I refer to the reply made by Prime Minister Najib in Dewan Rakyat yesterday in response to Kluang MP, Liew Chin Tong’s question whether the government will consider lowering the GST from 6% to 3% in order to boost private consumption. Najib responded to the question by saying “Without GST, Malaysia’s economy will be crippled.”
What Najib said cannot be more wrong as what will cripple the economy is the shrinking domestic demand that will bring Malaysia economy into a spiraling recession.
It ought to be basic to any economics students that the Keynesian theory advocated lower taxes and increased government spending to stimulate demand and pull the economy out of a recession.
There is no denying that Malaysia is heading towards an economic slowdown, if not addressed, will quickly turn into another economic downturn or recession. All economic indicators have clearly shown that Malaysia economy is slowing down moving into 2017 with exports weakening in the first half of 2016 and GDP growth slowing down. According to data released by the Department of Statistics, Malaysia’s GDP grew 4.1% in the first six months of 2016, compared with 5.3% in the corresponding period last year.
It is imperative that the Government cut taxes to boost private consumption in order to save the Malaysia Economy. For example, the UK had in 2008 cut the VAT from 17.5% to 15% to boost the country’s economy.
The suggestion to cut taxes to boost private consumption has also been backed by AllianceDBS Research chief economist Manokaran Mottain.
Manokaran Mottain was quoted by StarBizWeek to have said the below
“what the economy needs is to boost private consumption by cutting the goods and services tax (GST)”
“The GST is a broad-based tax, a 1% cut will help more people than an income tax cut, as far fewer people pay income tax,”
Manokaran suggests that the GST be reduced to 5% from 6% for a limited period to boost consumption rather than cutting personal income tax. A cut in the GST rate will mean a loss in revenue, which Manokaran and others argue can be made up from the rise in oil-related revenue since the average price of oil is higher than the revised Budget 2016 oil price assumption.
It is clear that economists and researchers are propagating a cut in GST to boost private consumption which makes up 54% of the country’s GDP. There is no basis in Najib’s statement that “Without GST, Malaysia economy will be crippled.”.
Barisan Nasional should send Najib back to school to learn basic Economics if he does not understand an expansionary fiscal policy – to decrease taxes or to increase government expenditures(or both) in order to fight recessionary pressure.
Media Statement by Chong Zhemin, DAP Perak Economic Developement Bureau Chief and Political Secretary to Taiping MP on 18 October 2016