Monday, August 18, 2014

Subsidies & Taxes

There are subsidies because there are taxes. Or, put it the other way round, because there are taxes, therefore there must also be subsidies. After all, there are the opposites of each other and both are needed to strike a balance.

Of course, the current debate in public in our part of the world is that there should be an increase in taxes and there should absolutely be no subsidies.

The major argument against subsidies is that subsidies lead to economic inefficiency. This is from the argument that the economy, left it itself, is efficient. Or, rather, will be efficient. This is not a statement of fact; it is a value judgement from laissez faire economics. The statement may be less incorrect if we were to say that subsidies, if improperly introduced and implemented, may leave to economic inefficiency or make the economy less efficient or more inefficient. We do not know that; we have to find out.

But the economy, as it is, is not without interference - not least, taxes from the government. Why is it not argued that because the government taxes people for working through the income tax, the income tax is making the economy less efficient by making people less inclined to work harder. There is also the tax on consumption and this discourages people from consuming because they have to give a portion of their little income to the government (and what is the government going to do with that extra revenue) which the people would have spent feeding their families.

There are also taxes on imports so that imports which we cannot produce ourselves will be more expensive - if the hope (?) that we can make those imports ourselves. The best example must be cars and we are paying good money to drive lousily-made local cars. Whereas, there are things that we have - for example, oil and gas, which we would put to good use ourselves are exported so that we, the producers of oil and gas, have to pay for oil and gas just like other people in the world who do not have oil and gas in their backyard.

If we study the direction of the various taxes, we can see that they are piled up haphazardly by the government as a form of getting more and more revenue because they have been advised by some mediocre economists that the best way for the government to stimulate (whatever this means) the economy is for the government to spend more and more. But taking more and more money from the general public for the government to spend does not encourage the people to want to invest in their future here. They want to get out of the way of the government before the government steamrolled them to death. The government seems to have a life of its own, and it will try to survive at the expense of the people.

There is a need for subsidies. Subsidies are needed in areas which protect the traditional livelihood of the society which defines our traditional culture. As the economy advances, it is inevitable that land and resource based activities will be unable to catch up technologically compared with the other sectors. But the traditional sectors are the food sectors, the agriculture, which are the soul of the society. We are not an island economy which is confined by its size to be super efficient in a small space. We are big enough to have sufficient space for every person who want to continue with our traditional activities. It is something else to argue whether things like cars are essential to the livelihood of society, or that they are mere toys which contribute to the ego of certain leaders of ours - and cars are now the bane of our society.


walla said...

In her early fifties, she lost her husband to a tumor seven years back. Her five children are grown up and working but they have their own families and are living far away. She lives with an anak angkat in a small wooden shed and depends on kind neighbors to fetch her to the gerai by the roadside at six in the morning where she will be until six in the evening whereupon she rushes to take the next available bus to go to town an hour away in order to buy groceries at the cheapest outlets before they close so that she can make for the next day's servings to her customers who alight if it doesn't pour from their heavy lorries midday to enjoy the pau's she sells at one twenty each which are delivered long-distance by the baker. When she reaches home in the evening and if it has been a busy day, she is too tired to have dinner and just drops off to sleep. Seven days a week. That would explain the harrowed look and sad eyes she tries to hide behind her smiles to her customers. She's just surviving.

walla said...

If subsidies are taken away, things will immediately cost more. Perhaps even more than the subtracted quantum because people in such a situation will tend to raise their prices in order not to incur a loss especially when their original margins have been quite thin. In her case, how much can she make even if she manages to sell all the pau's a day? The baker will demand a bigger margin to offset his flour and fuel costs. And if she raises the price to one fifty to cover herself, how many customers won't forgo their snacks because their own wages may even go down as incomes of their employers get hit on one side by higher operational costs and on the other side by lower yield owing to bad weather plus lower price for their fruits harvested and sold due to competing bumper harvests of soya beans in faraway prairie lands add on inventory unloading by estates big and small in other countries which themselves are pressured by financing costs to continue their operations.

walla said...

It's a dilemma caused by irrational exuberance in the past about our economic performances that were propped up by hot money inflows, new oil revenues and political spin without seeing how subsidies distort the real costs of things. We started subsidies without any parallel policies to improve effectiveness via the meritocracy route which was malignantly blocked in order to rear the weed of ethnocracy. Now with everything in a mess and reality coming home to roost, we want to remove subsidies that affect the base of the pyramid the most which also depend on the erstwhile semi-subsidized and newly re-taxed industrial and agricultural bases of our economy? How to reconcile all the mutually opposing forces in order to create gain from progress?

walla said...

We need to restabilize this country and revitalize this economy. Neither can be done without a reality check on where this country is at the moment, to wit where it is heading with the present administration.

We need clean and honest progress and an apolitical justice system. We need more brains to come up and be recognized and rewarded accordingly. We need to incentize CSR in a structured manner (i am typing half-asleep) that will groom people to do measurably better or suffer consequences of being left behind by their own attitudinal devices. And to build a more progressive-minded society as foundation for a more competitive global mindset with a more enlightened worldview, we need to shaft all stupid things like racial and religious bigotry. We need to champion better standards in everything. Everything. Especially the globalization of mindsets through a more attuned education system pegged to the best of the world, not to the mentally challenged ramblings of half-baked cowherds and recalcitrant racists.


walla said...

And most of all, above everything else, we need to reduce both government AND taxes. Money so saved can be used by citizen enterprises to employ those government workers who will work hard and are ready to enjoy the pain of sacrifice.

If a widow can do it, so too them.