Categories
Economics

[2858] Household income growth and Malaysian unhappiness

Some opposition politicians and supporters are prone to exaggerate when it comes to economic matters. Malaysia is bankrupt, there is no income growth, etc.

Those exaggerations make it easy for the Barisan Nasional government to disprove those allegations. But in its eagerness to do so, the government oftentimes denies that any problem even exists. This is unfortunate because the exaggerations are based on real worries on the ground. And the worries are based on real problems.

This is true when it comes to income growth of Malaysian households.

The Department of Statistics recently published its 2016 Household Income Survey, showing Malaysian households experienced average yearly income growth of 6.8% in 2015 and 2016.[1]

Minister at the Economic Planning Unit, Abdul Rahman Dahlan, pounced on the fact there was income growth and that the growth was faster than the inflation rate. He said “this debunks the popular notion that income in Malaysia is stagnant or income increment does not match the rising price of goods and services.”[2]

While he is right about income growth, he does not quite address the cause that made so many Malaysians ready to believe in the opposition’s allegation. And that cause is decelerating income growth.

Yes, income rose. But it did not rise as fast as it used to be. This I think is one of the sources of Malaysian unhappiness.

While household income grew 6.8% yearly on average in the 2015-2016 period, this is dramatically lower than the 12.4% average yearly expansion experienced in 2013 and 2014. Indeed, it is lower than growth in 2010-2012:

The drop was felt by Malaysians regardless of exaggerations. GDP growth was not doing well either in 2015 and 2016.

I drew the chart based on 15 household income surveys conducted by the Department of Statistics since 1979. There were earlier surveys but it covered Peninsular Malaysia only. Sabah and Sarawak were covered beginning 1976. I chose 1979 as the starting point because I had trouble getting CPI data up to 1976.

(I have to add for clarity, in the 1980-1984 period for instance, it means nominal household income grew more than 10% on average yearly, not that income grew more than 10% between 1980 and 1984. Huge difference between the two.)

As a side note, this chart probably explains why Abdullah Ahmad Badawi became so deeply unpopular, despite starting out so well. Abdullah was the Prime Minister from 2003 to 2009 and income growth during his years was terrible by Malaysian standards. And 1997-1999 were years of unrest in Malaysia, coinciding with the Asian Financial Crisis.

I am not going into the debate whether the 2010-2014 growth and subsequent 2015-2016 slowdown were due to the government or external factors. But the stark slowdown is real and it goes a long way explaining why Malaysians are so unhappy now. Well, partly, because there are other factors out there that include among others, the GST and those private accounts at Ambank.

Mohd Hafiz Noor Shams. Some rights reservedMohd Hafiz Noor Shams. Some rights reservedMohd Hafiz Noor Shams. Some rights reserved

[1] — The Department of Statistics actually reported the average growth as 6.6% yearly, not 6.8%. The 6.6% is calculated by using natural log. Given the context of the publication, I find the use of natural log as inappropriate and prefer to use compounded growth formula instead, which gives out 6.8% growth. What is the context? Percentage growth. Malaysian household income grew to MYR5,228 in 2016 from MYR4,585 in 2014. Using 6.6% as the growth rate in this context (MYR4,585*[1+0.66]^2) will not get you MYR5,228. But 6.8% will. The 6.6% figure would be right, if the Department had stated it was measuring the log difference, instead of percentage growth. Yet, the context is percentage growth, not log difference. I see the press keep on using the 6.6% in the wrong context.

[2] — “In terms of real value, median monthly household income grew at 4.4 percent, which means the Malaysian household income grew faster than the inflation rate of 2.1 percent for the past two years. This debunks the popular notion that income in Malaysia is stagnant or income increment does not match the rising price of goods and services,” he added. Abdul Rahman said for the overall incidence of poverty, it had improved from 0.6 percent in 2014 to 0.4 percent in 2016. [Bernama. Minister: Household income statistics show strong GDP benefits people. Malaysiakini. October 10 2017]

Categories
Economics

[2857] Bruce Gale is wrong on GST, income tax and tax avoidance

Bruce Gale wrote a piece in the Straits Times defending Najib’s economic policy recently.

While I do agree with on points like subsidy removal, I have several issues with the article. The one I take the most exception is his claim that the goods and services tax (GST) was needed because Malaysians were avoiding income tax, and went on to cite a figure, which context he did not quite understand, as a proof.

In his own words, the “GST, this was necessary in order to force the middle class to share the tax burden. Tax avoidance in Malaysia is a serious problem. Only one in 10 people actually pays income tax. This is significantly lower than in many other middle-income countries, and far lower than in the high-income economies Malaysia says it wants to emulate.”[1]

I do not oppose the GST and in fact I think it is a necessary tax reform. Malaysia needed to diversify its sources of government revenue and the recent collapse of energy prices proved that. But Gale is wrong when he linked tax avoidance with the fact that only one in 10 people paid income tax.

He is wrong because a majority of Malaysians do not pay income tax due to a different factor altogether.

First, his statistics are possibly outdated. The one in 10 persons figure was true at some point but by 2015, the figure was closer to two in ten. The head of the Internal Revenue Board was reported in June 2017 stating “18% of the population paid taxes” in 2015.[2]  I tried to find the actual figure from a primary source instead of through newspaper reports. But even the annual report of the Internal Revenue Board does not share the total number of individual income taxpayers. It is a difficult number to pin down.

Second and more importantly, the reason behind the low ratio is not tax avoidance. Rather, it is due to the high income taxability threshold relative to the Malaysian median income. Malaysians do not make enough to qualify into the lowest income tax bracket.

The 2014 Household Income and Basic Amenities Survey published by the Department of Statistics shows the median household income in 2014 was MYR4,585 per month. With an average two breadwinners in a household, that would translate into a median of MYR2,293 per person. That means half of all Malaysian income earners earned less than MYR2,293 per month.

Couple that with the fact Malaysians would only be eligible to pay income tax in that year once they made at least MYR2,500 per month.

We can be more exact than that. Based on the same survey, I estimate about 55% of Malaysian income earners were no eligible to pay income tax in 2014. It is an estimate because the survey expressed its results on household basis and I would have to convert various figures into individual terms. I can show you the estimated individual income distribution by brackets (groups in red were not eligible to pay income tax that year):

The large share of those who did not qualify to pay income tax in 2014 could probably be seen better in the following cumulative function chart:

And this is before the typical tax breaks provided by the government: all Malaysians get an automatic MYR8,000 annual relief, or MYR667 monthly. This alone meant about 60%-65% of total Malaysian income earners did not have to pay income tax in 2014. That tax break has since been raised to MYR9,000. There were other typical breaks — books, medicine and even the Islamic tithe — granted by the Malaysian government that raised the number of those who did not have to pay that year to very possibly close to 80% if not higher.

Tax avoidance is a problem in Malaysia. But it is not the top reason why only one in ten (or the updated 2015 figure, two in ten) pay income tax. Other factors pale in comparison to eligibility concerns.

And even if they did not pay income tax, the same majority already paid sales and services tax prior to the introduction of the GST. To say the majority avoided tax when only a minority did so is not only wrong, it is insulting to every honest working Malaysians.

And do you know who do not pay tax? Those benefiting from donation.

Mohd Hafiz Noor Shams. Some rights reservedMohd Hafiz Noor Shams. Some rights reservedMohd Hafiz Noor Shams. Some rights reserved

[1] — Bruce Gale. Najibnomics has been good for Malaysia’s economy. The Straits Times. September 1 2017

[2] — Sabin said that based on 2015 figures, 18% of the population paid taxes in Malaysia. He said the threshold of taxability was generally quite high, therefore a significant number of the population falls outside the tax bracket. [Jagdev Singh Sidhu. Higher revenue for IRB. The Star. June 5 2017]

Categories
Politics & government Society

[2856] The police should release arrested Rohingya protesters

The Rohingyas in Kuala Lumpur had a small public protest at Ampang Park today. The Rohingyas were protesting against the latest rounds of atrocity committed against their community in Myamnar.

The Malaysian police broke up the demonstration and arrested quite a number of the participants.[1] The police should release them.

It is disheartening to see the treatment the Rohingya protesters received from the Malaysian police. The police should have been lenient with them, and allowed the demonstrators to disperse peacefully without arrests.

They are treated badly in their own country. Raped and murdered. Home burned. We do not need to be as harsh as we have been on them.

In December, Prime Minister Najib Razak held a political rally supporting the Rohingya minority, together with his Umno and Pas friends. The arrests show the insincerity of this government, using the Rohingyas cynically for election brownie points. The government can prove that is untrue by releasing the protesters without pressing charges.

Mohd Hafiz Noor Shams. Some rights reservedMohd Hafiz Noor Shams. Some rights reservedMohd Hafiz Noor Shams. Some rights reserved

[1] KUALA LUMPUR:Hundreds of ethnic Rohingya   to the Malaysian capital of Kuala Lumpur on Wednesday (Aug 30) demanding an end to the bloodshed in Rakhine.

[…]

More than a hundred protesters were arrested by police for assembling illegally and obstructing traffic at midday in downtown KL. Another 20 protesters were arrested for alleged immigration offences. [Rohingyas protest in KL over unrest in Myanmar. Channel NewsAsia. August 30 2017]

Categories
Society

[2855] Improvement TnG must make to create better train commuting experience

The use of Touch ‘n Go (TnG) payment system as the sole cashless payment option for KL trains, specifically those operated by RapidKL, in my opinion has been unnecessary. TnG is inferior to the native cashless system that RapidKL had previously.

Prior to the full migration, the trains accepted multiple payment options, but the superior method to me was the native cashless payment. Topping-up was easy and free. It was hassle-free relative to having to use TnG cards. In case of any problem with the native payment system, the station attendant would be able to help out the users almost immediately. Even the problem would be solved quickly on the spot. In contrast, trouble with TnG cards would require users to put in extra effort to reach out to TnG and their vendors, and their customer service takes time to respond to you.

Unfortunately in July-August 2017, the superior option was phased out in favor of the TnG cashless payment method. The official reason for the migration is most mind-boggling. The whole RapidKL network— the monorail, the LRT, the MRT and the buses — needs to phase out the native cashless system because after billions of public money spent on the MRT, the new MRT line has troubles processing the native cashless system.

But hey, it could process TnG system just okay. Why is that?

Instead of making the MRT line integrated into the existing widely usely system, the whole train network has to be integrated into underused MRT’s line and with weak payment method.

I have yet to come across the explanation the MRT payment method is that bad, and how that was possible. It feels like somebody overlooked the payments side. Just saying the MRT could not accept the native cashless payment and so, the migration had to happen is not enough. There has to be an explanation why the MRT payment method is that bad. It is either somebody overlooked it, or the system has been captured by special interest.

But the train has moved on and missed a station.

So, rather than moving back to the old system and possibly incur additional migration cost (I do not know whether the TnG system is cheaper than the native cashless system for RapidKL to operate; this is something to watch out for), I think the better way now is to improve the current system.

Here is a list of things I would want to see happening soon in order to improve train commuting experience for everybody, except for Najib Razak:

  1. Place TnG reloading machines at all train stations. At the moment, most stations do not have the machines, which offer free top-up services. This forces users to go to other places to reload and incur top-up charges (imagine, being forced to use TnG and then having to pay fees to top-up). In contrast, all stations have many machines that could process the native cashless payments (and even so, places like KLCC had trouble keeping the lines short: imagine the situation with TnG now). Furthermore, all those native machines have now been rendered unnecessarily obsolete by the full TnG migration. How much money has been wasted? Sounds like a job for the Auditor General.
  2. Have more than one machine at all stations. One would have thought for such a high volume traffic network, TnG would place a lot of machines for train users. But no. Even at KL Sentral, the hub of the city’s transportation, I could spot only 2 or 3 TnG reloading machines. The limited availability of the machines, which forces users to top-up at other places like 7-Eleven and incur top-up fee, makes me suspect this is intentional. It feels like a classic rent-seeking exercise, which possibly a case Malaysian Competition Commission should look into (I am toying filing a complaint. I have read the submission guidelines and it is not that hard to digest).
  3. Upgrade the reloading machines to process commands faster. Right now, it takes several minutes to complete a transaction. It is slower compared to RapidKL’s machines, which by the way, are now underutilized and processing cash payments only. One would operate the old native machines for cashless transactions like this: you touch the screen, insert cash and go. It is possible to do this under one minute unlike the so-called Touch ‘n Go machines, which require the patience one would reserve for a dead turtle.
  4. Upgrade the reloading machines to enable it to give refund at point of sale. The slow inadequate TnG machines could only receive cash. There is simply no slot to spit out cash. In case of failed transaction, no refund is possible. For refund, users would have to contact TnG customer service over the phone and such response does not happen immediately. I have been waiting for nearly three hours to get a refund. I complained to the station attendant, who redirected me to TnG’s external vendor. I have also complained to TnG and demanded my refund, which they later redirected me to the same external vendor. The vendor has yet to reply to my request. In contrast, the whole refund process would happen immediately under the old system, because refunding is possible at the point of sale. Transformation indeed.
  5. Until these suggested improvements have been made, TnG must suspend top-up fee charged at other top-up locations. Top-up should be free from the time being.

Suggestion 1-4 are investments TnG should have made when it knows it would be the sole payment option for the high-volume traffic train network. TnG clearly has underinvested in its infrastructure, happy to take in revenue it does not deserve.

Categories
Photography

[2854] Oh hello again Sarawak