The new Budget and Perkasa
The Government cannot maintain a cavalier attitude towards Perkasa, hoping that its toxic ideas will disappear and have no effect. Europe made the same mistake in the Nazi era and it took a World War to correct it.
Zaid Ibrahim
The 2014 Budget has been tabled and Malaysians will hear vigorous debates in Parliament on a wide range of economic issues over the next few weeks.
The introduction of the Goods and Services Tax (GST) to replace the Sale and Service Tax (SST) in 2015 will be the chief topic of these discussions. The Opposition has set itself firmly against the new tax, citing the hardships that will ensue for the poorer sections of our community.
Reading the newspapers, it appears that many people believe that the Government has delivered a good Budget, with the right emphases on infrastructure and the continuation of spending on development. These initiatives are coupled with fiscally-prudent measures to reduce the deficit by cutting subsidies and raising revenue.
Proponents of the GST maintain that, at a rate of six per cent, the new tax will not cause as great a shock as anticipated, particularly if the SST is removed. Also cited is the fact that no income tax is payable by low-income earners, which will go a long way towards cushioning the impact of the GST particularly if, as the Government says, inflation is low. Cash handouts in the form of BR1M payments will also be paid to households earning RM 4,000 or less.
Almost all of this is in dispute. When the Government says that the GST “widens the tax base”, it simply means that more people will be taxed—i.e., those who weren’t taxed previously will be taxed now. There is no escaping this fact.
Sweeping statements about how the GST will be good or bad are of no use to us without proper arguments. So far, impact analyses have focused on price changes affecting the supply chains of single products and services. This tells only half the story. No one to my knowledge has attempted any comprehensive analysis of the impact of GST on monthly household income, with proper accounting for income levels and urban and rural differences.
Also, the actual rate of inflation has been in dispute for some time. The Government maintains that it remains at a low two to three per cent but anecdotal evidence suggests a much higher rate year-on-year, particularly in urban centres. Likewise, few have called for an examination of the macroeconomic effect of BR1M handouts, especially their effect on inflation and the devaluation of the ringgit.
On Oct 21 Pemandu CEO and Minister Datuk Seri Idris Jala said that the GST will gain extra revenue because “we expect more and more people to become affluent as measures to increase income bite and become reality.”
BR1M does not make you affluent. According to the Economic Planning Unit, 55.5 per cent of households earned RM 4,000 or less in 2012. Assuming that this number hasn’t changed much this year, the Government therefore deems the majority of the population to be eligible for public financial assistance—and we haven’t even introduced GST yet. Will we end up giving people handouts so they can pay it all back to us in the form of tax?
That said, the idea that the Government can continue to sustain itself only on corporate and personal income tax—and with only 1.7 million out of 29 million Malaysians paying the latter—is completely unrealistic.
Many countries that have introduced GST have also set up special bodies to deal with issues surrounding its introduction. Price escalation is not caused by taxes alone, and the Government must reduce inefficiencies in the delivery system. The price of sugar, for example, might be higher because of subsidy removal but it can also be the result of production and logistical costs, as well as monopolistic practices. Telling the people that they will be healthier by consuming less sugar should be left to the doctors. Policymakers should find other ways to make their arguments.
It is also true that the civil service is bloated and the Government must do more to increase its own productivity and efficiency, and reduce its monumental wastage. Slashing the number of civil servants is easier said than done—the civil services of some Opposition states also have high headcounts, so trimming staff can be politically dangerous—but efforts must be made to contain the increasing costs of public expenditure.
The debate in Parliament should also focus on other factors that undermine our economy. There is hardly any separation between economic and social issues today, and GDP growth is closely tied to continued peace and stability. Groups such as Perkasa are a threat to this security. They must not be given more leeway to peddle their lunatic ideas.
