Turn to user-pay model is hurting the rakyat

closer look at the various measures introduced in the recently unveiled budget reveals to us that the trend towards weakened social solidarity is continuing.

Oct 29, 2015

By Anil Netto
A closer look at the various measures introduced in the recently unveiled budget reveals to us that the trend towards weakened social solidarity is continuing.

In the past, we had a fairly progressive tax system which allowed for stronger social solidarity: the wealthier you were, the higher the percentage of taxes you paid. These taxes were used for the rakyat’s benefit, especially the poor and the marginalised. No one thought of imposing taxes on the poor and the vulnerable.

Similarly, the corporate tax rate was higher, but not so high as to deter investments. The government was more cautious about spending on projects, and corruption was at a manageable level.

This ensured that there were sufficient funds to finance essential services — everyone went to the same schools and hospitals which provided universal coverage. When the rich and the powerful send their children to government schools, there is pressure for these schools to maintain a fairly high standard.

In some of the developed countries today, people are proud to pay their taxes because they know that education and healthcare are almost free, and of good quality. Out of these taxes, the state also provides for welfare benefits and all sorts of benefits for the unemployed, people with disabilities and senior citizens.

Sadly, the benefits of a progressive system have been whittled away gradually, but deliberately, over the years in three distinct ways: First, the full impact of the shift from a progressive tax system towards a regressive tax system will be felt next year when the GST hits us hard.

Under the GST, the burden of tax is shifted from the wealthy to all the people, even those who were so lowly paid that they were previously exempted from income tax. That is why the GST is reggressive. It is imposed on everyone, irrespective of their ability to pay.

The GST is expected to raise RM27bn this year since its implementation on 1 April 2015. Compare this to the revenue foregone, RM13.8bn from the discontinued sales and services tax, as estimated by the prime minister last October. So, that means that we have stumped up almost double the amount in consumption taxes. No wonder Malaysians are hurting.

In 2016, GST is expected to rake in RM39bn, burdening the rakyat even more. The discontinued sales and services tax would have raised only RM18bn. So again, this means we are coughing out more than double in consumption taxes. And what have the rakyat got to show for these higher taxes? Some token allowances, a slightly higher minimum wage (including for those in the civil service), a small RM50 increase (from RM950 to RM1,000) in BR1M. The total BR1M payout will rise from RM4.9bn in 2015 to RM5.9bn in 2016. This is peanuts, and will hardly compensate for the huge RM39bn consumption tax that people will have to fork out in 2016.

Second, government spending and subsidies for some essential services are being slashed.

Subsidies under the Finance Ministry are being slashed by 45 per cent to RM11bn.

One example is the allocation for the Poor Students’ Trust Fund (Kumpulan Wang Amanah Pelajar Miskin) which is reportedly being chopped from RM200m to just RM10m.

The budget for higher education is also being cut by over RM2bn. To rub salt in the wound, subsidies and allocations are being slashed for universities, electricity, and train services.

This will hurt the pockets of many Malaysians and worsen household debt.

And third, along with the slashing of subsidies comes the ‘user-pay model,’ irrespective of a person’s ability to pay With all these subsidies being cut, Malaysians will now have to ‘pay as you use/buy’ essential goods and services under the ‘user-pay’ model (despite already contributing double in consumption taxes).

This might seem good on paper. After all, on the surface, it seems only fair that if we use a service, eg public universities, we should pay for it.

But we are already paying for these services via our taxes and now the hefty GST!

What happens if the poor and the vulnerable get squeezed, by first, the GST, and then by higher charges and tariffs they can ill afford?

For instance, hospital charges for foreigners, many of whom can least afford them, have been hiked even though foreign workers’ levies are already imposed on documented workers.

Though documented foreign workers are covered by medical insurance, the insurance reportedly does not cover outpatient treatment.

Undocumented workers, who are not covered, will have to pay more as well. They also risk being reported to immigration authorties if they register for treatment in government hospitals. This is likely to deter them from seeking treatment in government hospitals, and could very well increase the incidence of contagious or serious diseases going untreated. In the end, it is not just the foreigners who will feel the impact.

We can’t put the blame on the foreign workers when it is shortsighted policies that are discouraging many from seeking prompt and much-needed treatment.

The same goes for university students. Education is one way to lift people out of poverty. But what happens when university fees become more expensive and graduates are saddled with large study loans even before they can find a job?

It is clear that Malaysia has embraced a neo-liberal model which brings with it the regressive GST, the removal of subsidies for essential services, and the adoption of a ‘user-pay’ model, irrespective of whether the people can afford to pay for these goods and services.

All this is not factoring in the impact of higher food prices, higher property prices, hefty toll hikes, and imported inflation caused by the weaker ringgit.

If we had not lost so much in corruption and dubious payments and 'investments', and if we had maintained our progressive tax system, we could have had a lot more money to allocate for essential services. In 2012, one government minister admitted that corruption costs Malaysia RM26bn every year. What would the figure be by now?

All said, the neo-liberal model, along with imprudent spending and rampant corruption, is the source of much of the rakyat’s pain.

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