Friday, November 28, 2008

Reduce income tax

One of the best stimulus that the Malaysian government can give the economy is to institute an income tax cut.

It's better than reducing EPF contributions.

It's better than having Valuecap borrow RM5 billion from EPF.

It's better than infrastructure spending.

An income tax cut is an enlightened fiscal policy.

The biggest single group of Malaysians that spends quite freely is the middle-class. This class of Malaysians has the greatest propensity to spend. Their consumption goes beyond basic necessities.
http://www.asiaexplorers.com/malaysia/kualalumpur/1utama/00.jpg.
They are the ones who fill up the shopping centres and buy anything and everything, especially for their children.

To the government, I say reduce income tax as soon as possible and stand back to witness the rise of aggregate demand at a rate that will bring a warm glow to the face of the ruddy, Panda-eyed Second Finance Minister.

It will make the First Finance Minister's cheeks rosy red.

It will light up the tired eyes of the Bank Negara governor.

Try it. You'll like it.

9 comments:

masterwordsmith said...

de minimis,

A very good post - simple, clear and succinct but sadly, it is highly likely that the reverse will happen.

Whilst a reduction of income tax will increase the disposable income of Malaysians, sadly, in the light of current developments, I doubt it would increase aggregate demand because the purchasing power has been reduced already and might have a positive effect only for consumer durables particularly those with an elastic demand.

At the same time, if this scenario occurs, I doubt if it would make someone rosy cheeked because it would reduce the government's tax revenue which means ..

However, given the dismal economic climate esp with the picture you painted so clearly, yes, it is better than all the other unenlightened manoeuvres that they have been making on our economy.

I like your closing tag line :).

walla said...

A great suggestion. But it has to be done in a really big way. Not the usual parsimonious one percent cut but a big lop-off.

However, looking at this federal govt, one would think it still wears corsages that constrict blood flow to its guts.

It would be better if money be kept in the hands of the people who earn it than in the hands of a govt which has to-date displayed an international record of:

(a) wasting billions on white elephant projects that only served its own political agenda;

(b) signing big deals that end up chaining the people to pay ridiculous amounts of toll and other charges until the end of time;

(c) paying lip-service only on arresting money politics within its ranks which in turn creates the cronyism that leads to a level of corruption which has already sundered national coffers in other emerging countries, thereby forcing them to raise their levels of taxation in order to support the same administrations that are the source of the financial problems of the peoples they are supposed to serve; and

(d) insulating its own agencies from checks-and-balances on their rate of bloatation and stagnation;

Trust in this federal govt is gone - and they know it.

Aside from sparking consumer growth and tiding household incomes, a big cut in income tax will also stimulate the very enterprises which are the transformation enablers which this country needs to pierce its own thick skin of mediocrity and achieve higher standards in everything, including the very standards of performance that the federal govt can use to measure itself. The reduction will also sprinkle holy water on the process of liberalization, and give it the fillip, impetus and fuel additive to make up for lost time.

If the federal govt wants to be seen as taking the bull by the horns in the matter of economic downturn whose countdown has already started, it should get onto this suggestion quickly and leave no stone unturned to change its own mindset and assumptions. Detractors against the suggestion should be temporarily interdicted. After all, they get steady monthly incomes and know not how fluctuating incomes at micro-levels affect the gross situation of those millions at the mercy of market forces.

This suggestion beats all else. If adopted, it will show a govt that realizes to adopt inclusiveness, it must be bolder to change itself first. And it needs changing. Because right now, the only thing the people see the federal govt is just as a political animal. Take DBKL for instance. Under federal territory ministry, its little napoleons have been going around harassing hawkers and shop owners for minor infractions just because they had voted for the opposition in their taman's. If this is not abuse of power at local level, what is it? Governmental compassion for the rakyat?

This is what has stuck to the minds of the rakyat. Let the power-mongers of money politics be aware - caveat emptor.

walla said...

Readings

http://tinyurl.com/6lx3zn
http://tinyurl.com/6llbbq

de minimis said...

mws

Maybe someone from the govt listening posts will pick this up, pass it to the relevant personages who will consult the relevant "experts" who will sit on it for a while until a "foreign expert" says the same thing and Presto! it will be an idea whose time has come.

walla

Erudite, compelling and articulate as usual. I like the edgy bite in this latest commentary of yours. It's like Kopi-O kau-kau-kau. Makes the hair stand and kicks the indolent mind out of its comfort zone.

Patricia said...

CT,

I hope someone is listening!

I don't like the EPF cut thingy - that is really a bad move. Cos yes, when you're in need now, who thinks about the future? But having no money then is a big deal, and can prove a big burden when it becomes reality.

So, given all that's been said here, I'm thinking their next move's gonna tell us plenty: whether they're thinking about us, or thinking about them!

Pat

Estrelita Soliano Grosse said...

It won't interest the powers that be since no one up there will be able to benefit from it! :)

However, it's a great idea!

de minimis said...

Estrelita

One should always live in hope. Hope should sustain us always. I always live in hope :D

Right, Pat? ;)

Patricia said...

YUP!

Hope lives eternal in all our hearts because of you :)

Pat

Estrelita Soliano Grosse said...

I stand corrected! Of course, you are both right!

I needed that reminder! :)