Chickens come home to roost

A pall of gloom has descended on the country — the stalling economy, the rising cost of living and looming GST, recent controversial court decisions.

Feb 06, 2015

Anil Netto

By Anil Netto
A pall of gloom has descended on the country — the stalling economy, the rising cost of living and looming GST, recent controversial court decisions.

At the bottom of the heap, workers and other ordinary people, especially vulnerable groups, are struggling to cope. Market forces invariably create inequality. The problem is when little is done to check that inequality from growing wider.

In the past, at least over the last half century or so, the state played that role. A progressive tax system, capital gains tax and estate duty taxed the income, wealth and inheritance of the upper classes. This tax revenue was then used to uplift the lot of the masses: the state provided almost free education and health care, low-income housing and controlled the prices of basic food. Fuel and other essential items were subsidised.

To prevent property speculation, policies were put in place, including capital gains tax and restrictions on foreign ownership of property. Financial speculation was minimal in the past.

But all this was systematically undermined, with the introduction of neoliberal policies. A more regressive taxation has gradually shifted the burden of tax from the wealthy to the masses. The tax rate for the top band of income was gradually reduced over the years.

The reduction in tax rates, plus the various subsidies .. ‘incentives’, they call it ... given to the corporate sector, has reduced the sources of government revenue. To make up for the shortfall, a new tax, the GST, is to shift the burden of tax to the people, including the lower-income group, the poor, the retirees, the non-profit groups, all of whom were largely not subjected to tax previously. They will now have to pay tax (GST) on almost every item or service they buy (apart from those exempt or zero-rated).

Meanwhile, real wages (after adjusting for inflation) have remained almost flat even as the cost of living soars.

Now the chickens are coming home to roost. 1MDB has difficulty paying off its enormous debt. Food prices have jumped. People are cutting back even on what they eat. For instance, instead of using two tomatoes when making a curry, some are now using just one! If this continues, soon there will be nothing much left to cut...

But at the other end of the scale, certain groups are doing extremely well, thank you very much!

Who are they? The shareholders of major banks and financial institutions that are profiting from the myriad of loans extended to households groaning under the weight of debt.

The owners of independent power producers, have posted billions in profits after power generation was privatised during the Mahathir era. This was done at the expense of Tenaga Nasional, as eloquently pointed out by Tan Sri Ani Arope, who courageously tried to prevent this outrageous shift in profits.

The timber barons... the recent floods have shown us the devastating effects of logging and deforestation in the East Coast. Over in Sarawak, the book Money Logging chronicles who exactly benefits from the extensive logging of the virgin rainforests of Sarawak. No great surprise there.

And then there are the property developers and speculators who buy land (including the right to reclaimed land or agricultural land) on the cheap and then sell it at ridiculous prices.

So, a combination of neoliberalism (including privatisation of public services), the lowering of tax rates, the removal of subsidies or the cutting back of spending on essential services, crony capitalism and rent-seeking and the suppression of wages and trade unions have all contributed to where we are now.

Now that many governments have capitulated to the pressure imposed by Big Capital, it is left to the Church to make its prophetic voice heard.

The Bishop of Rome has spoken out strongly against the rapacious forces of capitalism and the inequalities it has produced: “There was the promise that once the glass had become full it would overflow and the poor would benefit. But what happens is that when it’s full to the brim, the glass magically grows, and thus nothing ever comes out for the poor ...”

In Greece, voters tired of cutbacks in essential services and an ‘austerity’ drive that has hit ordinary people the hardest have reacted by voting in a new government that is less beholden to the international banks and other financial institutions.

Thomas Piketty, author of the landmark critique of capitalism Capital in the Twenty-first Century has pointed out that in developed nations, the rate of return on wealth often exceeds economic growth (or the rate of return on labour) resulting in rising wealth inequality.

To ensure a fairer redistribution of wealth, he proposes a progressive tax on wealth or capital.

This, to my mind, would be more effective and fairer than GST. It would provide additional revenue for the government to balance its budget without burdening the masses.

And we would have the added satisfaction of knowing that some of the public wealth outrageously transferred to private hands — think of the colossal profits earned by the electricity and timber barons — can now be channelled back to public coffers at a time when the nation and its people need it most.

So how about it then?

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