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The GST was repealed in June 2018.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