[2183] Of opposition to reforms

Malaysia requires multiple reforms. Development in recent years proves that moving away from the status quo is incredibly hard, however. This is due to opposition mounted by beneficiaries of the current system, as well as beneficiaries of circumstances.

As the Najib administration puts in effort to address criticism directed against the flawed affirmative action, it faces fierce opposition from its own base in UMNO. There are at least two proofs to back this assertion.

First, while Perkasa is officially independent, the majority of Perkasa members ”are ordinary UMNO members”, as reported by The Nut Graph. Secondly, the editorial of Utusan Malaysia, which traditionally has been a very eager promoter of UMNO, supports Perkasa openly. Perkasa is an unrelenting critic of liberalization with respect to the affirmative action.

Perkasa and its allies fear the dumping of the current affirmative action. They are inside and they are loud. The internal opposition has already forced the Najib administration to postpone the announcement of the so-called New Economic Model several times now. How much eventual reform will occur on this particular front is suspect after deputy minister and a prominent UMNO member Mukhriz Mahathir said the new policy would have the spirit of the old New Economic Policy.

The preceding federal government also faced opposition from the inside, with respect to its effort to ensure judicious use of police power. The Independent Police Complaints and Misconduct Commission (IPCMC) proposal did not go through.

While the Abdullah administration then was already treading the path of the tattered, it still enjoyed huge majority in the House. Yet, there was no political will to deal with the police force decisively. The Enforcement Agency Integrity Commission was instead born, but critics say it is an ersatz to the IPCMC.
The Abdullah administration is now gone partly due to resurgent democratic culture in Malaysia, among other things. It is crucial to capitalize on the resurgence to seal the future of a more democratic Malaysia.

The reinstatement of local election is one way to institutionalize democratic culture. Unfortunately, standing in the path of further democratization is the Najib administration. Given the prime minister’s exhortation of the need for Malaysia to change, it is utterly disappointing to have him to prefer the undemocratic status quo.

Regardless of the outcome of all three cases, outside forces, which more often than not come in form of Pakatan Rakyat, have been crucial in pushing the case for both. Unfortunately, a warning is in order. While it can be helpful, outside force, i.e. Pakatan Rakyat, is no less influential in affecting reforms adversely.

Take the liberalization of the fuel subsidy regime under the Abdullah administration, for instance. The subsidy regime has proven to be disastrous to government finance. Massive expenditure dedicated to it sapped and is sapping resources that can be better used for other more productive purposes.

Yet, Pakatan Rakyat opposed such liberalization. In riding populist sentiment, Anwar Ibrahim even announced that he would cut fuel prices and, in effect, increase subsidy if he was in power at a time when global crude oil prices were going through the roof.

Fortunately, the restructuring of the fuel subsidy went through. Fortunately, partly because the populist path would have brought great damage to the economy in the long run. The reform is not complete yet but at least, it is moving along. What is of note is that the Abdullah administration only managed to push through the liberalization after suffering huge political cost.

Another example involves the proposed goods and services tax (GST) pushed by the Najib administration. The GST modernizes the tax system by addressing tax evasion committed by free riders who want every benefit but refuse to pay for it, or rather have others to pay for them.

There is considerable apprehension against the GST, especially when it is pushed by a government that does not have a stellar reputation in fiscal discipline and is perceived as corrupt. Yet, that in no way negates the need to reform the way government collects revenue because the solutions to all these concerns on government size and corruption are not mutually exclusive issues. They can be solved together.

Yet, Pakatan Rakyat is developing into a party of ”no”. It states that while GST is a good concept, it still opposes it due to a number of reasons. Lim Guan Eng, in an anti-GST forum, said that GST would tax everybody and painted the idea that not everybody is paying consumption tax at the moment. He backed his statement by erroneously comparing the fact of a narrow tax base relevant to income tax to the tax base of a consumption tax, which is a completely different animal.

Furthermore, quite conveniently, he was pretty much silent on two points that do not fit his narrative. First, the existence of a consumption tax in form of sales and services tax; all of us face prices after that tax at the moment, and that in effect says that everybody pays consumption tax.

Second is that the GST is to replace that consumption tax at a lower standardized rate with possible replication of existing tax exemptions, making the GST potentially not inflationary. The Institute for Democracy and Economic Affairs has made a stronger claim that the GST at the proposed rate is disinflationary.

Another argument against the GST from Pakatan Rakyat revolves around wealth inequality of Malaysia. But if the GST is not inflationary, then it should not affect inequality; if it is disinflationary, then it should have an equalizing effect on wealth inequality.

Whatever the effect of GST on price levels, the truth is that the GST system can be tweaked to satisfy a lot of concerns. Income tax rates can be lowered if there is concern about excessive burden. Rebates can be designed for some purpose. Exemptions can be made. Really, discussions on how to make GST better or more palatable than its current form need to take place. That it is not happening, though. Instead, Pakatan Rakyat is giving a solid no and prefers to ride on anti-tax sentiments. That is, in effect, a preference for the status quo.

First published in The Malaysian Insider on March 25 2010.