[2675] The taxpayer’s deplorable options

I do consider the payment of income tax as a responsibility I must fulfill. As a member of society, I have some responsibilities toward its maintenance. The fact that I am a citizen makes that responsibility of paying taxes doubly important.

That responsibility arises from my enjoyment of multiple public goods that exist through public funding, never mind that its distribution may be less than ideal since only a minority of Malaysians pay income tax, and never mind that some public goods can be provided for through private means.

The provision of these public goods makes the sum of the income tax that I pay more palatable to me than being robbed on the streets or being swindled by a snake oil salesman. At least, I get something out of the money that I pay out even as there are cases of mismanagement or abuse of public resources by the government of the day.

While I do rationalize the payment of income tax and other types of taxes as such, that does not mean I enjoy paying those taxes. I dislike paying taxes and I especially dislike paying income tax as opposed to consumption tax. Sometimes, I do wonder how far we have progressed since the days of old when the fruits of one’s labor were expropriated by men — in the name of equality, as well as women — of power. Perhaps progress is the fact that tax rates today are lower than they were in times of feudalism. Perhaps, perhaps, perhaps”¦ I tell myself perhaps.

What is certain is that I am sensitive to the income tax rates that I face.

The tax rates themselves are linked back to government expenditure. That makes me sensitive to plans which lead to government expenditure growth.

Apart from my distrust in the government in guaranteeing my civil rights, taxation is one of the other few reasons for my skepticism of the expansion of the role of government in our society. It can hit my pockets, which is not as deep as those in power.

The upcoming general election provides me with an opportunity to assess the options that I have on the table. This election may be the first ever where Malaysians can choose which economic policies they prefer to see implemented.

There have been manifestoes written and shared before of course but the 2013 general election makes it most realistic to imagine a change in federal government, without any political exchange in the style of the failed September 16, 2008 (and by the stars, let there not be any).

Yet, the choices so far have been disappointing.

On one hand there is Barisan Nasional where despite all the sleek public relations exercises suggestive of change, it is still business as usual in too many ways. For one, abuse of public funds goes on as usual.

Just the other day, the deputy prime minister declared that children of workers of Pos Malaysia — a private company after it was divested away by Khazanah Nasional Berhad to DRB Hicom which is ultimately controlled by Syed Mokhtar Al-Bukhary — would be given free netbooks by the Malaysian Communication and Multimedia Commission.

This is the use of public resources to benefit private parties and this is only one example of abuse; Barisan Nasional has no qualms utilizing public funds for its election campaign.

Those kinds of abuse adversely impact government expenditure in one way or another.

The government in its 2013 Budget plans to embark on fiscal consolidation, which is admirable. Yet, plans are plans and it looks all the more incredible as each day passes by. Each day of campaigning is another day the government of the day embarks on economic populism that is funded by public funds in an abusive way to blow the fiscal consolidation plan apart.

On the other hand we have Pakatan Rakyat.

Pakatan Rakyat does offer a vision to address the weaknesses of the incumbent government. Considerable portions of its manifesto try to address monopoly in the private sector that was actively created by the Barisan Nasional government which is something I can support. Pakatan Rakyat’s proposal to increase competition in the automotive industry is also something that I and many have argued for.

Yet, Pakatan Rakyat’s plans to reduce fuel prices, water tariff and others through greater subsidies will demand expansion of government expenditure. That is of significant worry to me. This is especially so when it is clear that the government will require a structural change in doing things in order to lower the fiscal deficit.

Pakatan Rakyat’s plans appear to move the position of public finance to the opposite direction.

Apart from the plan for increased expenditure, the political coalition is averse to expanding the tax base in the form of introducing the goods and services tax to replace the pre-existing sales and services tax. What is all the more remarkable is that Pakatan Rakyat plans to reduce personal income tax.

With increased spending and reduced taxation, the deficit may increase especially if other sources of revenue do not increase fast enough. This raises more questions on the revenue side. Does Pakatan Rakyat plan to increase company taxes and other indirect taxes? Will a Pakatan Rakyat government look to Petronas — which is trying to invest in itself more — for more contribution?

Second Finance Minister Ahmad Husni Hanadzlah claimed that Pakatan Rakyat’s plans would nearly triple the fiscal deficit when compared to 2012 level when compared to nominal GDP and increase government debt level by 10 percentage points to 62 per cent of GDP.

Now, it is election time and his claim should be taken with a pinch of salt. Nevertheless, the direction of change in those figures as suggested by the minister appears reasonable. It does not take a person with wild imagination to think that the fiscal deficit and the debt level under Pakatan Rakyat’s plan will increase.

Pakatan Rakyat itself has not sufficiently clarified how it plans to do all that it promises without increasing the deficit. Its 2013 national manifesto is quite silent on the combined impacts of greater expenditure and its revenue plan on public finance. Pakatan Rakyat supporters have at one time or another claimed the Pakatan Rakyat government will curb corruption and leakage so much that it will allow a scenario of greater spending and unchanged taxation. While I am impressed with Pakatan Rakyat’s commitment to an open tender system for one, I am skeptical that those leakages and corruptions will be easy to tackle and if it is successful, it will release sufficient resources to plug any financial gap.

I ultimately do not believe heightened fiscal deficit and debt level will be sustainable to maintain a good standard of public finance. Economic forces are bigger than either Barisan Nasional or Pakatan Rakyat and I think when both parties are free from populist pressure and faced with the stark reality of public finance, they will tend to do what is responsible.

So if Pakatan Rakyat does get the opportunity to govern Malaysia and run its plans, sooner or later it will likely have to make room for realism with regards to its tax promises or its spending-related promises. Unfortunately, more often than not, raising taxes is far easier than cutting expenditure.

It is within this context that I consider Pakatan Rakyat’s words on taxes to be as incredible as the Barisan Nasional-led federal government plans for fiscal consolidation in 2013.

As a taxpayer, I am staring at my deplorable options.

  First published in The Malaysian Insider on March 15 2013.