No Budget Budget. The hottest topic now, since it’s fresh from the oven – budget. Many investors are in are up in arms with the supposedly investors-unfriendly measures – with the “Cukai Makmur” and increase in stamp duty on listed shares contract notes. Am estimated collection of RM3 billion from Cukai Makmur has wiped out RM36 billion in stock market value. To be fair, a budget isn’t supposed to be focusing on whether it is friendly to the stock market or not. A budget is supposed to be for all. We will talk more about this later. As budgets come and go, this budget serves as no major surprise as well. The government is still spending more than it earns – expenditure of RM332 billion against revenue of RM234 billion. Though it is undeniable that the government need spend to kickstart the economy to ride out from the slump due to pandemic, where the spending goes is more crucial. This brings us to the big number those economists are watching – debt to GDP. As of June 2021, Malaysia’s debt to GDP stood at 63.3% – above its 60% debt ceiling which is set to be raised to 65%. Let’s take a look at the significance of this much talked about debt to GDP. Assume that we are talking about a company now. The debts would be a company’s borrowing while the GDP would be the revenue. If a company’s borrowing to revenue ratio is say 65%, what does this information tells you? Nothing much actually. You would need more information than this to decide whether the company is in good financial health or not. Likewise, a standalone debt to GDP number is of little value. More considerations such as the utilization of debt and the prospect of the country have to be taken into consideration. That is why the US can get away with 126% debt to GDP, and not many people have issues with it. Back to the Cukai Makmur. The intention is to support the government’s initiative to assist those affected by the pandemic by charging an additional tax on companies that generate higher profits during the pandemic, then one can’t help but wonder that shouldn’t be based on the 2021’s earnings? 2022 would be a recovery year (baring any new waves), or hopefully a post-pandemic. Does it mean that any company that earns more than RM100 million in 2022 is a beneficiary of the pandemic? Though the intention could be not to prosecute or penalize any industry that is really benefitting from the pandemic, having this mechanism is by far fair as well. Alas, my wish list didn’t come to fruition, which is to increase the GST rate from zero to 3%. Though some politicians may say GST is a regression type of tax system, it is interesting that 160 countries in the world have not realized that it is a regressed system and went ahead with it. Reality check – less than 5% of Malaysia’s workforce pays personal income tax, which is one of the largest contributors to our government revenue. On one hand one may argue that it is due to most are lower wages, but the reality is that there is a substantial amount of unreported income (whether legally or illegally). GST is the nest mechanism to capture the unreported income. Does it cause inflationary pressure? My take is Malaysia’s implementation coincides with the weakening of the RM, which resulted in imported inflation during that period. By and large, yes, the budget is a non-event. Unless the government can generate a new source of revenue (and not via windfall tax method), a substantial reform in our tax system is not possible.
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