2015 Budget (3) – A Critique
by Economic Observer
18th October 2014

The Prime Minister has attempted to offer soothing statements concerning the scope and coverage of the GST.

He has listed a whole list of items that will be exempted. While the list may be impressive, the value of the items that will be exempted remains shrouded.

Such claims as “ Of the 944 goods and services in the basket of goods of the CPI, the prices of 532 items or 56% are expected to reduce up to 4.1%.” or “Meanwhile, about 354 goods and services may experience some price increase but less than 5.8%” offer little clarity. No indication is given about the burden to be borne by an average household or the percentage by which the CPI will rise.

The Prime Minister indicated that the GST will yield RM 23.2 billion in gross revenue. However, with the implementation of GST, the Sales and Services Tax (SST), will be abolished resulting in revenue foregone of RM13.8 billion.

He went on to state: “This means that after deducting RM13.8 billion and RM3.8 billion from a revenue of RM23.2 billion, the Government will have a balance of RM5.6 billion.”

He went on to claim that of the total, RM4.9 billion was being channeled back to the rakyat through assistance programs such as the increase in BR1M.

“Finally, net revenue collection from GST will only amount to RM690 million.” This latter statement is remarkable indeed and is designed to minimize the collection from this new tax.

The Minister has side-stepped pertinent questions concerning the impact of the GST on middle and low income households by referring to the tax reductions.

The beneficiaries of the reduction in personal and corporate income taxes will be the upper income groups and crony corporations.

The stark reality is that those in middle and low income earnings groups will be dealt a severe double blow by way of the impending reduction in subsidies on fuels on the one hand and by the GST imposition.

The increase in BR1M and other handouts offers partial relief to the poor and needy but is insufficient to mitigate the adverse outcomes associated with the GST and so-called subsidy rationalization.

On the other hand, the tax reliefs and other giveaways are directed at the rich and well off members of society and constituencies that offer support to the BN.

What emerges from this tinkering with the tax structure is a monumental shift in tax policies.

These changes taken as a whole point to an anti-poor tilt while favoring the well-off segments of society. The wide income disparities that exist will be further widened.

These steps run counter to the notion of an egalitarian society in which all citizens enjoy the fruits of development.

The Prime Minister has attempted to make a case for subsidy rationalization.

While there is indeed a case for rationalization, questions arise as to which subsidies ought to be targeted and the pace at which they should be reduced or eliminated.

The Prime Minister seems obsessed by the need to reduce the subsidy on petroleum and fuels without taking account of the impact on the working poor dependent on private transportation.

He has not addressed the question of generous subsidies and concessions granted to toll road operators, independent power producers and tax rebates to industries.

The time has come for an overall Public Expenditure Review. Such a review is long overdue and should be carried out immediately to remove distortions that have accumulated over the years.

There is considerable room for mounting a reform agenda.

(to be continued)