Thursday, April 6, 2017

GST, two years on, the economy is not getting any better

April 6, 2017

The universal tax has served as a lifeline, but unfortunately the government has failed to institute a cautious and prudent fiscal policy.

COMMENT
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By Lim Sue Goan

Two years after the government implemented the GST on April 1, 2015, are Malaysians used to it now?

Goods prices have been on the rise and the people’s consumption power is declining since the introduction of the 6% GST.

The consumer price index (CPI) was up 4.5% in February while vehicle sales had dipped by 13% to 580,124 units last year, the lowest in six years. With bank loan rejection rates up to 70%, the percentage of unsold new units by members of the housing developers association (Rehda) soared to a high of 61% during the first half of 2016, compared with 48% a year ago.

The Barisan Nasional (BN) government had anticipated that two years after implementing the GST, the national treasury would be fattened, the rakyat would be suitably adapted to the new policy and negative sentiments would be minimised so that the general election could be held any time.

But things have not worked out that way. The public still have not found themselves used to the GST after two years, especially with prices of goods skyrocketing and salary growth stagnant, making the 6% universal tax an added burden.

To be honest, higher goods prices could not be wholly attributed to the GST alone, other factors have also contributed to uncurbed rising prices, including the abolition of subsidies, depreciation of ringgit as well as higher rents and worker salaries.

Fuel subsidies were completely removed in December 2014 and replaced with a managed float mechanism. If the international oil prices remain sluggish, it wouldn’t be a problem if ceiling prices of fuels are announced weekly.

However, after Opec and other oil producing countries sealed an agreement on production cuts late last year, oil prices have been going up steadily, culminating in the 4.5% inflation rate in February, which is substantially higher than a bank interest rate.

The government lacks an effective strategy to curb inflation and reduce Malaysians’ cost of living. Statistics show that the February food and non-alcoholic beverage index, which makes up 30.2% of the CPI, jumped 4.3%.

If the government had focused on agricultural production, we should have been able to cap the inflationary pressure by cutting down food imports.

Subsidy rationalisation has not only impacted the livelihood of the people, but has also raised the production cost of businesses. For instance, traders are transferring their increased overheads to consumers as a result of dearer industrial gas.

The government bagged in RM41.2 billion from GST collection last year, but this amount has been largely used to plug the massive hole of government expenditures while only a small fraction has been set aside for BR1M and hardly anything to stimulate the national economy.

GST lifeline

By right, with such an impressive GST collection the government should have brought down vehicle taxes, as exorbitant car prices have squeezed the wallets of the medium- to lower-income groups, depriving them of the ability to spend.

Indeed, the GST has served as a lifeline for the federal government, but unfortunately the government has failed to institute a cautious and prudent fiscal policy to allow the GST proceeds to manifest its economic-boosting effects to lift the country’s overall competitiveness.

Even as the government has slashed the expenses of various departments, the finance ministry lately sought parliamentary approval to increase RM3.081 billion in the fiscal budget. Such overruns seem to have evolved into an annual event, showing that the government has never managed its finances seriously.

The government plans to introduce the Employment Insurance Scheme (EIS) this July with the premiums being paid annually by both the employers and employees. The government is not going to shoulder the burden in any way.

No doubt the government has been working very hard to lure foreign investments, including a Digital Free Trade Zone to be jointly established with the Alibaba Group of China, while Saudi oil company Aramco has pledged to invest US$7 billion in the RAPID project in Pengerang.

The effects of these mega investments will nevertheless not materialise within a short period of time. Moreover, to enhance the income of Malaysians, the government must decisively implement structural reforms in a bid to stimulate economic expansion.

Consumption power has yet to return to the levels two years ago because we have not done enough in introducing economic reforms over the period.

Local businesses are still very much labour-intensive and dependent on the foreign workforce, while the government still carries on with its decades-old racial policy instead of meritocracy.

Large sums of money must be invested in order to jumpstart near-term economic development, but unfortunately the government does not have the financial ability to do so. As such, it still has to bear the pains of reform.

Two years on, BN’s plan does not seem to be working and the economy is not getting any better. How do you call an election this way? The truth is not something one can easily change with loads of political propaganda.

Lim Sue Goan writes for Sin Chew Daily.

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