The Return of GST?

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The country’s debt is so massive that not even Mahathir knows how to fix it.

Money matters:

  • Servicing RM9b loans for 1MDB
  • RM5b annual interest payment for RM1 trillion debt
  • With the most bloated civil service in the world, whopping 26% or RM82b out of RM314.6b budgeted for federal government’s expenditure for emoluments paid to civil servants, RM26.56b for pensions
  • RM6.3b to rescue Felda
  • RM17.8b on restructuring plan for Tabung Haji

If Mahathir unilaterally brings back the GST (Goods and Services Tax), it will be the clearest confirmation that the new government of Pakatan Harapan (PH) under his leadership is the world’s greatest ‘U-Turn Government’. And they will suffer the same defeat – guaranteed – in the next general election the same way the old government of Barisan Nasional (BN) did.

GST was introduced (or rather shoved down peoples’ throat) at a rate of 6% on April 1, 2015, by former Prime Minister Najib Razak but was later abolished and replaced with the Sales and Service Tax (SST) from September 1, 2018 after Mahathir stunningly defeated Najib in the May 2018 General Election. There were two primary reasons why Najib regime had lost.

The first reason was the 1MDB scandal, a major factor which drove the ethnic Chinese voters to vote against Najib and his corrupt minions. The second reason was the GST, a major factor which drove the ethnic Malay voters to vote against Najib and his spendthrift wife. But not all the Chinese despised GST, the same way that not all the Malays despised 1MDB scandal.

Some Chinese could accept GST because in a certain way, the tax regime is better and fairer than the SST. That’s because majority of Malays did not pay income taxes. They pay ‘zakat’ as an alternative to income tax. The zakat paid will go to the Islamic cause while the taxes the Chinese pay goes to the salaries of the 1.6 million civil servants, who happen to be mostly Malays.

Some Malays could accept 1MDB because they have a different interpretation of corruption. They consider corruption as ‘rezeki’ (good fortune from the God), hence it cannot be rejected. Perhaps that was one of the reasons why Najib and families often travelled to Mecca – to pray for better ‘rezeki’ after he plundered national coffers – and repeat the process again.

Yesterday (Oct 3), PM Mahathir shocked the people when he said his administration will study the need to reintroduce the GST if that is what the people want. He told reporters after launching the Security and Public Order Policy – “If the people believe GST is better, we will study. We will study whether GST is better than the SST. It would be difficult to include it in the budget. Maybe we can do it later.”

Seriously? Was the 94-year-old premier trying to mock and insult peoples’ intelligence again? Which group of people he thought would agree to GST? If just a minority of Chinese, Hindus or Malays like the idea of GST, will Mahathir bulldoze the reintroduction of GST under a false pretext that “people” love the tax regime so much so that they want it back?

If the people like GST in the first place, the previous BN government would not have had lost power for the first time in 61 years since independence in 1957, would they? Mahathir has indeed shot his own feet when he said his administration will study whether GST is better than the SST. Isn’t that an admission that he had made a terrible mistake, foaming at the mouth promoting SST and condemning GST?

Back in July 2018, it was the same prime minister who said the SST will ease the burden of Malaysians as the prices of goods will not increase. It was also the same Mahathir who said the SST will help Malaysians to save around RM20 billion annually as the SST will collect around RM25 billion compared with RM42 billion under the previous GST regime.

Now that he suddenly thinks GST is not a bad idea after all, does that mean the GST is a better tool than SST at easing the burden of the people? Like it or not, he has to explain how on earth that GST is superior when SST collects only RM25 billion from the people while GST collected RM42 billion. Have the people gone mad that they wanted to pay extra RM17 billion to the government?

Perhaps the premier thought it would be a jolly brilliant idea to reintroduce the old GST with a little tweak – starting with a 3% tax rate, instead of the disastrous 6% which had angered the people who then rebelled against Najib regime. Probably the government thought they could squeeze some money out of the peoples’ pocket from the RM17 billion lost after the SST replaced the GST.

But does it matter if the GST is 3% or 6%? Have the prices of goods dropped since the introduction of SST? The fact remains that when the GST was introduced, prices of products, services and raw material skyrocketed. And the prices continue increasing (not drops) even after SST. What will happen if the current SST is scrapped and GST is reintroduced once again?

The government can keep playing with SST and GST a million times, but every time they change the system, it’s ‘a guarantee’ that prices of goods will go up – never come down. That’s because enforcement is almost non-existent. Sure, go and sue the hawkers or the retailers or the supermarkets or the property developers for the price increases and profiteering.

To be fair to Mahathir government, it inherits a screw-up government with RM1 trillion in foreign debts (RM1.09 trillion as of the end of 2018). It doesn’t matter if the despicable Najib and his corrupt minions disagreed with the figures. Regardless whether it was RM1.09 trillion or RM741 billion due to disagreement on definitions, the country has to pay debts of RM1.09 trillion.

The government is servicing almost RM9 billion in loans for 1Malaysia Development Bhd (1MDB) alone – money that could otherwise be used for schools and healthcare. Ignorant pro-Najib supporters have no idea how much is RM1 trillion in debts when they mocked the PH government that the national debt still remains above the trillion figure.

When your credit card debt reaches RM1,000, it’s quite normal. But when you accumulate RM10,000 in credit card debt, it’s called dangerous. However, when you have RM100,000 in credit card debt, but cannot even pay the minimum payment monthly, it’s called bankruptcy. That’s when you have to sell assets to reduce your debt, the same way Mahathir is selling national assets now.

Even at an interest rate of 0.5%, as in the Samurai bonds sought by Mahathir after rounds of begging with the Japanese government, the annual interest payment would be RM5,000,000,000 (that’s RM5 billion, mind you) for the RM1 trillion debt (for illustration purpose). That’s about RM417 million of interest rate alone to be paid every month.

Still, there’s no reason to reintroduce GST, even at a lower tax bracket, unless Mahathir’s goal is to commit political suicide. The government can enhance and widen the scope and the tax base of the SST. But time is not a luxury that the 94-year-old prime minister has. He is fire-fighting the national debt, not fixing it due to the massive debts – a ‘black hole’.

To make matters worse, out of a total of RM314.6 billion budgeted for the federal government’s expenditure in 2019, 82.6% (or RM259.9 billion) was allocated for operating expenditure, while the balance – only RM54.7 billion – was to be spent for development expenditure. Emoluments paid to civil servants amounted to RM82 billion – 26% of total expenditure.

And thanks to 1.6-million civil servants, Malaysia’s monthly pensions cost jumped from RM4.19 billion in 2000 to RM13.57 billion in 2011 – more than 3 times in just 10 years. Government pensions and related costs hit nearly RM21.03 billion in 2016, then grew to RM22.8 billion (2017), RM25.76 billion (2018) and RM26.56 billion in 2019 (8.5% of the total national expenditure).

Malaysia has the most bloated civil service in the world – one out of 19 Malaysians is a civil servant. Unfortunately, they are untouchable because 80% of them are Malays, a critical vote bank to Mahathir’s Malay-based party. The ultimate effect of discrimination and racism policies, flourished under Mahathir’s 22-year rule from 1981 to 2003, has come back to haunt him today.

The situation got worse when the PH government had to spend RM6.3 billion to rescue FELDA (Federal Land Development Authority) and another RM17.8 billion on a restructuring plan for Lembaga Tabung Haji (Hajj Pilgrims’ Fund) – clearly bailouts for problems created and entrenched during the previous Najib administration. That’s RM24.1 billion up in the smoke.

Mahathir ultimate plan, if he forcefully replaces SST with GST, will be scraping the bottom of the barrel. While a newly tweaked GST might anger the people, especially the Malay folk, the premier hopes a portion of the tax money to be collected could be used as cash handouts to pacify (and fish) the voters. Wait a minute – isn’t that the same as Najib’s BR1M cash handouts?

Well, considering that the Malaysian leader is already well-known for dozens of his U-turn policies and decisions, he probably won’t mind being laughed at by his predecessor Najib Razak. Mahathir is desperate for money. Money talks, bullshit walks. And yes, “cash is king” – once again. But the burning question is – can he manage and control the “after-effect” of GST. – Finance Twitter