Category: Politics & government

Categories
Economics Politics & government

[2676] Investment growth is volatile, a slowdown is not necessarily extraordinary or worrying

Some parts of the economy enjoy stable growth rates in normal times. Consumption and government spending are two of the GDP components which grow in a stable manner, unless there is a recession. As much as ridiculous as it may sound (yeah, that is the libertarian in me speaking out), the government does plan its expenditure and that is one of the reasons for smooth government expenditure growth. The same with consumers and others in the private sector too.

Export and import growth rates are stable too, although it is more volatile that the consumption component.

The same cannot be said with investment. It is a stylized fact in macroeconomics that the investment component of the GDP is wildly volatile. It is by far the most volatile of all GDP components. In one period it could reach for the sky and in the next, it could be six feet underground.

Here is a chart to show exactly how volatile investment is compared to other components of the real GDP of Malaysia:

Malaysia RGPD Component 2006-2012

The volatility of GDP investment component (truly, it is gross fixed capital formation) will be mostly true for other countries as well.

So, anybody who wants to score a political point cannot really score a political point if investment in one period slowed drastically. It is the nature of the series. It is just how the economy works.

I write this because the Penang state government has come under criticism because investment into the state has fallen dramatically.[1] Given the context of volatility and investment, I would not take the criticism too seriously.

Now the investment figures referred to are not strictly the real GDP investment component (the one that is of controversy is the approved investment figures), but the nature of volatility is the same anyway.

Slow investment growth may be a worry but only if there is a significant slowdown in the sense that there is structural break. In other words, something like if the average investment growth from 2005 to 2010 is significantly lower than the average from 2001 to 2005. In contrast, if investment growth in 4Q2012 is significantly lower than in 3Q2012, or even if 2012 as a whole is lower than 2011, I do not think one can say much without further context: from the series itself without further context , an investment growth slowdown or even an outright investment slowdown gives out no real story.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
[1] — GEORGE TOWN: A DIP of 73 per cent in investment flow into Penang has the state Barisan Nasional questioning the state government’s abilities to drive and continue growing the manufacturing and services sectors. Both sectors, state BN committee member Ong Thean Lye said, were the main sources of revenue for the state and had in previous years placed Penang at the top in the country’s investment ranking. However, there were now growing concerns that investments were on the decline with Penang only getting RM2.47 billion in investments last year compared with RM9.11 billion in 2011 and RM12.24 billion in 2010. [Looi Sue-Chern. Harvard’s Gopinath Helps France Beat Euro Straitjacket. New Straits Times. March 22 2013]

Categories
Economics Politics & government

[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.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
First published in The Malaysian Insider on March 15 2013.

Categories
Economics Politics & government

[2672] If nobody could default, why would anybody go bankrupt?

Let us take for granted the assertion that a government cannot default on its debt obligation if all of its debts are denominated in the local currency. For the more macroeconomic inclined, if a country controls both its fiscal and monetary policies, it can never default on its debts.

Taking the axiomatic approach notwithstanding the concerns which I put up earlier this week, there is an important political implication on the political rhetoric employed with respect to discussion regarding government finance.

These days, it is all too common for one side of the political aisle to accuse that the other side’s proposed or current policy will bankrupt the country.

Supporters of Pakatan Rakyat will accuse the cash transfer program BR1M and the likes are irresponsible populist spending. Add those leakage and outright corruption and the country is well on its way to bankruptcy. Given the current size of government debt, they said, bankruptcy can be far off over the horizon.

Against Pakatan Rakyat’s accusation of bankruptcy, supporters of Barisan Nasional can certainly use the no-default assertion. The assertion immediately blunt attack on the size of debt the government maintains at the moment.

What becomes problematic is when the supporters of Barisan Nasional in turn say free education and higher fuel subsidy as proposed by Pakatan Rakyat are unrealistic spending and that it will bankrupt the country in no time.

If you believe in the no-default axiom, then how can Pakatan Rakyat or in fact anybody bankrupt the countries with irresponsible or corrupt policy?

Now, I am not defending the policy of Pakatan Rakyat as proposed in its manifesto. I disagree with a good number of its economic promises. But there has to be consistency in the rhetoric used.

I can understand that it is hard to keep consistent rhetoric throughout since nobody truly works inside a hive colony with the queen controlling everyone’s mind. Each person can be independent to the whole political organization and its official mouthpiece. Each person can try to defend his or her side of the divide on their own. With insufficient coordination, contradictory rhetoric can happen. It does happen.

However, that does not make the no-default and bankruptcy arguments any more consistent with each other.

Categories
ASEAN Conflict & disaster Politics & government

[2671] The last refuge of scoundrels

The United States was entrenched deeply in two major wars throughout most of the first decade of the 21st century. Just after the shocking September 11, 2001 attacks organized by al Qaeda, the US responded strongly by invading Afghanistan and removed the Taliban from power.

After a quick initial success in the landlocked country, the US went to war against Iraq on less convincing grounds. The world, which was solidly behind the US for the Afghanistan War, stood divided on the eve of the Iraq War. While the rationale for the Iraq war was shaky, the might of the US military was not. The Saddam Hussein regime was toppled soon after.

By 2003, the anti-war movement was in full swing in the US. War was firmly in the mind of the politically conscious. By now, there were wars abroad and at home. Supporters of the war presented their case and the anti-war side presented theirs everywhere. At times, it was not a debate. It was a shouting match.

It would take some years before temperatures cooled. The anti-war side eventually gained the upper hand. Barack Obama campaigned as an anti-war candidate in the 2008 presidential election. He won that election. The appetite for war was gone by the end of the decade. The US began to withdraw its troops from both Afghanistan and Iraq to focus more on its economy.

I remember the war rhetoric employed then by the pro-war groups. I remember exactly the phrase war supporters used to put down criticism of the war. The thought-terminating cliché was this: Support our troops.

Underneath the cliché was a stark case of false dichotomy. One has to either wholly support the war or oppose it unpatriotically. It is either you are with us or you are against us. There was no room for criticism. There was no in between. As George W. Bush infamously put it then, ”Either you are with us, or you are with the terrorists.”

And here we are in Malaysia at a stand-off with an armed Sulu group in Lahad Datu, Sabah which has turned into an armed conflict. There is a possibility that it may turn into a wider conflict still but I am sure we all hope that it will end as quickly as possible without further escalation.

It is unfortunate that the conflict has cost lives on both sides. It is regrettable that the Sulu group refused to negotiate the matter peacefully. Ample opportunities for a peaceful outcome were placed on the table but the peaceful option was rejected by the armed Sulu group.

The armed Sulu group had themselves to be blamed and a bloody outcome was inevitable. In that sense, many Malaysians support the current action of the Malaysian government and its military.

That, however, does not mean there are no criticisms mounted against the Malaysian side. There are signs of incompetence in the handling of the crisis. The fact that a large group of armed men entered Malaysia so easily without early detection in the first place speaks volumes of the failure of those in charge of border security.

As the crisis progressed, various ministers were still politicking with eyes inappropriately set on the upcoming but as yet undeclared general election. One of the relatively trivial top stories highlighted by RTM, Bernama and TV3 during the crisis was the expansion of the ”transformation centre” by the prime minister.

Indeed, during the crisis, the prime minister launched his Instagram campaign. He did not care to comment substantively about the ongoing crisis until, again, very late in the game.

Thanks to this misplaced priority, the public was left in confusion. Both the Malaysian authorities and the mass media failed to provide timely and accurate information about the situation on the ground.

For some weeks, information provided by the authorities even proved to be false and it was contradicted by later developments. It raises the question of whether the authorities were on the ball at all. The home minister is especially guilty of this. In fact, I am honestly curious what the home minister did until the military stepped in.

Instead of relying on Malaysian institutions, the public had to rely on Philippine news outlets instead. I take this as an incredible failure of the Malaysian government and the media establishment, specifically those in television and radio.

And what do these individuals and institutions ”• which have failed us ”• want us to do now?

Support our troops.

Yes, let us hide behind our collective patriotism to hide our incompetence.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
First published in The Malaysian Insider on March 6 2013.

Categories
Politics & government Pop culture Society

[2666] From race and religion to Psy

For better or worse, quantity is important in a democratic contest. It is about gaining the majority. It is about popularity.

With that as the context, we have to remember we live in a young society. The Department of Statistics estimates that the median Malaysia age in 2010 was slightly above 26 years. In simpler terms, the age of one half of the population today is younger than the median just three years ago. The profile of the Malaysian electorate pretty much reflects the demographics of our society.

Thanks to their sheer size, those in their 20s and 30s are clearly the biggest and thus the most important group. If they had one mind, they collectively could decisively determine the path which the country would take.

But what makes these young people stand out further politically is that most of them will be voting in a national election for the first time in their lives. Their minds more flexible than those belonging to the older generation who more often than not are hung up on legacy issues. Ibrahim Ali, for instance, still has the May 13 incident as his talking point.

So, young adults are the cool kids on the block and the two nationally-relevant political factions are competing to be the friend of these cool kids. The Barisan Nasional-led federal government has launched several policies for that purpose and chief among them are affordable housing and other cash transfers. The federal opposition Pakatan Rakyat promises the same young adults free tertiary education, among others. Both sides are pulling out all stops to be the one special friend.

While I find many of those policies too populist, at least those policies are serious in the sense that they affect a person’s welfare. The existence of a real policy competition between two credible sides is heartening since previously, it was really all about the old, stale, suffocating issues of race and religion. That is not to say that race and religion are no longer factors but at the very least, we have something substantive to base our election on.

But I do have a feeling that the courting is starting to go a bit too far and starting to appear regressive. It is starting to go into the realm of the trivial that debases the very serious nature of our elections. In an effort to become ever more popular, political parties are starting to make entertainment the focal point of their political events, instead of what the parties stand for.

This happened in Penang recently. Barisan Nasional organized its Chinese New Year celebration with Psy, the Korean sensation — and not the Malaysian prime minister — as the star of the event. The hosts of That Effing Show — a sarcastic online talk show focusing on Malaysian affairs — were right on the money when they joked that in the United States, a singer would introduce the president to the crowd but in Malaysia, the prime minister introduced a singer. Such is the office of the prime minister which is obviously too engrossed in crass populism.

While I despise the debasement of the highest political office of the land, I think I understand the reasoning behind it. Young adults are seen wedded together with pop culture. They are the pop culture.

Maybe, just maybe, the politicians think, if they could harness the power of pop culture, if they could show that they have their finger on pop culture, then they could connect with these young adults. We could win their votes, so the politicians thought. At the end, these politicians hoped what happened in Penang stayed in Penang (Tourism Minister Ng Yen Yen had a different idea in Malacca, some weeks after).

But this line of thinking — of entertainment, young adults and politics — is potentially insulting to young adults. Is entertainment the thing that matters the most in attracting them to participate in a political process? Are young adults fluffy-headed, uncritical, naïve voters to be wooed with inconsequential gimmicks? Is the future worth a trivial song in an age where one-hit wonders happen almost every week, if not every day? I pray to the god in the mirror for the answer to be no.

I know it did not work in Penang but I do not know if it will never work. I hope that it will never work so that our elections have less possibility of becoming an exercise of triviality. The truth is Barisan Nasional is not the only one guilty of putting entertainment at the center stage or a big part of a political event or rally.

The danger is that if it works and pulls in the votes. When that happens, there goes the future as votes of substantial value are traded for a trivial piece of song popular with the cool kids.

If it does happen, that will be no progress from the days of race and religion. It is just as bad as the days of old.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
First published in The Malaysian Insider on February 28 2013.