Pakatan Harapan Alternative Budget proposed by , a mix of vision and political ambition, looks good on paper. But, it comes with practical problems, according to a report in The Edge.
The main problem – in the opposition coalition’s 76-page budget offering – is that it makes big assumptions, especially over the proposal to do away with the goods and services tax (GST).
The Edge said the alternative budget addressed income inequality and strengthened workers’ positions at the bargaining table, but exposed glaring problems, as in the removal of GST. It also undertook budgetary gymnastics to make the promises seem feasible on paper.
The report said, for the first time, the opposition budget also took into account race as a factor, and proposed raced-based affirmative action policies to help bumiputeras and Indians.
The Edge spoke to an analyst about how realistic the promises were, and how much of it was anchored in a sound economic rationale. While some of the proposals received the thumbs up, some were questioned over their practicality.
The PKR’s Wong Chen said the proof was in the pudding, and people only had to look at how the PH-ruled states of Selangor and Penang were being managed to know about PH’s budgeting and financial management.
The alternative budget argues for a reversion back to the pre-GST system of sales tax, claiming it can make up the ensuing estimated deficit of RM25.5 billion (RM42 billion in 2018 GST collection minus RM16.5 billion in pre-GST indirect consumption taxes).
The report said this assumed that returning RM25.5 billion to consumers would stimulate demand growth by at least 20%.
The Edge quoted an unnamed economist at RHB Investment Bank as saying this assumption was hard to justify.
He added: “The assumption sounds a bit simple, that you can stimulate domestic consumption by removing GST and returning money to the public. Forget about the effect of inflation due to GST.
“The GST itself is a tool to help the government to collect tax from consumption and to allow it to reduce income tax. This in turn will encourage people to work hard (due to lower tax) and boost economic activities. By removing the GST, it means the government may not be able to reduce income tax and it will discourage people from working hard, as the harder you work, your income rises and the more tax you have to pay. This would contribute to slower economic activities.”
According to the report, a diversified tax system that relies on income and consumption taxes is superior to one that relies excessively on income tax.
In addition, it said, there was the huge problem of funding the missing RM25.5 billion.
Also, private consumption in 2018 is estimated at RM820.97 billion. The additional RM25.5 billion, even if doubled to an additional RM51 billion, worth of consumption in the economy would only make up a 6.2% boost to domestic consumption.
The RHB economist was quoted as saying: “When the government collects GST, it spends it. The money could go to the B40 or M40. These groups of people have a high propensity to spend and when they spend, it could fuel economic growth.
“But when you stop GST collection, there will be a lapse in government spending, hence, B40 and M40’s spending. As you return the money back to the people (no GST collection) not everyone will spend it. Some of it will go into savings. Thus, it could even have the opposite effect of not stimulating the economy.”
The Edge quoted the MP for Kelana Jaya, Wong Chen, as saying: “It takes time to abolish a tax regime like the GST. In the meantime, we would be working hard to cut down wastage and corruption. Based on examining past auditor-general’s reports, we estimate that wastage and corruption make up 12% to 16% of expenditure, excluding emoluments and interest costs. That is about RM20 billion.”
Reducing wastage by 20 billion was the real real lynchpin in the alternative budget’s attempt to justify zero GST, but while the intention was noble, the feasibility of such a drastic crackdown on corruption was questionable, the report said.
The Edge said the PH budget was worker-biased and favoured those who earned the least.
The PH budget proposes to raise the minimum wage to RM1,500 and empower trade unions.
To ensure employers and business owners are not overburdened, the PH budget proposes that the government helps co-pay a portion of the RM500 per month hike in the minimum wage.
The Edge quoted Wong as saying the government could start by shouldering 70% of the co-pay and then ease off, giving companies time to adjust.
But the RHB economist warned that increasing the minimum wage to RM1,500 would have dire consequences on business cost if productivity could not be improved.
The alternative budget hopes to reintroduce some of the subsidies removed by the Najib Razak government, including that on petrol.
Another subsidy that PH is proposing – RM100 worth of free public transport in the Klang Valley each month to boost adoption by the public – is a more useful application of subsidies, according to the report, as it can actually affect transport behaviour.
But it does not come cheap. Based on the estimated 7.2 million people living in the Klang Valley, that works out to RM8.64 billion a year, assuming everyone fully utilises the subsidy.