Bring back GST? OMG!

The GST was repealed in June 2018. But in recent weeks with Budget 2024 to be tabled, the option is being touted as the most sensible and responsible thing to do. The Federal Government’s deficit has ballooned to about RM100bn per year. And total federal debt (excluding contingent liabilities) has soared to RM1.2tn.

Proponents of the GST argue this consumption tax will cut the government’s deficit. They also believe this tax will convince investors that the government is being fiscally prudent.  And perhaps more investments will flow into the country.

Source: https://ms.wikipedia.org

For the poorer section of society, who spend almost all their income, a 6% GST rate consumes 6% of their income. For the richest layers of society who save or invest half of their income, a 6% GST effect could be half of that! So, consumption taxes, like the GST, affect the poor more than the richer layers of society. Hence it is regressive.

Currently we have an unfair wealth/income distribution and lower taxes for rich individuals and corporations. Our gross domestic product (GDP) has grown 23 times in real terms (ie after factoring inflation) over the past 50 years. But the median wages of factory workers in real terms is only 1.4 times what it was 50 years ago.

Government revenue has dropped from about 27% of GDP in the 1980s to 13% of GDP now. Why? Malaysia has cut its rate of corporation tax from 40% of profits in the mid-1980s to 24% now. It is in competition with Vietnam and Thailand, both of which are taxing companies 19% of profits.

The lopsided distribution of Malaysia’s national income is not some abstract theoretical concept. It has a profound impact on low and middle-income families, most of whom are drowning in debt. Many are forced to work overtime or take on extra work to make ends meet. And plead with EPF to release what is left of their money.

Health department statistics reveal that close to 20% of Malaysian children below the age of five are stunted. This means they are well short of the expected height for children of their age. Isn’t 20% shocking for a nation that prides itself as standing on the threshold of being a ‘developed nation’? Any policy that reduces the disposable income of the low and middle-income groups must be rejected.

People around the world are now realising that the failure of the richest individuals and companies to pay their share of taxes is the key reason the social safety net is fraying in many countries. This failure also explains why we are unable to commit enough resources to mitigate climate change and switch to renewable energy more quickly.

The global minimum 15% tax on large multinational corporations is to be implemented in 2024 reflects this awareness and concern. So, a responsible government ought to tackle this root cause of its deficits and debt. It should refrain from resorting to the GST to squeeze an extra RM30bn from the overburdened lower-income groups.

If you ever wish to implement GST, please remember two conditions:

(i) the country is classified as a developed nation; and

(ii) the Gini-coefficient is below 0.35 (and not 0.4 as currently)

Reference:

Bring back GST? That would be highly irresponsible! Jeyakumar Devaraj, Aliran, 17 September 2023

Has Medical Tourism Fully Recovered?

Medical tourists are returning to Malaysia and are expected to surpass the pre-Covid-19 pandemic level in 2019. This is with the reopening of borders, quality service and competitive pricing.

The top countries of origin for these travellers include Australia, Bangladesh, China, India, Indonesia and Japan. Based on data by the Malaysia Healthcare Travel Council (MHTC), the number of healthcare travellers showed an increasing trend, reaching a peak of 1.22 million individuals in 2019. However, there was a significant decline in 2020, with only 689,000 healthcare travellers recorded. This downward trend continued in 2021, with the number further decreasing to 561,000. The figure picked up to 850,000 last year, contributing RM1.3bil in revenue to the country.

Industry reports suggest up to 70% of inbound patients are from Indonesia. This is followed by countries in the Middle-East, India, China, Japan, Australia New Zealand and the U.K. In the first 11 months of 2022, Penang welcomed 144,975 international medical arrivals. Of this, 54% were from Indonesia, followed by Bangladesh and India. Penang’s revenue from medical tourism reached RM285 million in 2022 from RM61 million in 2021.

Source: https://www.freemalaysiatoday.com

Among the top treatments sought after in the county are general health screening, cardiology, fertility, oncology and orthopaedics, including medical and surgical-related as well as cancer treatments. The healthcare travel industry is on its way to achieving post-pandemic recovery, having reached 76% of its pre-pandemic performance of RM1.7bil in 2019.

The Association of Private Hospitals Malaysia president Datuk Dr Kuljit Singh is of the view that high-quality medical care at an affordable cost is the attraction compared with other countries within the region.

The Government could do more by working with the private sector. Our value-add services must be comparable to Singapore and better than Thailand. We also need to counter India and Dubai where procedures are promoted for potential foreign patients.

It is not just facilities but doctors, surgeons and a whole host of medical/care support. If we present the “right” incentives, we may generate revenues above RM7.0 billion in hospital receipts with spill-over economic impact valued at almost RM30 billion, for period 2022 to 2025. That’s the view of MHTC. For strategic collaborations in key markets, MHTC has established ties in Indonesia, Australia, Bangladesh, Cambodia, China and Myanmar. It could do more with Japan, South Korea and Europe in the list!

References:

1. Medical tourism alive and well, Allison Lai and Khoo Gek San, The Star, 22 September 2023

2. Recovery of Malaysia’s medical tourism sector in the bag, more markets targeted, Cheryl Poo, The Edge Malaysia, 16 August 2023

What Do We Need in Budget 2024?

Moderating global economic growth in the second half-year of 2023 (2H23) and in early 2024 suggests global real gross domestic product (GDP) may grow between 2.4% and 3% in 2024.

For Malaysia, three key risks stand out regarding the domestic economic outlook in 2H23 and 2024. The first relates to the lag effects of higher interest rates in advanced economies and the downside risks to China’s economy. 

The second risk is inflation and cost of living pressure which the Madani government had entrusted a task force or committee to tackle. Food inflation and services (transportation) inflation might return, given the anticipated domestic subsidies rationalisation scheme.

Source: https://www.thestar.com.my

The third risk is continued high business costs due to the weakening ringgit, wages, energy bills, and climate change as well as environmental, social and governance (ESG) compliance costs.

Budget 2024, to be tabled on Oct 13, is an important one as it has to initiate some unpopular yet necessary reform measures to rebuild fiscal buffer. Revenue limitations, rising costs and subsidies pressure had taken a heavy toll on the budget. The budget will still need restrictive yet responsible spending. 

Amid the allocation of development expenditure estimated at RM90bil in 2024 (RM97bil in 2023), the ministries and agencies must have the implementation capacity. 

The budget must have measures to ease the burden of the vulnerable group and lower-income households, unleash the potential of green growth and transition, accelerate smart technology and digitalisation, job creation and income enhancement as well as care for the elderly and ageing community.

There has to be measures on food security and tourism. A review of the Malaysia My Second Home and higher allocation for the preparation of Visit Malaysia Year 2025 need to be tabled. The property sector may need a lift like the Home Ownership Campaign and the stamp duty exemption for properties priced from RM300,001 to RM1mil.

The government should include a detailed plan on measures to broaden its revenue base. Attempting to address revenue shortfalls through the luxury and capital gains tax (CGT) on the disposal of non-listed private companies’ shares,  could have adverse effects on the domestic luxury goods market, entrepreneurial and start-up development. There are concerns that the CGT will cover other asset classes too. The government should lay down a fiscal consolidation roadmap, outlining a timeline to broaden revenue and control expenditure (especially inflated prices for mega projects) and not some ad-hoc measures.

Roll out the targeted subsidy rationalisation on fuel in stages and gradually. Otherwise it is inflation – a tax on the poor. Prices of subsidised goods and services could also be gradually raised to allow manageable impact on inflation and cost of living pressure. Resource allocation of the budget must also address the fundamental issues of effective governance. The government has to expedite the enactment of the Fiscal Responsibility Act and Government Procurement Act in 2023-2024.

There are two key sectors that will have an impact on GDP – services and manufacturing, together they make up over 80% of our GDP. So some specifics on this may include:

• Reinvestment Allowance (RA) is extended for businesses that have exhausted their 15-year term and the additional RA will end by end-Dec 2024. 

• Appoint a lead ministry or agency to oversee national ESG agenda, together with the participation from all other ministries and agencies. 

• Low-hanging measures to encourage the installation of solar for the households and businesses. We need some support to implement this and TNB could assist with the capex subsidy for consumers.

• The budget could reveal the structure of the Progressive Wage System (PWS), which aims to uplift the wage of employees linked to productivity improvement and up-skilling. 

• Remove APs and heavy protective duties to shelter re-badged Protons, Peroduas and Modenas.

• Actively work on reducing red-tape – the cause for more corruption.

• A total of RM1.37 trillion of Domestic Direct Investment (DDI) was approved since 2013 to the first quarter of this year. Of this, 73.3% came from the services sector, the manufacturing sector (21.3%) and the primary sector (5.4%). Focus on SMEs and steps to assist them.

Of course, as individuals we want tax relief or low taxes, greater support/subsidy and less government. But that’s not possible if we want world-class services. Just review the Scandinavian countries, their tax rates are “high” but they provide a range of services which consumers find good or reasonable. The outcome is low income inequality and everyone enjoys an acceptable and similar standard of living.

The other is to mimic “low” tax havens and leave “market forces” to determine price, quality and quantity. Then there are still many other countries which take a “middle” path and end-up in confusion! We need to be clear on what we want, the Scandinavian model? The laissez faire model? Or, some “mixture” which requires adequate definition!

Reference:

The reforms we need in Budget 2024, Lee Heng Guie, The Star, 21 September 2023

Are We Short of Rice?

Local rice has gone missing. A Federal investigation is required? Not just consumers are wondering, wholesalers and retailers too. If we produce 70 per cent, it must be in the shops. But it is not there.

The owner of the Mydin Hypermarket chain and president of the Bumiputera Retailers Organisation, says local rice had disappeared a couple of months ago. From hypermarkets to supermarkets to retailers are saying the supply of local rice has been negligible. This fits a Malaysian pattern. When prices of imported goods go up, local goods are "made" to disappear, only to reappear as imported ones. Is it greedy commerce?

https://www.freemalaysiatoday.com

Local rice has a control price of RM26 per 10kg, while imported rice is being sold at RM33 per 10kg. A price difference of RM7 per bag is quite a temptation many find hard to resist. The price of imported rice is slated to be RM39 per 10kg shortly. There is also a rumour that a tycoon who has monopoly interest on rice is behind this.

And what is the Agriculture and Food Security Ministry's response? They have asked the millers and rice wholesalers to increase the local white rice supply by 20 per cent. The Prime Minister may have broad enough shoulders to bear the weight of the cabinet, but he can't do everything. So where is the Agriculture and Food Security Minister?

Bernas, which has a monopoly to import rice, said it has distributed 630,000 metric tonnes of white rice from January to August, a 38% increase compared to the average monthly sales over the past five years.

The Agriculture and Food Security Minister said the government will need a “strong reason” if it is to end Bernas’s monopoly on rice imports as it is bound by a 10-year agreement which runs from Jan 11, 2021 to Jan 10, 2031.

This is only rice. What about eggs?  Have you noticed there is a shortage of eggs? One retailer says he has not seen eggs for two weeks. Next, could be flour or sugar or salt. Then vegetables? All these are ingredients for a general and sustainable increase in prices – i.e. inflation. Meanwhile, the Government has a task force (or committee) on cost of living. Can the Madani Government remove price control and permit more than one player for supply of rice?

References:

NST Leader: Short of Rice? News Straits Times, 4 September 2023

Enough white rice, no need to use govt stockpile, says Bernas, FMT Reporters, FMT, 

28 September 2023

The Mid-Term Review of 12MP: What is at Stake?

The Federal Government has raised its revenue target for the five-year period in 2021-2025 to RM1.43 trillion under the 12th Malaysia Plan Mid-Term Review (12MP MTR), from RM1.22 trillion forecasted previously.

On the broadening of the revenue base, the plan was silent on the reintroduction of the goods and services tax (GST). Instead, the capital gains tax (CGT) will be introduced in January 2024. This is not surprising as the proposed introduction of the CGT on non-listed shares of corporates was announced in the 2023 budget. The CGT would stifle start-ups and entrepreneurship development. There is no guarantee that the CGT will not extend to cover other asset classes in the future.

Source: https://www.acccimserc.com

Meanwhile, the Government will spend RM90 billion each year in development expenditure in 2024 and 2025. It has earmarked RM97 billion in development spending in 2023.

The GDP growth target throughout the 12MP is projected at 5% to 6%, from 4.5% to 5.5% target earlier prior to the review. Malaysia’s GDP growth stood at 5.9% in 2021-2022, and is seen at 5% to 5.5% in 2023-2025. This is a “tall” order or an aspirational goal!

Fiscal deficit target is at 3% to 3.5% of national GDP by 2025, from the expected 5% for 2023. 

Private consumption, which increased by 5.1% in the first half (1H) of 2023, is projected to increase by 6.1% p.a. in 2023-2025 (6.4% p.a. in 2021-2022), supported by stable labour market conditions and better income growth. The unemployment rate is projected to improve significantly to 3.3% in 2025 from 3.9% in 2022.

Private investment, which had grown by 4.8% in 1H 2023, is projected to increase by 6.4% p.a. in 2023-2025 (4.9% p.a. in 2021-2022), looks feasible if we manage to attract high inflows of quality foreign direct investment and drive more domestic direct investment. Nominal private investment would amount to RM328.4bil or 15.2% of GDP in 2025 (RM222.3bil or 15.7% of GDP in 2020).

Inflation is expected to increase by between 2.8% and 3.8% p.a. in 2023-2025 (2.8%-3.8% in 2021-2025), attributed to the gradual implementation of a targeted subsidy. Inflation pressures could flare up given the risk of supply shocks as well as changes in domestic policies concerning price subsidy and ceiling price controls. Business cost pressures, including employment costs could emanate from the implementation of a multi-tiered levy and Progressive Wage Model, along with still elevated cost of domestic and imported inputs.

Gross exports, which had expanded strongly by 25.5% in 2021-2022 have declined by 5.9% in Jan-Jul 2023, are projected to increase by 3.7% p.a. in 2023-2025. This will be supported by the expected economic recovery of major trading partners, trade expansion leveraging on the Regional Comprehensive Economic Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. A conducive trade ecosystem to facilitate exports will enhance export capacity and expand market access.

A beautiful plan could be prepared. The key is execution. This is the key sticking point for most of Malaysia Plans. Actually it is true for most countries with some form of central planning. The other is leakages – we now have a culture where 30-50 sen out of every ringgit could go to non-productive sectors. A laptop that costs RM1,000 is bumped-up to RM1,500 – and who pays? The rakyat. So, for the PM to succeed he needs to have great monitoring/follow-up and exceptional control of leakages. And what is at stake is Madani Government’s ability to deliver the “Promised Land”.

References:

Putrajaya lifts revenue, GDP growth target for 2021-2025, Izzul Ikram & Choy Nyen Yiau, TheEdgeMalaysia.com, 12 September 2023

How the Mid-Term Review of 12MP stacks up, Lee Heng Guie, The Star, 14 September 2023

Calibrated Steps for War: An Image Creation?

The Iraq war was a military action that claimed half a million lives, racked up a $2 trillion price tag, and resulted in untold costs for a country that remains in disarray. Major media outlets, like the New York Times, were careful to include editorials that acknowledged the war’s grim adolescence. CNN featured a piece that urged Americans to “not to repeat the mistakes of the past” in light of the destruction that the war has brought. Absent from much of these discussions was how the American media itself carried water for the war effort, and how political pundits and respected journalists served to legitimize and market the war to the American people. 

Source: https://en.wikipedia.org

From the beginning, President Bush had viewed any proposal to invade Iraq as requiring a public relations campaign in order to persuade the American people that the war was necessary and just. In September of 2002, the Bush administration had planned to use the President’s 9/11 commemoration speech as an emotional lead-in to a speech he would deliver to the UN General Assembly the following day. The New York Times reported that administration officials hoped that Bush’s 9/11 remarks would “help move Americans toward support of action against Iraq,” which could come within six months. Bush’s chief of staff Andrew Card noted that the public relations campaign would need to begin in September because, “from a marketing point of view, you don’t introduce new products in August.”

On the whole, the US news media did not systematically challenge the Bush administration’s insistence that Iraq possessed WMDs, nor did it question reports that Hussein was pursuing nuclear weapons. When Colin Powell delivered aspeech at the United Nations in February of 2003 falsely insisting that Saddam Hussein was hiding WMD facilities from UN inspectors, the US media reported Powell’s accounts as though they were true. 

The Iraq War was hardly the first war to be subject to media spectacle, but it was one of the first to use the media as an integral part of the war effort. This process, known as “embedding,” involved “integrating journalists into military units for the duration of [the Iraq War.Part of that is information warfare. So we are going to attempt to dominate the information environment.” There were anywhere between 570 and 750 embedded reporters in Iraq during the beginning of the war in March 2003.

Embedded journalists were indeed subject to a series of restrictive “ground rules” in which they agreed to have their articles reviewed by the American military prior to release, their movement restricted to their assigned military unit, and their embedded status liable to revocation at any point. 

Embedding journalists had an effect on the kind of reporting that news outlets produced. While reporting was overwhelmingly factual, the work of embedded journalists was more likely too biased from the perspective of the American troops with which these journalists were assigned. 

War reporting, of course, is also a media product. What makes discussions about the US media “selling” the Iraq War to the American people so important is that Americans were not only buying a justification for a war, they were also buying a particular image of what that war looked like – an image mediated by television cameras and journalistic accounts and informed by ideas and sentiments about American military power.

Image creation was not only done with visuals, but also with the language of the news media. News anchors, pundits and journalists were happy to recite George Bush’s doomsday claims of WMDs in Iraq but did not employ the same language to describe America’s armaments. 

The US media’s complicity in selling the Iraq War to the American people is an important object of analysis when assessing how enormously consequential foreign policy decisions can be distorted and manipulated within democratic societies. It is a reminder that democratically elected governments can and do act in ways that appeal to base emotions and greatest fears in order to push otherwise unpopular wars and initiatives. The mistakes of the Iraq War have been made, and the war’s consequences remain tangible to this day. But no one is held accountable to-date. Just like in Vietnam, Syria, Libya or Afghanistan. None of these were “just” wars! We don’t need war to settle disputes. We need peaceful dialogues – please give peace a chance!

Reference

Selling the Iraq War, Luca Brown, The McGill International Review, 10 April 2018

Teacher Absenteeism: Another Problem in Malaysia!

One of the least acknowledged issues in the government school system, teacher truancy or absenteeism, was highlighted in a recent court case in Kota Kinabalu. Three former secondary students from SMK Taun Gusi in Kota Belud, Sabah, won a civil case in the High Court against the school’s former headmaster Suid Hanapi, the director-general of education, minister of education and federal government. The case involved their former teacher, Jainal Jamran, who was assigned to teach English for three hours a week, but was absent from class for seven months from January to October 2017.

The trial also brought up issues of general corruption and nepotism within the school system. There was an attempt by a former education director distantly related to Jainal to cover up the truancy by backdating the teacher’s class attendance books. The case also publicly exposed the use of death threats against one of Jainal’s fellow teachers, whistleblower Nurhaizah Ejab, who also had her car tyres slashed in retaliation.

Source: https://www.wikiimpact.com

An amazing observation arising from this case was how the education ministry (MOE) defended the case so vigorously.

The case opened up one of the major problems within the secondary school system, and attempts to cover it up. Undoubtedly, teacher absenteeism from classes in both primary and secondary schools is far more widespread than what most outsiders believe. It could be a major factor in the underperformance of many students, particularly in poor rural areas across Malaysia.

Teacher absenteeism cases in Malaysia have not been reported for over 14 years. According to Tiada Guru, an NGO in Sabah, an OECD report back in 2009 indicated that 19.5 percent of Malaysian school principals had reported teacher absenteeism.

There is a culture of fear that prevents school students reporting teacher absenteeism. Perhaps the most telling statistic is that between 2010 and 2017, 55.4% of disciplinary cases heard by the MOE ministry involved teacher absence from duty. Teacher absenteeism is just as much a problem in schools, as are curriculum, pedagogy, and class size issues.

According to Tiada Guru, this problem (absenteeism) tends to happen more in poor rural settings, than in urban environments, and contributes to the continuing cycle of poverty. Lower exam passes directly affect income. A diploma holder earns 1.4 times more than someone with only SPM, while a degree holder earns 2.3 times more. Literacy rates remain much lower in rural than urban areas.

Teacher absenteeism is therefore more than an education issue. It perpetuates the incidence of poverty in rural families. Teacher absenteeism also contributes to student truancy. When there is no supervisory teacher in class, students will wander away or not turn up to class at all. Many students come from homes where the parents work and want their children to assist with home duties, or family enterprises. Unlucky ones may go astray outside of class, and become involved in using narcotics due to boredom.

Teacher absenteeism is a symptom of dissatisfaction within elements of the teaching profession. Many have low motivation levels. Others are just not suited for the profession. Some others use the time dishonestly to undertake other income earning activities. Teacher absenteeism has been kept a secret at school level, away from the MOE to protect reputations. The school management culture is to engage in cover-ups, with staff problems kept “in-house”, outside the ministry disciplinary system. Unfortunately, much more than teacher absenteeism is also covered up. This may include theft, rape, and molestation.

Surely, the Madani government will want to be transparent and root-out the problem. It is not good enough to set-up a “Jawatankuasa” or a Task Force to examine the issues – there are many including lack of integrity, theft, molestation beyond absenteeism. We have not just curricula issues but also teachers and environment. The MOE has to stop having the ostrich effect – a cognitive bias to avoid negative information or feedback.

Reference:

Teacher absenteeism: Malaysia’s biggest education problem, Murray Hunter, FMT, 12 September 2023-09