Is GST responsible for rising prices?

A QUESTION OF BUSINESS | Is the Goods and Services Tax (GST) responsible for higher prices now? Can one reverse the price increases by scrapping the GST or zero-rating items in the GST? Will the poor see a significant drop in living costs if we removed the GST?

Unfortunately, the answer to all three questions above, as we shall see, is a resounding “no!” Which begs the question why the opposition is using these old, false assertion to whip the rakyat into a frenzy.

That’s probably because their surveys show that the rise in living costs is a major election issue. So, their spin doctors - yes, the opposition has theirs too - probably decided that demonising GST will resonate with the rakyat. Never mind-lah that it is not quite accurate! Easy to message, ma.

That GST ploy appeared to backfire some when Penang Chief Minister and DAP supremo Lim Guan Eng was criticised heavily for encouraging, singing and dancing to a heavily political GST singalong with children.

Lim’s defence was rather pathetic, saying that BN was practising double standards when the Federal Territory minister and Umno secretary-general did worse at a government school. Does that imply that it is okay for Lim to descend to the kind of behaviour that BN politicians practise? By now he should know that the public wants a higher standard of behaviour from him than that.

But the truth may actually resonate better with the rakyat in this case. There is a good story to tell. In any case, should anyone who wants to be more moral and honest than BN try and win the election by putting up half-truths? No.

What is closer to the truth is that the cycle of price increases is more related to the depreciated currency - now around RM3.9 to the US dollar, which has come down steadily from around RM3 around post the 2009 world financial crisis when money flowed into developed countries. And the other problem is that incomes have not risen sufficiently to keep up with rising prices.

But first, is the GST responsible for higher prices now? No. Because it was implemented on April 1, 2015. In fact, the full-year effect on prices as a result of GST was 2016. Most of the price increase would have occurred in 2015 because GST was already in place for nine months. It is an indisputable fact that GST is no longer responsible for rising prices.

For 2017, therefore, price increases and the rising relative cost of living - incomes staying stagnant while prices increased - that people are experiencing is not at all due to the GST. On top of that, a long list of goods and services are exempt from GST, which means price increases for these cannot be attributed to GST. This includes almost all food consumed by most people, transports costs, many services, education and so on.

Why set the clock back?

In fact, GST is a good tax in the sense that it taxes consumption - those who consume pay more, with essential goods and services exempted. It catches too those who evade income tax by taxing consumption because it is the rich who consume more and therefore spares the poor for whom many essential items are exempted anyway.

Not only are the opposition’s assertions false, it appears that they don’t even want to help the poor by raising taxes from those who can afford it to help the development process. Who are the opposition helping by cutting GST? The poor? Certainly not. 

Will abolishing GST bring down prices for the poor? Highly unlikely because the poor consume essential goods more which will not move even a little bit down because there is no GST on them. What will happen is that although the price of consumer goods may, I repeat may, go down prices are more likely to be slow to adjust and will not drop by as much - sticky downwards.

Where the prices will go down is for items where the prices are clearly marked - such as cars or restaurant food prices. But even then, what many of them would do is to simply increase their prices and say that costs have gone up. Thus, GST removal is likely to have an extremely limited impact in terms of prices coming down, and certainly not for the ordinary man.

So will the poor see a significant reduction in the costs of living if GST is removed? Of course not. The opposition is campaigning strongly on an issue which is not – yes, rising costs are an issue but not GST because that is not what is causing costs to rise anymore.

The groundwork has been set and the GST is being collected. Difficulties have already been ironed out. Some 160 countries around the world implement it. Why set the clock back and abolish it? There is so much more the opposition could be doing.

If GST is not the cause of rising prices now, what is then? Now we come to the real story. Currency depreciation is the main one. When BN under Najib Razak was re-elected in May 2013, the ringgit was RM3 to one US dollar. Today it is RM3.90 - in effect a depreciation by about nearly a quarter or some 25%. That exerts a lot of cost pressures because on average prices of imports are going up by an average of 5% a year, adding up over the years.

Yes, some money is moving back to the US but the Malaysian currency depreciated more than most despite the economy showing good relative growth and performance. Why? Most probably because of reduced confidence in Malaysia caused by 1MDB, the biggest case of kleptocracy in the world. Investors and speculators, and many Malaysians have imputed a negative premium on the ringgit.

The other reason is that successive BN governments, including Najib’s have not done enough to increase the incomes of ordinary people, which means price increases exceed income increases. These are the two main reasons why people are suffering from the higher cost of living.

Is that not a sexy enough story to tell voters instead of resorting to half-truths, economically unsound measures like abolishing GST and asking children to participate in misleading singalongs? Imagine what will happen if GST is removed and prices remained high and increased anyway as it is most likely to. Then what? How does the opposition fill that hole in revenue?

For me, the main reason this government should go is that it has allowed kleptocracy - theft of unimaginable proportions, circa RM40 billion - to go uninvestigated and unpunished. That’s good enough reason instead of conjecturing falsehoods and descending to the low level of the incumbents.

When your hands are clean, truth is the best defence - and offence. Keep the dirt off your hands and fight, then you stand a better chance of converting people to your side to win the war.

---

P GUNASEGARAM believes that if enough people know the truth about BN and the government, it will topple. E-mail: t.p.guna@gmail.com. -Mkini