Commentary Economics Politics

Quite a game changing budget

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TheMole
Written by TheMole

By Salahuddin Hisham

November 14 2017

TWO weeks have passed since the 2018 budget was tabled in Parliament. And, that was how long a break this column due to various commitments and deadlines.  

The usual hoopla of political debate and rhetorics to discredit the budget has  died down. The debate in Parliament is back to the usual matters of why not this instead of that or what happens to this and that or seeking for more and less of this and that.

Lacking is the substantive discussion on policies.

Until another mother comes along, the  mother of all budget” was described by economist Tan Sri Ramon Navaratnam, as pragmatic, balanced and generous.

It is a comprehensive budget, beneficial for the poor and showed the current administration’s continual commitment for the rakyat’s well-being albeit with greater emphasis on financial discipline.

It is unlike the heyday of privatisation, where the budget tended to be about new announcement of another mega project or initiative with attention being on who were getting what.

For the opposition to brush it off as an election budget that the generosity was temporary and would end after the incumbent wins the election — is a cliché and repetitive political argument.

If it is an election budget, the easy way would have been to raise BR1M or give a one-off special BR1M payout. Instead, it is a budget that had something for everyone and continuity in the Najib’s administration rakyat-centric policies and enhancing performance through transformation for greater financial discipline.  

Coming into the budget, the main concern was in how it would address the rising prices. The popular and voter-friendly option would have been to spend money on subsidies.

Good thing that was not the alternative taken. Instead Prime Minister Datuk Seri Najib Razak took the option to increase disposable income by reducing income tax by two percent which in turn, could generate savings of between RM300 to RM1,000 per person per month.

Those earning annual income of RM70,000 would be paying income tax of about RM4,750 for 2018 in comparison to RM7,275 for 2008. An estimated 261,000 people with annual income of RM50,000 will no longer be subjected to income tax.

This is consistent with the plan to reduce income tax and source more government revenue through consumption i.e. the Goods and Services Tax (GST). Collection has covered the deficit in oil revenue, in which it will be more challenging far into the future as local reserve gets depleted.      

The renewed confidence on the part of government to offer tax breaks and incentives could  partly be attributed to the improving effectiveness in enforcement by Income Tax Department, NRRET Special Task Force and not to be left out, the Malaysian Anti-Corruption Commission.   

More effort could be done by the Royal Customs, and Royal Malaysian Police to curb smuggling, illegal gambling, drugs and various criminal activities that are leakages to the financial system.

If there is more financial discipline by companies to fulfil their duty as corporate citizens to pay tax, it is not surprising that there will be cut in corporate tax in years to come.

Ideally, the government will not need to go to business to raise revenue had the tax system is efficient and affordable for tax payers to fulfil their responsibilities.

The 2018 budget could be seen filled with the use of tax as instrument to achieve various purposes. To encourage the rental market and indirectly more relief from the rise in prices, there is the 50 percent tax exemption for rental income up to RM2,000 per month.

There is individual tax relief of RM6,000 to encourage those contributing to the National Education Savings Scheme. To encourage women to return to the work force, there is a 12-month income tax exemption.

Now that there is improvement in the tax collection system, reduction in leakage, and financial discipline, government could apply tax as a policy instrument and incentivise aspects of the economy that need boosting.

It is more market friendly and meritorious. It is not a new policy instrument but quite a game changer on the part of  Najib.  

While the middle and upper segment could be incentivised through taxes, government could put more focus on the welfare and uplifting of the B40 segment of the population.

It is more efficient than the past where all segments of the population strived on subsidies and handouts from government.

Not a game changer but quite a game changer is the government’s decision to stop toll at four booths.

Naturally, it is seen as a political game changer but the economic consideration is significant.

Massive privatisation in the past had contributed significantly in the rise of transport and energy cost.

Subsequently, it had contributed significantly to the rise in the cost of living and doing business.

Over the years, it has embedded deep that it is forgotten and the politically motivated blame on GST has diverted public attention.

GST contributed to the rising prices but it was not the weakness of a tax policy used by almost 150 countries in the world.  One can place the blame on weak implementation by the responsible parties and traders taking advantage.

Take former prime minister Tun Dr Mahathir Mohamad who has no answer on where he will get the RM40 billion to cover for the shortfall in oil revenue.

Worse, he had left behind a government almost absolutely dependent on Petronas and a near dysfunctional tax system filled with leakages.

Back  to the removal of the four toll booth, it cost the government almost RM1 billion to compensate the concession owners.

Nevertheless, it signals consistency on the part of government to address the cost of living and doing business.

From Day 1 in office, Najib had set his eye in  addressing this.

1MDB was established to address the burden on the public for the increase in cost from the privatisation of roads and utilities.

These two items have multiplier effects on cost. Unfortunately, it was torpedoed down by cartels and their political master.

It is encouraging that the government has not wavered on this.

Apart from the cancellation of these four booths, new highways constructed like the one in Kelantan and across Borneo are toll free.

A former Umno activist turned staunch government critic used to argue that the government role should be to put proper policies and not participate directly in the economy.

However, to enable policies to achieve the desired results, the system must be in place and working.

It is easier said than done for an economic system that had been tampered for too long. He should have allowed more game changers in place and transformation to take its course before passing such unrealistic views.

Alas,  he is now a member of DAP.

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TheMole

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