GST: A recipe for economic disaster
To stop fiscal policy disaster caused by GST, the government merely need to stop spending, taxing, inflating and interfering in the market economy
By Medecci Lineil, FMT
One of the great and striking facts of recent weeks is the growing resistance to further taxes on the part of the long suffering Malaysian public famously known as Good and Services tax (GST) or Value Added Tax (VAT).
This article hopefully will represent an Austrian economics analysis which is based on logic and praxeology (human action).
Unlike the market economy, only government acquires its income by coercive imposition of taxes. Refuse to pay your taxes and you will be thrown in jail. Where the government is there is the power to tax, for they cannot rule without taxation.
As Ludwig von Mises wrote in Human Action “The funds that a government spends for whatever purposes are levied by taxation” Or as Murray Rothbard put it in Man, Economy and State “…all state actions rest on the fundamental binary intervention of taxes…”
We have too many government activities, too much bureaucracy, too many elective officers, too many ballots, too many politicians, too many laws and too many elections. From these alone I can see the growth of government at the expense of others for their own benefit.
Every income, every activity, every piece of property and every person in Malaysia is subject to a package of taxation, direct and indirect, visible and invisible.
Probably Malaysians do not realise that government has done a wonderful public relation job. They call you the taxpayers, not victims and the taxes are somehow collected, not stolen.
Taxes are also called contributions, as if it had been a matter of free choice. I rather would regard my action to donate some money to my church every Sunday as free choice. And when there are the attacks on tax “loopholes” or “avoidance” when you are allowed to keep some of your own money. As Mises said, “it is through these loopholes that capitalism breathes.”
Taxation is the wealth destruction that we are subjected to all year long.
In regard of GST, I feel sad though when the taxpayers “victims” easily become angry with the GST proposal for the wrong reason – they simply hate the ruling Barisan Nasional, that’s it. They still love the brutal government and coercive taxation.
At capitalism camp, we have a different view. Nobody really likes paying their taxes. You have a right to what you earn and keep what you earn. Some of them want lower taxes but I believe most of them want no taxes. Real democracy comes with voluntary action not force and coercive action.
The politicians blab about spending cuts, tax cuts, fighting corruption and leakages but it is all lying propaganda in return of GST implementation.
For me, the spending and tax cut debate is more about politics than serious economics. Some say these will raise revenues by increasing economic activities thus providing government with even more money to spend.
Nothing escapes tax
Some say mega projects should be halted and free corruption before the implementation of GST. Others say lowering taxes and spending cut will simply lower revenues and increase deficits. One thing certain is the ability of government to reach in and openly extract funds from everyone’s income has reached its political limit in Malaysia.
The GST is essentially a consumption tax, a tax on the value added by each firm and business imposed on goods and services produced and sold and purchased by consumers. It is levied at each step of the way in the production process: on the farmer, manufacturer, jobber and wholesaler.
Essentially, every time a producer of goods purchases raw materials, he must pay a percentage tax. When the producer sells his goods to a wholesaler, the wholesaler pays another percentage.
The GST makes every businessman an agent of Lembaga Hasil Dalam Negeri (LHDN). In the end the higher cost of goods is passed down to consumers. So the tax is more politically efficient and insidious.
The only difference is that, before this your dissatisfaction rises and point the finger directly at the politicians in government but now you point the finger at the businessmen and trade unions.
Consumers blame the businessmen for inflation while government escapes the blame and join in to denouncing all of these businessmen for causing inflation. As a result, capitalism again has turned into a dirty practise.
From the perspective of the government, this is a near perfect tax and a revenue generating machine, I believe unmatched by any other form of taxation. Nothing escapes the tax.
It touches every stage in every process from new homes to haircuts and allows the government to keep track of every business’s buying and selling. They want to manage the details of business which is impossible.
The GST is a rare and heinous type of government policy that attacks the structure of production; they also attack the time preference rates. When we speak of structure of production, we also must refer to type of goods in production, how they are valued and used, and more important time consuming roundabout method of production for creation of a product.
Every good in a structure of production takes time and involves different sets of individual’s role. For how long a period (roundabout) of production is limited by time preference rates. Put another way, the GST has the ability to increase in real terms the prices of every good produced and sold.
Each step of each productive process with each subjective value of good becomes less efficient and in this manner, the GST necessarily decreases the material standard of living for all of a nation’s consumers.
Goods are viewed as heterogeneous instead of homogeneous. It means that different goods have varying physical features, uses and attributes to every unique individual.
Products like automobiles, laptops, LCD televisions, furniture that result in consumer goods valued much more highly by consumers than the raw inputs. These products are involved in long roundabout in which businesses and entrepreneurs tend to heavily invest capital and labour. Austrian economics recognises that there is a complex structure of production.
A house, for example, would be a consumer good, in Austrian economics, a good of the lowest order in the capital theory. Numerous goods such as wooden beams, drywall, heavy machines, cement, windows etc must be used in constructing the house.
The goods necessary to produce the wooden beams are hammer, nails and human labour. Without the hammer and nails as necessary goods, there is nothing to produce the wooden beams.
The entrepreneurs meanwhile who involve in long processes roundabout goods would find themselves in very difficult position to stay in competition especially in high living cost and recession environment.
At the other hand, middle and lower income group who wish to demand for these products become less apparent to entrepreneurs, less and less affordable to these groups.
