Don’t increase salaries, adjust them

“Inflation” is a general increase in the prices of goods and services in an economy. It reduces purchasing power. So all earnings should be changed according to inflation. That’s a very simple theory. But unfortunately governments and the bureaucracy cannot understand it.

Taxes must of course be increased to cover the gap between government’s revenue and expenditure. At the same time government also should help the public to survive without bearing extra burdens. In that case, the government should adjust people’s salaries according to inflation. Example: The existing salary of a person is Rs. 100,000 If government adjusts the salary according to the inflation (70.2%), the salary should increase to Rs. 172,000.

The Central Bank which acts as the monetary authority of the country, in setting loan interest rates must take more care to determine whether people can afford the loans they take and how these are to be recovered. It is extremely important that the Central Bank, as an independent and responsible institution, advises the government control inflation in the country.

The IMF, apart from granting loans and helping to obtain donor support from other countries, should advise how to sustain the economic balance in the country. While the IMF is aware of the reality it tries to achiever its own objectives. What is surprising is that our government and concerned authorities do not understand that situation. They don’t even have the knowledge to understand that simple scenario.

Irish Perera