Wednesday, May 16, 2018

GST and All That - One Last Time

You know I had had my misgivings over the GST all the while. There are of course very good reasons for being apprehensive.
a. GST is a transfer payment, like all taxes. It does not boost the economy, if it is really used to plug the whole in the public budget. But if the government then went on a spending spree, the spending spree will boost economic activities (although not quite if they are mostly foreign in origin). By getting deeper into debt, it violates the original intention of the imposition of the GST of reducing the budget deficit. The argument then went on to talk about a reduction in the debt/GDP ratio which is quite another thing.
b. The GST by itself at 6% does not sound like much, as had been argued by critics here before. But it was argued here that this will lead to an escalation of prices; not purely because of the 6% but because the imposition of the GST is a desperate measure to try to stop a sinking ship. Added by the expectations of higher US interest rates and the reversal of quantitative easing, the outflow of fund which led to further ringgit depreciation exacerbated an already bad situation. The shit hit the fan.
c. Do we zerorise the GST when we want to abolish it? Well, abolishing it means no more GST as an idea, not 0% GST. Sometimes, it's hard to find good English in this part of the world.

When you have an economy that had been focused on the unequal distribution of the petroleum windfall, you know that you are setting up the economy for a long-term reduction in economic efficiency. So much of the policy errors are being disguised by pouring money to gloss over the cracks. Contracts are no more being enforced; they can be renegotiated because of cost overruns and what not. This is paying good money for bad and incompetent work.

It would suggest that by the way we are going to unroll previous policies, which basically is to reexamine and then probably dump bad projects, things are going to slow down while we are trying to do spring cleaning. We need to brace ourselves for a time of quieter activities. The traffic seems to be fairly quiet, for a start.

I am sure most people feel a sigh of relief now that a certain thorn has been removed from our side. After that will be the healing process, of the politics as well of the economy. I am not too sure whether the same old medicines can be used for new diseases. But like the new digital economy we are all immersed in, we should be quite used to disruptive changes. While these are interesting times, let them not be a time of the disruption of the good old peace. God bless us all.