Pakatan at CGT just as bad as BN at GST
Hazlan Zakaria, The Ant Daily
I would have loved to tell opposition pact Pakatan Rakyat of their alternative budget that “you had me at CGT,” but alas that is not to be.
Despite ardent criticism of BN’s incomplete Goods and Services Tax (GST) argument, Pakatan failed to deliver their own cogent points to justify a Capital Gains Tax (CGT) beyond the rhetoric.
In the opposition pact’s alternative budget, the CGT was proposed citing the ideas of popular French economist Thomas Piketty but failed to provide analysis of its own to back their assertion.
Piketty whom Pakatan said shook the world through his book ‘Capital in the 21st Century’ concluded “that the wealth gap that separates rich and poor will worsen in the capitalist system if no specific actions are taken”.
The document proposed that more progressive taxes which tax from the rich and protect the poor should be introduced and strengthened as per the idea of the popular economist.
Pakatan argued that it takes the “position that a responsible government will find the fairest ways to tax various forms of capital and profits since these are mostly enjoyed by the wealthy.”
Thus GST was suggested. But this is where Pakatan fell short.
Stating that Prime Minister Datuk Seri Najib Razak should introduce CGT “since this is also being implemented in 127 other countries” like the government’s argument for GST is cute but not enough.
Inferring that only the wealthy is engaged in capital gains is also faulty for while it can be assumed it is easier for the rich with the money for capital investments, that does not mean the less well-to-do do not engage in it.
As Wayne Allen Root wrote in Forbes in 2013: “Capital gains are a wonderful, beautiful, magical thing allowing millions of Americans to change their status in life, and live the American Dream.”
“They aren’t just for Mitt Romney. They are for anyone who ever wants to become Mitt Romney. Or, wants their kids to do better than the last generation. They are for butchers and bakers and candlestick makers to send their children to Columbia and Harvard. Low capital gains tax rates define the American Dream.”
He was arguing against hiking capital gains taxation, the net effect of which is similar to introducing one in Malaysia. The reference to Mitt Romney was to illustrate the super-rich who are supposed to be taxed by CGT.
While the rich which already have money may stop investing in capital and equity if the tax is high, taxation will also increase the cost and reduce profit for the less well-to-do who wants to sell capital assets and equity of their own.
How to guarantee CGT won’t limit our very own Malaysian dream? That the poor who wants to improve their lot by using capital assets won’t feel the brunt?
Similarly Malaysia’s vibrant SME and entrepreneurial sector may be affected as investments into them involve change of equity and capital.
It will be more expensive for investors to exchange investment for equity in SMEs and start-ups which may restrict growth in that sector.
Pakatan has not mentioned any solution to this and I don’t mean blanket reference to “best practices”.
That just doesn’t cut it. If you are proposing CGT you must spell out all the kinks and fixes. Else you might as well be speaking Greek or proposing GST ala BN.
Neither is the simplistic defence that those “who give the excuse that the introduction of the CGT will result in lower investments” don’t hold water and is a “weak excuse” just because all European countries which are part of the OECD impose CGT.
Where are the data to show that CGT will equalise wealth distribution and is a better tax system?
True enough as Pakatan stated “the United States and United Kingdom have one of the highest CGT rates in the world of up to 50.8% for the United States (the fourth highest in the world) and up to 46.7% for the United Kingdom (the eight highest in the world).
What Pakatan failed to mention is that just as there were protests against GST in the countries that implemented them, so were there protests against CGT in those same countries.
The US has been mired since 2009 in a campaign to cut CGT as it is argued to be restrictive to the economy.
UK citizens are facing CGT not only on traditional capital assets but wandered into possessions and personal goods.
New Zealand is facing the same battle between the pro and cons of CGT this year.
I don’t buy Pakatan’s assertion that public knowledge outweigh proper research and data documentation as stated in their ‘argument’ for the Capital Gains Tax.
Who in the public knows all this? May I ask?
And as for GST being a complex tax, some said the same of CGT.
As Maria Slade of New Zealand’s Unlimited Magazine wrote:
“CGT is complex and would inevitably give rise to a host of exemptions. It involves paying out deductions in the bad times when many capital assets lose value, and it distorts investment behaviour.
“And because it involves the actions of private investors, calculating how much additional revenue it may bring in is largely a finger in the wind exercise. Likewise its ultimate effect on the Kiwi property market is unknown – Australia has a CGT and still experiences housing bubbles.
“Implementing a capital gains tax to address inequality is a feel good policy. It’s unlikely to be effective and its greatest achievement may be to line the pockets of legal and accounting professionals.”
Indeed Pakatan’s use of Piketty’s ideas as a guide for policy seems to belie the warning by the Economist in May this year that “Thomas Piketty’s blockbuster book is a great piece of scholarship, but a poor guide to policy”.
The article titled “Capitalism and its critics: A modern Marx” written after a negative analysis of Piketty’s book by Financial TImes economics editor Chris Giles who pointed out that irregularities in the data sets used by the French economist, acknowledged that Piketty had contributed to his scholarly field of study with his novel approach to the topic.
The Economist article argued Piketty’s theory and assumptions however remain to be proven, thus it is still a hypothesis and “not an iron law”.
“Mr Piketty’s focus on soaking the rich smacks of socialist ideology, not scholarship. That may explain why “Capital” is a bestseller. But it is a poor blueprint for action,” read the article.
Indeed one wonders how serious Pakatan is in formulating a real alternative budget when it is based on a popular and sexy-to-the-rakyat but unproven idea.
Of course there are also arguments that support CGT, but it is not my job to argue them, but Pakatan’s.
In the words of the characters from Jerry Maguire, “Show us the money Pakatan”.
