GST, the economist and the economic sense

The Star reported that some economist are in favor of the GST and that it should be implemented quickly.

Well, indeed GST is an revenue source which is more equitable, IF and only IF
1. You reduce the income tax accordingly and
2. You apply the right subsidy assistance to the right group of people.

But Malaysia does not a have a problem in collecting money - it is rich. The problem is handling money.

There is absolutely no use of generating more revenue for the government's coffers when we do not address the inefficiency and leakages completely. If we do not address these holes before we open the GST tap, we will find ourself back in deficit, back in the same problem - very fast.

And what happens then? Raise the income tax back to pre-GST level? Remove more subsidies?

The problem is not the money people, it is the use (or rather misuse) of it.

Below is the excerpt from the Star Newspaper

Economists urge Govt to implement goods and services tax

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KUALA LUMPUR: The sooner the better. That’s how economists feel about the goods and services tax (GST), whose unveiling is widely anticipated in Budget 2014.
Kenanga Research economist Wan Suhaimi Saidie said a comparative study on the broad-based tax in Australia, Singapore and Thailand showed a positive wealth effect, with the three countries experiencing three- and even four-fold increases in gross domestic product (GDP) per capita post-GST.
“It’s basic economic theory. As the system becomes more efficient across the supply chain, wages, prices and wealth can be distributed more evenly,” he said at a briefing yesterday.
Wan Suhaimi cited Singapore as having the best model for the GST implementation, which saw the city-state substantially reducing corporate and income tax, tripling per capita income and attracting large investments and human capital.
Kenanga Research is expecting an initial GST rate of between 4% and 7%, with 5% being the most likely.
The consumption-based tax, on which basic necessities would be exempted, could be introduced next July at the earliest or January 2015, the local research outfit said.
But Wan Suhaimi suggested that a quick implementation was crucial if the Government intended to stick to its deficit reduction target of 3% by 2015.
Rating agencies, which have been keeping close tabs on Malaysia’s debt situation and dwindling current account surplus, are also in favour of the Government cleaning up its fiscal house, rather than being fixated on growth, which should come naturally with the recovery in external demand, Wan Suhaimi said.
Kenanga Research said a January 2015 timeline for the GST would result in an end-2015 deficit of 3.5%, off the Government’s target by 0.5%.
If the tax took effect next July, however, then the fiscal deficit is likely to be pared down to 3.1% by the end of 2015, its numbers show.
The GST introduction might even lead to a rally on the local bourse, if the stock markets of Australia, Singapore and Thailand were any indication, Kenanga head of research Chan Ken Yew said.
Their benchmark indices soared shortly before the tax came into effect, as consumers hoarded goods and services to avoid paying higher prices, giving markets a short-lived sugar rush.
On his outlook for the market, Chan said he was adopting a “cautiously optimistic” approach, advising clients to buy on weakness – especially if the FTSE Bursa Malaysia KL Composite Index plunges below 1,745 points – and be selective in their stock picks.
And despite the impending pullback of the US Federal Reserve’s easy money policies, which fear-mongers said would drive an unprecedented exit of foreign capital from emerging markets, Chan is taking a contrarian view.
“Foreign investors are returning to Bursa Malaysia. They turned net buyers again recently,” Chan said, noting that the still near-zero interest rates in most Western countries were a boon to monetary expansion.