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Cost of living and the State

In a market economy it is mainly the purchasing power of the people which provides the key to their economic security and well being. There are two ways of enhancing the people's purchasing power. One, is to increase salaries and wages. The other is to reduce and depress indirect taxes.

Ideally, the first tool of increasing incomes should be deployed by governments in their endemic struggle to bring down the cost of living. Earnings, in other words, need to keep pace with price rises. If for some reason this cannot be done, the alternative method of reducing indirect taxes needs to be tried out.

Accordingly, although we entertain some reservations on how effective it would prove to be in substantially reducing living costs, we welcome the Government's decision to refrain from levying the Valued added Tax on retail trading. We also appreciate the fact that the Government is proving sensitive to the mounting cost of living and the pressures it entails for the ordinary people.

For the majority of citizens, the cost of living pinch is felt most at transactions conducted over retail counters. It, therefore, follows that the withdrawal of VAT from retail pricing processes could help somewhat in easing the cost of living burden. Some essential consumer items, in any case, had been exempted from VAT in view of its cost of living implications but we hope this expanding non-imposition of the tax would have the desired effect.

Ironically, these are times when State intervention in easing economic burdens could be seen to be beneficial. We say it is ironical because government after government has perhaps unthinkingly and mechanically considered it expedient to reduce its presence in the economic affairs of the country. While the principle of pragmatism has to continue to reign in State decision-making as regards the economy, the Government is obliged to ensure that the lot of the ordinary people is eased to the extent possible. This is the reason why the Government's decision to exempt retail trading from VAT should be considered a stitch in time of sorts.

Nevertheless, there is no denying the fact that an arduous task awaits the Government on the cost of living front. While it is clear that the boutique and street vendor wouldn't now have his stock excuse of VaT to push-up prices, the average local trader and businessman could be expected to live up to their notoriety of concocting varied vague reasons for maintaining price levels if not increasing them.

It is the responsibility of State bodies, such as the Department of Internal Trade, to ensure that goods and services are sold at the correct prices but one cannot dismiss lightly the near impracticality of uniformly and consistently enforcing the rules. Perhaps, the proposed Consumer Protection Authority would fashion the needed to tools to keep goods and services at purse-easy prices. We would have, as the saying goes, "to watch the situation."

Meanwhile, the disturbing spectre of rising prices continues to hover on the horizon. The immediate trigger to this situation could take the form of a war in the Gulf. In this event, fuel prices could rise to unprecedented heights, triggering the much feared cascading effect on a wide variety of local prices. Adding to the discomfiture is speculation in some quarters about gas prices.

The cloud, however, is not without its silver lining. We are compelled to observe that the CWE is currently doing its utmost to bring a measure of relief to the consumer. We notice that, for instance, CWE outlets sell a loaf of good quality bread at a price lower than that prevailing in the open market. This is proof of what could be achieved by the CWE and perhaps even the humble cooperative store if revived and given the necessary strength to meet the needs of the consumer.

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Copyright 2001 The Associated Newspapers of Ceylon Ltd.
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