PARLIAMENT passed the Tk 464,573 crore national budget for FY 2018-19. Various studies have indicated that if the government expenditure rises the GDP increases and vice versa. So, to enhance the GDP of Bangladesh it is recommended to increase the level of expenditure. But could the GDP increase by a higher rate? And what effect would government expenditure have on inflation?
We have to understand that government monies come from the public. The budget for the current fiscal year showed that government’s revenue earnings would largely depend on NBR-generated (National Board of Revenue) tax (Tk 2,96,201 crore) followed by other sources like non-tax revenues (Tk 33,352 crore) and non-NBR tax (Tk 9,727 crore). Still, there will be an income-expenditure mismatch of Tk 1,25,293 crore.
So when the government takes money from the public and spends it on wasteful expenditure like increasing the salaries of government servants, it means that monies have been earned productively to spend on unproductive sources. This forces firms to jack up their prices to enable them to stay in profit and in turn increases cost-push inflation. Inflation reduces the purchasing power of the average citizens. All the while firms are forced to offer reduced salaries to their employees which further hits their purchasing power.
Taking money from the private sector to pay government employees higher salaries thus has a double whammy effect on the private sector employees who generate most of the country’s demand. The overall government expenditure is barely 18 percent of GDP–but it takes away incomes from the private sector which could have generated more jobs and created a greater push for GDP growth than the amount which the government spends on the economy.
So we can say that government expenditure on increasing the salaries of civil servants would have a negative effect on overall GDP growth. The government needs to realise this and only spend money in real infrastructural developments which have not been inflated by corruption or other non-essential costs. We are already spending record amounts of money for infrastructural developments–there is no need to increase the burden on the national exchequer.
We have to understand that government monies come from the public. The budget for the current fiscal year showed that government’s revenue earnings would largely depend on NBR-generated (National Board of Revenue) tax (Tk 2,96,201 crore) followed by other sources like non-tax revenues (Tk 33,352 crore) and non-NBR tax (Tk 9,727 crore). Still, there will be an income-expenditure mismatch of Tk 1,25,293 crore.
So when the government takes money from the public and spends it on wasteful expenditure like increasing the salaries of government servants, it means that monies have been earned productively to spend on unproductive sources. This forces firms to jack up their prices to enable them to stay in profit and in turn increases cost-push inflation. Inflation reduces the purchasing power of the average citizens. All the while firms are forced to offer reduced salaries to their employees which further hits their purchasing power.
Taking money from the private sector to pay government employees higher salaries thus has a double whammy effect on the private sector employees who generate most of the country’s demand. The overall government expenditure is barely 18 percent of GDP–but it takes away incomes from the private sector which could have generated more jobs and created a greater push for GDP growth than the amount which the government spends on the economy.
So we can say that government expenditure on increasing the salaries of civil servants would have a negative effect on overall GDP growth. The government needs to realise this and only spend money in real infrastructural developments which have not been inflated by corruption or other non-essential costs. We are already spending record amounts of money for infrastructural developments–there is no need to increase the burden on the national exchequer.
