Pakatan's removal of GST could eff Malaysia a la Sri Lanka in today's world

Malaysia in a dilemma over GST



From Walter Sandosam

The nagging question currently is how the country is faring and will we be able to meet our debt obligations.

After the recent turn of events in Sri Lanka which has experienced an economic and financial meltdown resulting in the country having to resort to the IMF/World Bank for rescue funding, the word on many lips is whether Malaysia will share the same disastrous fate.

Some opinionated politicians who are completely out of depth on basic economics, Keynesian or otherwise, are crudely suggesting with misplaced and convoluted concern that this could be so in three or four decades.

The main rationale for this appears to be the current size of the national debt and forecasts premised on this. Debt, in isolation, is not a financial indicator to be unduly obsessed with.

The key is whether any debt raised is put to constructive use to expand the economy and ultimately increase the gross domestic product (GDP) of the country. This is a global indicator notwithstanding its limitations as a true reflection of the wealth of a nation.

It is only dangerous when it is misapplied on frivolous projects or to fund current expenditure, namely paying salaries and operating expenses, as was in the case of Greece years back. Nonetheless, prudent debt raising helps grow the economy.

On the flip side, the debts not only have to be serviced and eventually repaid, presumably from a larger economy that has been created through robust economic planning. This includes currently an 82% completion on the Pan-Borneo Highway, the opening of the Putrajaya line, the MRT2 and MRT3 projects and the East Coast Rail Line.

Basic knowledge of fiscal policy will enlighten that the government funds its expenses, both current expenditure (civil service/administration expenses) and development expenditure (infrastructure, schools and hospitals etc.) through the collection of various taxes.

An inefficient tax system in which the revenues collected are compromised to be at an amount which is below its best level has repercussions on total government expenditure. This includes the ability to both service and settle debt on a timely basis.

This is at the core of efficient public administration. The anathema to this is that politicians elected to government look to one-upmanship with disregard for the progressive future health of the nation.

Sri Lanka’s devastating carnage of the Tamil separatists and the political drama of two brothers are factors which had affected the country. Malaysia is on different terrain.

Herein lies the problem. An ecstatic electorate elected a government based on a manifesto which included the abolition of the hugely unpopular goods and services tax (GST). This has had far-reaching consequences.

It is this same cohort of opportunist politicians who now ask the rhetorical question, “Will it take three or four decades to be like Sri Lanka”? Is this stupidity or political gamesmanship in view of elections?

It doesn’t take a genius to appreciate that the wider the tax base, the larger the tax revenue which can be effectively deployed. An effective GST regime effectively nabs tax dodgers who have perfected the mode of tax avoidance through shrewd financial mechanics.

Malaysia had wisely adopted the GST though it was political suicide. The opposition exploited this; being elected to office on a litany of lies and half-truths buttressed on the dissatisfaction with GST.

Will an economy with a narrow tax base with over-reliance on fossil fuels and primary crop earnings be able to cope with strong global headwinds and continue to progress? The answer is obvious.

Hence our country finds itself now in the unenviable position on the possible re-introduction of GST. It appears that the politicians are caught between the “devil and the deep blue sea”.

So, before one hyperventilates on whether and when Malaysia may follow Sri Lanka, perhaps persons asking such questions should take a cold hard look in the mirror.

After all, they in their limited time of holding office are the ones who extolled and promoted populist policies, including the scrapping of GST, which may in time spell doom. This is where there is some similarity with Sri Lanka, namely on tax concessions. It is a harbinger of economic decline.

Malaysia’s leaders need to come to grips with this situation. We are far from being a failing state.