Surprisingly, they have made a detailed calculation, and how they view the economy since last year when the published their own alternative budget. Click here if you want to read it.
In their own alternative budget, there were four sections;
- The State of the Economy
- Fiscal Projection 2018
- Pakatan Harapan policies
- Pakatan Harapan 2030: Stories from Malaysian Family.
For simplicity, I will summarize what I found in the first three sections only. The last section is about how they view Malaysia in 2030 (So read it yourself).
If you are too lazy to read, skip all the way down to the TL;DR section.
Part I: The State of the Economy
In the first few paragraphs in this part, Pakatan Harapan pointed out solely on the implementation of the GST on the rising cost of living, inflation, slower income growth and fiscal balances.
To get you the idea, they wrote:
“Despite promises that the spike in inflation from implementing Goods and Services tax (GST) in 2015 would only be temporary and last for a year at most, inflation hit an 8-year high of 5.1% in March 2017, almost two years since the introduction of GST. Indeed, the monthly inflation rate up to August 2017 has averaged 4%. This is almost 2% higher than the 2.1% average monthly inflation rate for 2016.”
PH also mentioned that the situations regarding 1MDB and FELDA were also the reason.
Part II: Fiscal Projection 2018
As promised in their manifesto, PH is committed to abolish GST via zero-rating. PH aim to revert to pre-GST numbers, and expect to see a revenue shortfall of RM25.5bn.
This means PH is expected to collect only RM16.5bn from consumption tax.
In order to balance the budget, PH propose reducing non-essential expenditure items, by trimming budgets of some ministries, specifically the Prime Minister’s Department (PMD). So no more lavish spending here, I assume.
Here is the moment you have been waiting for: Abolishing GST.
As mentioned earlier, PH are expected to collect only RM16.5mn from consumption tax. The loss of RM25.5bn is expected to be in the consumers’ pocket pocket. PH view that by injecting the RM25.5bn into the economy will result three positive fiscal revenue results. So, they made 3 points regarding this:
“Firstly, consumer consumption and business activity will boom, meaning that revenue from Corporate Income Tax (CITA) will rise. With RM25.5bn of additional sales, we estimate this to result in come MYR8.93bn increase in profit before tax. This means that, with the CITA rate currently, at 24%, the elimination of GST will boost additional CITA revenue by RM2.81bn.
Secondly, a consumption boom also means the Rakyat will purchase more goods, including imported goods. We project a conservative 20% spike in consumption, which increases total import and excise duties (for all goods, excluding motor vehicles) by RM0.40bn and RM1.06bn respectively. Hence, total import and excise duties will increase by MYR1.46bn for all goods, excluding motor vehicles.
Thirdly, the consumption of big-ticket items, namely property and cars, is expected to recover and possibly, enjoy a mini pent-up boom. Currently, we are in the most depressed property cycle of the last decade. By driving up overall consumer confidence, we project a modest property boom of 20% in terms of transaction volume. This will result in an extra RM0.30bn in RPGT revenue, bringing total Real Property Gains Tax (RPGT) collection up to RM1.82bn.”
From PH’s point of view, the revenue side the most important element in fiscal policy. PH is aware that Malaysia is too dependent on oil and gas revenue, CITA, and GST.
The best part is this one:
“In the event that the government is not able to achieve a balanced budget, PH will consider other progressive tax policies, including a higher tax rate for richest 10%, a low 10% CGT rate for capital gains, and a 10% inheritance tax policy for assets above RM1mn.”
Here is my view on GST. I somehow, am in favor of keeping the GST, and at least reduce the rate from 3-4%. The idea of implementing GST is to reduce our reliance on oil and gas revenue in the future.
But I welcome the idea of implementing capital gains tax, taxing the top 10%, and inheritance tax in the future, as mentioned by the PH government. (My colleague keeps calling me a socialist for agreeing on this).
In addition to that, I propose PH to look at land value taxes as well.
PH’s view on subsidies
PH view that since Malaysia is an oil producing nation, the people should be given some subsidy. Therefore, the PH government proposed a RM1bn of fuel subsidy. Meaning we could see a RM0.20 reduction of price per liter.
Subsidies will be targeted at the B40 group by limiting subsidies to motorcycles and small cars of 1,000 cc and below. This will be done by targeting mechanism based on IC of the consumer (this does not make sense, to show your IC to the attendant at the gas station).
Even though the idea of reintroducing petrol subsidies could reduce the burden especially for those in the B40, two things I am quite worried here:
- The introduction of subsidies could encourage people to smuggle petrol across the border
- The cost of targeting mechanism, where people have to show their IC before filling in petrol could be higher.
PH’s view on BR1M
Surprisingly, PH did see benefits from the BR1M handouts. So they are going to continue this program, with these conditions (But I have this feeling they are going to rebrand the whole program):
- The recipients of the payments should be employed and stayed employed for at least 3 months.
- For retirees, and those who cannot work due to disability, these conditions are waived.
- For a family that receives RM1,200 under BR1M, the head of the family cannot use the money on frivolous and unhealthy goods such as cigarettes and alcohol.
I welcome the idea of making the BR1M program as conditional. To those of you who don’t know the differences between unconditional cast transfer (UCT) and conditional cash transfer (CCT) programs, put it this way:
Unconditional means, if you get the money (after meeting a certain criteria), you are allowed to do whatever you want with the money, no strings attached.
Conditional means, you are eligible to get the money only if you are remain employed, put your child in school, or them vaccinated.
But I do not understand why PH had to say “for a family that receives RM1,200 under BR1M, the head of the family cannot use the money on frivolous and unhealthy goods such as cigarettes and alcohol.”
Numerous studies pointed out those who benefitted from the cash transfer program rarely (like super rarely) use the money for indulgence. Instead, they used the money to put their children in school, and buy healthy food.
Part III: Pakatan Harapan Policies
Other than what I had mentioned abobe, the Pakatan Harapan also focus on fiscal, monetary and other economic policies addressing cost of living, wages and employment, education, women empowerment, Bumiputera empowerment, Malaysian Indian B40, and Chinese New Villages. So you can get the idea what they are going to do from now on.
So, here is their view on megainfra projects.
- Regarding the Pan Borneo Highway, the PH government believed the project has never been completed for these two factors: corruption and the lack of funds. From here, the PH will allocate up to 30% of the federal development expenditure for Sabah and Sarawak.
- On the East Coast Railway Project (ECRL), PH government will ask China to put the project on hold and allow them to study the project, whether it as a potential economic multiplier. This is because they are not convinced that the cost up to RM60-70bn. With that kind of money, they said it is better to investment on highways in the East Coast.
- For the High Speed Rail (HSR), the PH government again raised the issue regarding the RM75bn price tag. PH acknowledges connecting Kunming to Singapore for the advancement of the ASEAN region, therefore PH will priorities the connection between Kunming-Bangkok-Kuala Lumpur line, instead of Kuala Lumpur-Singapore line.
Okay. Let’s see who is in charge here. Tun Mahathir and Tun Daim (since he is in the Council of Elders. Clearly some has been binge-watching Lord of the Rings), are definitely pro-air transportation.
Tun Daim himself said this:
“Is it necessary at this stage to have the ECRL or travel by train to Singapore? What would happen to our MAS, or AirAsia and Malindo? People would use the train instead of our airlines.”
“If we think logically, who wants to spend 14 hours on a train from Kota Bharu, Kelantan to Port Klang, Selangor compared to approximately 30 minutes by flight?”
Tun Mahathir also said:
“(For example) if I can go to Singapore in 90 minutes (by the HSR), why would I want to wait in the airport for 45 minutes and then take another train? I might as well take the HSR. So what’s going to happen to our airline industry? Did they (the federal government) think about it? Have they studied what would happen to our airlines?”
So, you draw your own conclusions on what will happen to these megaprojects.
The TL;DR thread:
I somehow have doubts abolishing GST and replacing SST will do the trick for PH. I won’t mind if they cut GST to 3 or 4%.
There are other channels we can collect taxes from. PH mentioned capital gains taxes, and inheritance taxes. I would like to propose another one which is more efficient: Land value taxes.
I welcome reforms on BR1M. To be exact, I prefer it to be a conditional cash transfer.
Tun M and Tun Daim are pro-air transportation, not really a huge fan on trains.