destruction.

      The more you try to bury truth, the deeper the hole you dig for yourselves. Carry on.

      • 1
        12

        Quote
        “The same old story of Sinhala Buddhist fascists trying their hardest to rid the blood off their hands, revise history, and make utter fools of themselves. A path of self destruction.

        The more you try to bury truth, the deeper the hole you dig for yourselves. Carry on.”
        Unquote
        .
        Why are you so worried then? Let us happily take our self destructive path….

        • 11
          1

          Worried? Me? When one assumes, he makes an ass out of himself.

          Perhaps he who assumed conveniently overlooked the “Carry on.” I repeat… Carry on. Carry on with your deception and reap the consequences.

          Cheers!

          • 0
            10

            Worried is an underestimation… but I can see that you are being demoted to a pawn to unleash a frontal attack. You seemed a better asset behind the scene but hopeless in the front. But good luck, you might need some of it, one of these days…

            • 8
              0

              Childish behaviour, Ruchira

          • 0
            11

            “Perhaps he who assumed conveniently overlooked the “Carry on.” I repeat… Carry on. Carry on with your deception and reap the consequences.”
            .
            ‘Carry on’ may have been the words you typed out of sheer desperation… but to anyone that has been critically following my engagements here for few months and responses they have received, may tell a different story….
            .
            Which makes your ‘Carry on…’ sound more like a plea to stop…
            .
            If you are so interested in the truth, you wouldn’t resort to attacks based on false premises…
            .
            Though you may not be as deviant as some of your more vetearan fellow combatants in the front, you still are a misguided little soldier who seem to believe that he is fighting a good war…
            .
            No war is good. That includes propaganda wars too… and personal attacks… there are no good intentions with which you could fight a war… not in the way you have decided to fight…. but like I said before… good luck!

            • 9
              1

              “No war is good. That includes propaganda wars too… and personal attacks”
              .
              “So chiv – please do enlighten us on the scholarship you received from AIIMS. Can the others, including Chinglakkam apply to it too? Or is it only for Tamil geniuses like yourself? May be it was a one time offer just made for you and only for you. You being the special one? “
              Apparently only some fascists are allowed to make personal attacks……

            • 7
              0

              Hypocrisy and delusions have consumed you, Ruchira! Such an adamant child you are.

        • 6
          0

          We also dragged on to the pits without any choice

      • 6
        0

        WAW
        Thank you for telling us in simple English what has been happening with the Rulers ( Parliamentarians) and their bureaucratic government employees + crooked business people who make use of them to become ENORMOUSLY wealthy without paying DUE taxes as well as getting Bank Loans that aren’t payed back. How do we know the amount of TOXIC loans that has been cancelled by the SL banks.

  • 15
    1

    Talking economic theory to the exclusion of all other factors is like a doctor treating wounds on a patient that is gasping for air, rather than considering ventilation and addressing the life-threatening aspects of the patient first. And in concluding, the author blithely says as follows:

    “Hence, the unwarranted increase in the Government expenditure is a worrisome matter for the people of a country.”

    The worrisome matter for the people is the huge elephant in the room, not the mud marks left on the floor! Get that into your head for starters…

  • 18
    0

    The Sri lankan population should learn lot from the simple analysis of the author. The author has failed to directly point out what happened all over the period after independence. The Coloniosation of North East, Sinhala only policy, Language based standardisation, burning of Jaffna library, state sponsored riots against Tamils are made by few ruling families to introduce racism, fundamentalism, and wars. The only beneficiaries of these are the rulers and their families whole the whole population including Sinhalese now have to pay the costs of the introducion of racism and fundamentalism.

  • 14
    0

    Ranil & Mahinda eating !

    Are they eating Macdonald’s supplied by Abans !

    No way !

    Shiranthi does not like junk food !

  • 1
    1

    Thank you, Dr W.A.W.,
    .
    You write sincerely and soundly. Yet you strive so hard that it becomes intelligible to those who decide to focus on what you say.
    .
    Your success and your sincerity are bound to each other.
    .
    Panini Edirisinhe of Bandarawela.

  • 3
    0

    Citizens Should Be Aware Of The Burden Of Total Government Expenditure.
    The author came to discuss citizens watching government expenditure. That is an excellent proposal, though it is not a workable idea with Langkang political leaders, they use only racist cards to be elected. They have no obligation to the masses so no one can watch them or control them. Their election promises have nothing to do with Finance. They only robbed the country for 75 years, until Country went bankrupt. It is the opposition parties’ responsibility to make people aware of these situations, people understand that, and people take action to correct it. That is what the Author is trying to make himself appear to be, but his aim is protecting the UNP-SLFP opposition-less team to last forever by his complex rhetorics. Yet the author did not talk anything about governments’ true wastes, theft, White Elephants, favoritism-nepotism-cronyism, mafia trades of food items……but rather attempting to brainwash the Modayas, with Nobel Prize winning experts’ tax theories, to make the Elites go scot-free and workers lose even the leftover EPF. UNP Aanduwa’s the Mahaweli or Senanayake ocean projects were organized with one single motive, that is for stealing the Tamils’ lands from North and East and giving it to Sinhala Buddhists and turning Tamils Villages as fully naturalized Sinhala Buddhist villages.

  • 2
    0

    Ugly IMF is supporting this type of minority deprivation by not even asking the Aanuwa to spread out the military evenly so all provinces will be taxed equally by the Rapist Military instead of North only. Chief of IMF Langkang Project Peter Brewer is saying that the country has recovered, then can he list what improvements took place in the North East? By giving the loan in the hands of governments which have no interest in caring for the lower income crowd and minority citizens Is he thinking the country is Sinhala Only country or Sinhalese Only country. After doing all these dastardly acts, Evil said North Easterners are not contributing anything to the GDP, but only southern Province and Western Province are doing their duty. What a shameless U-Turn blaming! How to make the government save?
    Here is a comment which is appearing above:
    “Talking economic theory to the exclusion of all other factors is like a doctor treating wounds on a patient that is gasping for air, rather than considering ventilation and addressing the life-threatening aspects of the patient first. And in concluding, the author blithely says as follows:
    “Hence, the unwarranted increase in the Government expenditure is a worrisome matter for the people of a country.”
    Exactly !

  • 2
    0

    The too simplistic example the author took for his propaganda purpose is only confusing a reader the difference between the demand and supply, which are basic and necessary forces determine the economic level of country, with the destructive level of inflation, which the Langkang faced in 2022,2023 because the Kleptocracy thieves, after looting the government, letting down the people right in the middle of the Covid19 devastation. There is a problem with his example of two teachers each going with Rs 5000 for one merchandise creating inflation tax. He possibly just copied it from somewhere else and brought it here without understanding It. In the example, the market had only one product. If there were two products, the price would not have increased is the theory here. There is no hidden earning for the government as in the example where the government is getting 10,000 services but allowing the teachers to benefit only Rs 5000 value real goods. Tax means some income to the government, but here the government did not gain anything because the lost Rs 5000 was lost at the market level, as inflation. If the government’s clients had benefited Rs 10,000, then the government received Rs 10,000 services, if you say it is a tax then it is always a government gain, provided only if the government is not going to use the collected money.

  • 2
    0

    In this example both were employed by the government. So, they would feel short of Rs 5000 for their expenses only going to ask for the government subsidy in merchandise for minimum standard of living. Here people need $10,000 real goods, it was the market economy on which the government dependent on production failed to deliver the goods. This dampness was not created by the government paying Rs10, 000, when that was the consumption needed and the worth of the services tendered. Then how smart to call the citizens’ loss as the government’s gain, the tax. Suppose if they both were welfare recipients, still it will be the case. (to digress for a minute: unlike Appe Aanduwa Central Bank governors who fought a 30 years’ war. for $400B with 3 months, Chinese LC credits, The Obama Government in 2008, issued guarantees for worthwhile companies to bank loan, issued tax credit for employees, set up buying, selling, or merger contracts for Banks, and released $800b as quantity easing investment loans, in addition to starting Obama Care a cheap or even free medical care for people sustain health when no income. Then for 8 whole years, the country kept growing. Just with a plain law degree President Obama turned into a master economist-financier to beat that massive depression),

  • 0
    0

    Say the government workers in the example who suffered the inflation tax were not workers, not income earners. Suppose, it was not done by the government, but the two teachers, who thought government was paying them Rs 5,000 short and they went to a bank and borrowed that amount and went to market to by the one Rs 5000 thing, same inflation going to come out, though this time a banker made some money, which we do not want to include in this calculation. But one may have to remember that earlier to create the paper money the government had spent Rs 20, while here the bank charges interest to issue the bank credits for clients which is worth Rs 5000 real products. Suppose in your country you have a large gold mine, so instead of paper money, you go for gold coins; as long as the only one Milk product is there, the gold coins are going to lose value. Even if it is an IMF loan, that is the same result. You can call it the government’s tax or consumer’s loss but the situation is the same in all scenarios. When there is a higher need, the government which controls the paper money, cannot resolve that problem by printing more, because it doesn’t deliver the goods and services, only by economic development can do that.

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    That is why, in our earlier talks, we advised NPP to start with farming, create facilities for farmers, make them grow more, print money to pay for them and buy it, keep the mafia out and feed the masses and send them back to work and school. They are no longer in the lines, not because they are fulfilled, but because there is nothing they can buy in the lines, no money, no merchandise. Then start to develop small industries to export and start to pay loans. Under these conditions, you cannot borrow more and create white elephants or bringing Volkswagen will bring any incentive for the shutdown economy to restart. Can anybody explain why the McDonald’s quality fell down in Langkang and they closed down the restaurants. The government has been fooling that they can bring the Volkswagen and maintain the quality! What is the story of Air Lanka which has been giving free liquor? Langkang did not go bankrupt by Covid-19; it went bankrupt only by the notorious Sinhala Buddhist Viyathmaga, who mistakenly thought looting and robbing the poor & minorities is the gentleman’s trades. The two teachers who were spending two Rs 5000 is a bad example of supply side economists. See about the nature of political inflation in this link:
    https://www.inequalitymedia.org/the-truth-about-inflation?gad_source=1&gclid=CjwKCAjw5ImwBhBtEiwAFHDZxy6mh2xhYHLI5lCZu5-KsGg4BCiPrGmx2Yk1VG3JOLdqvyl0PFQOlBoCD3QQAvD_BwE

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    Suppose it was the government who makes the milk product, and both employees did make milk products for Rs 5000, instead teaching, then they will give back the salaries of the Rs 5000 bills to the government and there won’t be any inflation tax. What this tells is that if the market economy crocodiles and mafia in Langkang are not producing enough, the government should nationalize all industries and let the masses produce in its factory, get salaries and buy all that they want. This is what you call socialism. So, the example our CB governor brought only tells Anura to fall back to your hard-core socialism, only that will ease all inflation, unemployment, under supplied goods and services. Instead of finding bogus economic explanations, the people who were sitting in the Central Bank and other economic activity places must support NPP to take the responsibility and turn around the country, with his idea of a semi market economy, instead of the legacy team coming and making this 95B loan as $190B in another 50 years.
    The Langkang Economy is $80B (Now, after a decline of about $15B, It might be close to $70B (We don’t know the exact number because from Cabal’s time anything comes out CB is only a bogus number, Asia Miracle Numbers.) Loans $90B.

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    No part of anything happened in Langkang, the inflation, tax cut or the tax increase can be analyzed by the Nobel Prize winning economists. Langkang economy can be analyzed by any technology Interpol, FBI like policing authorities use, to find out what gimmicks the scammers and other thieves used to fool ordinary Modayas. Even the current IMF loan is about installing the Evil Emperor as the Emperor of the land for a destructive five years (minimum only if he would conduct election as per the constitutional provisions, that time) . Because when the Project Chief, Peter Brewer was questioned, he was supposed to have mentioned that the loan reduction condition was not an issue. He says taxing is more important to make social payments. In other words, what he is saying is don’t rob Peter to pay Paul, it is injustice to the tax paying Peter, the rich, just rob the Paul to pay Paul, the welfare recipient. Isn’t that why the TIN number was introduced to all Langkang voting citizens? (I Suspect Peter Brewer is nervous about robbing Peter as in the proverb because it is his name too, so he seems to be fearing that Evil would rob him when he goes to Langkang next time). Third time he has recommended loan for government without fulfilling the most important condition, which stops sowing the future generation as fertilizer in political leaders’ farms.

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    In these circumstances, one family has earned $30B. That means they can buy 11 ⁄ 2 Langkang and make it loan free. i.e. 30/ (70-90). Country was looted mainly by Rowdy Royals. Then Evil, during the last Yahapalanaya time, by spending time and resources to protect Rowdy Royal from international justice, and to maintain China Veto to block any UN action, the entire Yahapalanaya time was wasted without introducing any honest development projects but kept dodging all the good proposals and FDI offers came from India, America, Japan, EU, Australia. It is the same dirty dodging game he has been playing for the last two years and no material investment has taken place. That crook dismissed the court case brought by 122 MPs in 2018 when White flag Murderer and Old Rowdy King jointly staged a coup de stat on the government. There is no Nobel Prize Winning theory to analyze these looting and hiding crimes of UNP-SLFP traitors. Those looking for honest truth out of this game must vote for NPP with a condition in the election that all these crooks must be investigated after election, and they should keep putting pressure until NPP dragging these barbaric Vellai Vetti Kallar (the criminals who portray then as pious gentlemen) to courts. There is no question about Sinhala Buddhist mental capacity to stand up for the cunning Sinhala Buddhist politicians.

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    Because now the NPP is trying to act as an opposition party in the parliament, there is light on UNP-SLFP union’s co-conspiracy action in the parliament, so the Viyathmahas are coming up with alternate theories.
    There are a lot of theories out there about marginal tax increase and labor supply. They claim that when the tax rate comes down, then the government gets more revenue. Of course this is related to President Regan supporting the school of economists. But it is also well established, President Reagan and his consultants though proposed those theories, they never believed in them. When they define the three main economic theories, they do not include the Supply side theory, but it is included only in the extended 4 theories. No economic theory fits all sizes and neither, there is not any General Relativity Economic theory, which covers all circumstances. Almost all Economic theories go case by case and they face a lot of rebuttals and challenges in all the steps.

    When some money is given to lower income class, whether it’s by tax cut or social security payment, or loan release, they spend it immediately. The money that comes to the market increases the price and the supplier reaps the price increase by producing more. So, profitability increases, and even weaker performers get into production activity.

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    In a situation where imports are barred because of arbitrary government action, only the goods get supplied by the local market in Langkang’s’ by hand made, in the huts industries.
    This is right on the opposite side of borrowed loan based white elephant investments. The devastated economy has to be nursed, step by step. You cannot feed a newborn with mutton Biryani or Chicken Kottu Rotti. Most of the Nobel prize winning theories are for mature economies like Western countries. There, the tax relief only induces imports. Any careless tax reduction doesn’t improve production. Most of the low-income groups are already subsidized a lot. In Langkang, until Evil introduced the TIN, lower income people didn’t pay tax and tax cuts didn’t affect them, so it didn’t influence the labor supply in Langkang. Tax cuts affect only the higher income group and are only influenced by psychological inducement to supply more economic activity as entrepreneurs or as laborers. There is no need-based influence at their level. If they get Tax cut or cut as commission, the smarties only send it to foreign safe haven, but do not set up industries locally. Evaluated $30-50B of rowdy royals invested in mainly financial assets in the foreign safe havens, not technique to make them invest locally, Including the Foreign Exchange Fraud Amnesty act did not bring any of their money to the country.

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    Modayas are under strong grip of Viyathmaga Sinhala Intellectuals, who may need Prize winning theorists to explain how to steal and hide, but the NPP will have to restart from the bottom level, to revive the economy.
    The other 50% inflation example cited by the author is only fake. The 100%+ Langkang inflation was only created by Peoples Bank refusing to pay for Chinese poop and by that international bank refusing to open LCs on local banks, because payments were not guaranteed. The only thinkable solution for the opposition- party-less looting of UNP-SLFP Aanduwas is, NPP setting up Stalin’s government. Do you remember the Sinhala Buddhist Bald Head wanted Hitler government to fix the minority problems. Now we need Stalin who won against Hitler in the war. NPP has to line up all the Sinhala Buddhist UNP-SLFP politicians and their Viyathmaha consultant and make them load in boats and dump in the middle of the Indian Ocean. Then the country will thrive with any loan built White elephants projects. Remember, one-time international Pariahs, Bangladesh and Vietnam are the currently most favored FDI sites in their neighborhood. Harsha and Evil, when they were in one team, the only economic development they did was they brought the Volkswagen Factory to Langkang.

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    There are a 1,000 of projects floating on India’s suggestion list, but not one of them duly signed and set to go, under Evils’ administration. He is just wasting his and local people’s and Indian investors’ time by fooling the IMF for some more loans.

    The Tax reduction, as studied in France and America, after a long time, or if enough time is given to the market to rearrange the capital and labor, it encourages investments and is said to generate more Tax revenue for the government. In all other times, progressive tax is the only workable solution for Langkang.
    Mr. Clean proved who he is even as late last year as refusing to dismiss the “Indian Covid Help Fund Thief, the Rowdy Rambo,” but later dismissing the sports minister for attempting to fix corruption at the sports ministry. They will not correct them even when they go to sleep in the coffin. When the New King vacated the Health Ministry, he said that the health ministry was the most corrupted ministry out of the entire ministries. Parallel is the sports ministry, which was corrupted from Arjuna through the Playboy Minister’s time. Susanthika complained that during her time the sports minister was pressing for adjustments. They later brushed off these accusations and explained themselves, but blamed NPP with all those Nobel Prize winning fake theories.

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    Why a joint bill by all the parties representing the opposition in the Parliament bring a bill to cut all perks, payments and benefits offered to all previous PMs, Presidents, Senior Government Servants and Armed Forces retired senior officers? This should include all security and vehicles provided to them as well.

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