Restoring GST means PH admitted Guan Eng messed up the economy

Sunday, May 26, 2019

Restoring GST means PH admitted Guan Eng messed up the economy

Still anti-GST? 

For three years in a row - May 1st 2014  and 2015, and April 2nd 2016, Pakatan Rakyat supporters held an anti-GST rally. Thoughout the GE 14 campaign, GST was the main and most impactful political weapon of mass destruction for Pakatan Harapan to demolish the then ruling Barisan Nasional.

Few Ministers, including Prime Ministers recently admitted rising prices was a result of profiteering in the supply chain, but back the,n GST was blamed for price increases. Now that the system has reverted to SST, prices increased even more and rapidly.

Mahathir was sworn in as PM on May 10, 2018. He then appointed Lim Guan Eng as Finance Minister on May 13. He was supposed to be cleared off corruption case first but sworn in on May 21st. Subsequently, Tommy Thomas-engineered acquital was official on September 3rd.

Understandably, PH has to deliver on this promise.

Guan Eng abolished GST single handedly  

Before Guan Eng was sworn in as Finance Minister, Finance Ministry announced to zero-rise GST starting for June 1st on May 16th. Guan Eng could evade the responsibility but the civil servant would not announced it without any directive, particularly from the appointed Finance Minister. .

To save the government the embarassment for the "unauthorised" announcement, Tan Sri Dr Zeti Akhtar Aziz made the famous "No turning back" statement.

There was a defenisve tone which tells everything when she said, "So we know from the starting point that it has been decided, there’s no question about it. The issue is how it is going to be accomplished."

Guan Eng made a decision ahead of the PM and yet to be formed cabinet to announce abolishment of GST.

Mahathir's plan was to zerorise first but not abolish it yet. Government was supposed to seize up the situation first before reintroducing SST. Apparently, the plan was to maintain GST but at a lower rate of 3% instead of 6%.

When Guan Eng made the announcement, the government was not prepared, had no sufficient understanding on the implication and likely not sure of the financial impact on government. That could be why Zeti said, "We will tell how GST can be abolished in 100 days."

Messed up government cashflow

Guan Eng announced tax holiday for three months from early June. The weekly collection of GST was RM1.2 to RM1.5 billion. For one month, it is between RM4.8 to RM6 billion. And, for three months, that is RM14.4 to 18 billion.

He then realised that government would be short of money and part of the GST system is the rebate in which he has to pay out RM16 billion. Upon implementation of SST, the money will not be coming in immediately but at end of year, (if memory serve me right).

If it takes another three month before any form of tax received, the government will continue to be denied by RM14.4 to 18 billion. That is not taking into account the drop in tax collection due to shrinking economy.

Simple estimate would be to multiply RM18 billion by 3 to derive to RM54 billion. Dato Najib estimated the government budget would be short by RM50 billion!  

When Guan Eng realised the problems arised from his reckless and not thought out announcement, he used the GST rebate and blame on Dato Najib for redirecting the GST rebate of RM18 billion. Customs denied it happen. There have been a PAC on the matter and proven there was nothing wrong.

The abolishment did not result in lower prices and the positive impact expected. No anti-profiteering law was put in place. Malaysia's sovereign rating should not drop according to Zeti but it did. GST was a transparent system and SST was a convenient system for tax evader.

There is a current whispering campaign among Chinese businessmen to sabotage the tax system by mass refusal to pay tax - GST or SST or income tax. No prison cell is enough to fill up tax evaders and government will lose control.

Guan Eng ovezealous abolishment of GST was suspected of catering to the political support of black economy operators.

That should explain why his frantic need to cook up stories of government having RM1 trillion debt in which he latest figure is only . And there was the shallow claim money needed to pay for 1MDB when all borrowing are match against asset which Guan Eng have given a glowing praises for.

To cut it short without having to single it out, the economic impact of Guan Eng's reckless single handed abolishment of GST without consulting PM and cabinet members is the reason why Malaysia is in an economic mess and returning to third world country status to borrow from IMF-backed Asian Development Bank.

Mahathir is losing his water face like foreign plastic rubbish being dumped in Malaysia. Where are the experts claiming abolishing GST is a step in the right direction?

Restoring GST?

Talk has been for quite awhile but when such call to reinstate GST came from G25 Chairman, Tan Sri Sheriff Kassim, one must take it seriously. Before Dato Hamid Bador express his agreement to IPCMC, the last call for IPCMC came from G25.

G25 was the loudest for the call to reduce and reform the civil service. Today it is being aggresively pursud by DAP Ministers at Federal and State level.

They have been vocal on many other reform, especially on matters of religion and Malay issues. But that is too sensitive for a government dependent on voters and now losing popularity dare to take up.

With oil prices only at a level of providing relief but not a bonus to cover government expenses and shortfall. Revenue from various economic sectors declining, Petronas already milked for RM82 billion, GLCs being sold for its proceed to find its way back to government coffer, and government still has commitments.

There is no light seen at the end of the current dark economic tunnel with more negative factors coming Malaysia way including the US-China trade spat. There is much IRD can go after tax evaders. Reverting back to GST could be a necessary option.

It will mean doing another trademark of PH to U-turn. Bigger loss of face to lick back the saliva spat at Najib.

Another round of tax system change and another round of profiteering to result in increase prices. BN-PAS can just sit tight to take over government after a snap election or scheduled GE15. Looks certainly sure....

So it is politically near impossible to restore GST.

The outcome of Daim's six months promise to straighten things out with a Guan Eng and Tony Pua sabotaging would be an interesting case study and moment in history and politics.

It is a scenario where the government's back is against the wall with monetary policies have limited effectiveness to counter the risk of stagflation or possibly deflation, Malaysia begging for international loan, credit rating coming down, capital market ignored, ringgit declining unabatedly and financial system moving towards non-functioning.

Government may need to take the most bitter quinine to stop the malaria but the carrier mosquito is the Finance Minister himself.

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Restore GST for fiscal stability 

Letters

The Star
Friday, 24 May 2019

IT’S time for the Pakatan Harapan government to consider reinstating the goods and services tax (GST) as a means of strengthening market perception on the fiscal stability of the country, more so as it is now reviving stalled infrastructure and other projects and spending more on subsidy programmes to help the poor.

Most economists support the revival of government spending as it would facilitate the achievement of the growth and social objectives. However, this must be supported by a strong revenue base in order to be sustainable.

Also, investors welcome the new government’s reform initiatives to strengthen the rule of law and eliminate abuse of power, as these are important in reviving business confidence and sustaining development efforts.

The market is also impressed with the efforts to reduce waste and leakages in government spending.

While all these initiatives to promote Malaysia as a country with a clean and responsible administration are commendable, analysts have questioned the wisdom of abolishing the GST, as it makes federal revenue more exposed to the uncertainties of oil prices.

As the statistics show, the share of federal revenue to GDP has been steadily declining. At the same time, government operating expenditure has been growing faster than revenue. Salaries and pensions account for 44% of the budget, making it the largest item in the operating budget. It is also the fastest growing expenditure item.

Although there has been much talk of downsizing the civil service, statutory bodies and government-linked companies (GLC), the political risks are too great to expect any significant reforms to reduce the expenditure burden on the non-performing or redundant public sector agencies.

The provision for debt servicing is also rising, taking up 13% of the operating budget.

Expenditure on salaries, pensions, debt servicing and constitutional grants to state governments are non-discretionary in nature, meaning the government is locked into providing the allocations, come rain or shine.

With all these fixed obligations on federal expenditure, there is concern over whether the government revenue base is strong enough to withstand any sudden downturns on commodity prices, especially crude oil.

The proposal on the GST was announced in two previous budgets (1988 and 1993), but each time its implementation was postponed. It was finally implemented on April 1, 2015, but it was then withdrawn in 2018 after the 14th General Election.

GST is a tax on consumption, but unlike the sales and services tax (SST), it covers every stage of the transaction process while allowing manufacturers, wholesalers and retailers to claim credit on the tax paid on purchases of their inputs to avoid being taxed twice. This makes it a superior tax compared with the SST.

It was calculated that even at a lower rate of 4%, GST can yield a higher revenue than the 10% SST, with exemptions being strictly limited to the basic essentials.
GST is also useful in catching tax evaders and bringing them into the tax system. Thus, GST can complement efforts to strengthen the income tax on individuals as well as the corporate sector.

The GST idea gained momentum in the Treasury when Malaysia was tackling its first major economic crisis in 1985/86 caused by the “twin deficits” in the external account as well as in the government fiscal balance.

The government had to cut down on its expenditure so drastically that many projects on the ground were affected.

As public spending was constrained by the budget deficit, the government concentrated the recovery efforts on stimulating the revival of the private sector by relaxing regulatory controls under the New Economic Policy. This helped the recovery process.

The government was faced with another economic crisis following the 1997/98 East Asia financial meltdown. Several reforms were then introduced to strengthen institutional governance in banking and financial institutions and in the corporate as well as the GLC sector.

The administrative delivery system was also made more efficient to facilitate economic recovery. But the government hesitated on the tough fiscal reforms.

As the threats of downgrading our sovereign rating by external agencies became imminent, the government finally implemented the two hot button reforms – abolition of the oil and other subsidies in 2014 and the implementation of the GST in 2015.

These two fiscal reforms were no doubt unpopular, especially as they were implemented in close succession, but they saved the country from the more serious prospect of its sovereign rating being downgraded by credit rating agencies, which would trigger a spiralling effect on interest rates and borrowing costs for business, leading to lower investment, unemployment and poverty.

Currently, there is market talk that some international funds may reduce their holdings of Malaysian government bonds based on fears that with the abolition of the GST, government finances will face a challenging future.

This speculation is having a dampening effect on the ringgit, which is a major factor in the high cost of living, especially in urban areas.

Reinstating the GST would help change the foreign view on the country’s fiscal health and subsequently improve the value of the ringgit and reduce the pressure on cost of living.

There is a saying that there is only one thing more dreadful than death – taxes. Unfortunately, tax is unavoidable if the country is to continue its high level of spending on social services while maintaining a healthy fiscal balance.

For an open economy like Malaysia, fiscal stability is extremely important for sustainable growth.

TAN SRI MOHD SHERIFF MOHD KASSIM
Kuala Lumpur

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