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Election Watch

Lack of commitment to tackle transparency

Focus Malaysia
Oct 29 - Nov 4, 2016

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By Ng Wai Mun

SO much has been said about Budget 2017 since it was tabled in Parliament on Oct 21. However, looking at it from a broader, more holistic perspective, there appear to be issues deemed as important which have been left out.

The consensus is that whilst the priorities addressed in the budget are essentially correct, what is starkly lacking is the commitment to address accountability and transparency-related issues. 

Asian Strategy & Leadership Institute (ASLI) COO Ng Yeen Seen says: “Given the events of the past few years, the most obvious [issue that was not addressed] is that there has been a continuing avoidance to strengthen the accountability and transparency of our public institutions.

Centre for Public Policy Studies chairman and current Sunway Group corporate adviser Tan Sri Ramon Navaratnam says the priorities were right in Budget 2017. “The priority to help the B40 and M40 groups were on track but there could have been more priority for structural and transformational change to reduce protectionism and mediocrity and to raise global competitiveness,” he says. 

Ramon also noted “The UN Sustainable Goals, the Paris Agreement on Climate Change and more funding to fight
state capture, corruption, cronyism and wastage.” As to why these issues were not addressed, Ramon says those issues are “anathema to the present budget planners”.

The Economic Report 2015/2016 defines the B40 (bottom 40% household income) group as households with a monthly income of up to RM3,855. The M40 (middle 40% income) group in turn earns between RM3,860 and RM8,319. 

ASLI’s Ng suggests that on the political side, the government had to satisfy the needs of its traditional voter base through large investment in the civil service, rural and low income communities while also not alienating other groups too much.

Longer term strategies needed

She acknowledges there could have been more focus on developing medium to long-term strategies to respond to the issue of helping the lower income group.

In countering arguments there was too much focus on lowering corporate tax for organisations like SMEs instead of improving the disposable income of individuals, Ng explains that “the two are actually linked”.

She notes that there are two ways to help improve the disposable income of “the man on the street”. “The first is to give him direct cash transfers which the government is already doing through BR1M. To expand this to more income groups is not sustainable, says Ng.

“The other is to improve average salaries. SMEs represent 95% of all businesses. So the ideology underpinning their decision to cut the tax rate here is that this will allow them to reinvest these savings, expand, become more competitive and productive in the medium to long term.” 

She adds this will expand the economy as a whole, allowing the firms to pay higher salaries to their workers.
 
Ng highlights that the concept of trickle-down economics has been largely challenged and unless there is regulation
to ensure that the savings are reinvested and passed on to the workers, it is likely to just translate into higher profits. “Malaysia already has an incredibly high pay ratio between what bosses take home and what they pay their workers.”

TA Securities Holdings Bhd chief economist (research) Shazma Juliana says: “No doubt, an overall reduction in corporate tax could have been more impactful than staggered cuts but the government has limited options in view of the need to generate revenue to minimise budget deficit.

Previously, there have been rumours that the rate should be low, in line with the region’s tax structure to enhance our
investment climate. 

For comparison, the Indonesian government is studying plans to reduce its corporate tax rate on a gradual basis,
from 25% currently to 20% and 17%. The lowest corporate income tax rate in the Asean region is Singapore, at 17%, she adds. 

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