Be clear about behavioural taxes’ objectives, govt told

UKM vice-chancellor Noor Azlan Ghazali says the government should exercise caution on behavioural taxes.

KUALA LUMPUR: An academic today urged the government to be clear of the objectives when imposing behavioural taxes, citing the soda tax as an example.

Universiti Kebangsaan Malaysia (UKM) vice-chancellor Noor Azlan Ghazali said the government should exercise caution on such taxes.

“The bottom line is that you are taxing behaviours. You must be careful with this kind of tax. It looks good and it looks like it might work. But trust me, if everyone decides not to take soda drinks, the collection of tax will drop.

“But if everyone decides to go with soda as much as possible, the tax collection will be great.

“You have to properly define the objectives of these taxes, whether it is to get people to change their behaviours, which will result in the government losing its revenue, or otherwise,” he said in his presentation at a post-budget debate organised by the Malaysian Economic Association (MEA) here today.

Also present were the finance ministry’s national budget director Johan Mahmood Merican, Malaysian Economic Association (MEA) president Norma Mansor, Sovereign Ratings S&P Global (Ratings) director Andrew Wood, Kenanga Investment Bank Bhd chief economic researcher Wan Suhaimie Wan Mohd Saidie, and the finance ministry’s deputy under secretary (fiscal and economics division) Mohd Hassan Ahmad.

In the Budget 2019 tabled last Friday, Putrajaya had announced a 40 sen per litre tax on soft drinks and juices starting April 1 next year.

Speaking to reporters later, Noor Azlan said the government needed to be clear of its objectives for such behavioural taxes – whether the aim was to change people’s behaviour or to gain revenue.

“The reason I raised this is because there is strong economics behind this. We do not want to overlook this. When you introduce such taxes, you must understand that you get either one (of the objectives).

“For instance, going out of the country. The levy will be RM20 per head for those departing to Asean countries, and RM40 to other countries. What is it you actually want? How do you measure that this policy is a success?

“If you want the tax (revenue), you want more people to leave Malaysia. If that is what you want. But hold on. If you are targeting behaviours, then you want people to spend their vacations in Malaysia, which is fine.

“But do you know how many Malaysians are having vacations abroad? You have to weigh which is your objective. We need to understand the purpose of the tax,” he said, adding that he believed those who want to travel would still do so regardless of the levy.

Noor Azlan also pointed out that many Malaysians had the wrong perceptions about budget surpluses and deficits.

“Many have misconceptions that a surplus is good, and a deficit is bad, and that when something appreciates, it is good, but when something depreciates in value, it is bad.

“This is not necessarily the case,” he said.

Noor Azlan said over the years since independence, the country’s economy had progressed and this had been recognised by the World Bank and the international community at large.

“Yes, we do have some problems here and there, but we are progressing. Let’s take that first. The fact that we are on the International Monetary Fund (IMF) rankings, the World Economic Forum, it shows that we are a country that is on the high end. People are looking at us.

“The challenge is that when people discuss the budget deficit, they interpret this literally, that a deficit is bad, and that a surplus is good, which is not necessarily true.

“Almost all of the years since 1970, except for five years, we have been in deficit. If (being in) deficit is wrong, we could not have reached this stage,” he said.

Malaysia last experienced a fiscal surplus in the mid-1990s.

Noor Azlan, who specialises in financial economics and banking, said the important thing was that the government should have a plan in place on how to bring the deficit to a more manageable level.

“Looking at Malaysia’s case, in 1997 to 1998, and 2009, you see the deficit going down, -6.7%. It means that Malaysia is managing the deficit in the right manner.

“You don’t want to be in surplus when the economy is slow. You need to be in deficit. For a responsible government, there must be enough buffer to take a deficit when the economy is facing shocks.”

“For Malaysia next year, what is the economic environment? Do we have that buffer? The fact that the government targeted this year’s fiscal deficit at 3.7%, I hope they can commit to a plan to be at a steady level.

“For a country like Malaysia, the rule of thumb is that, if you are at -3.0% or -2.5%, you are all right,” he added.

The federal government is targetting a fiscal deficit of 3.7% this year, 3.4% for next year, 3.0% in 2020 and less than 3% in 2021. - FMT