KS Jomo on Govt Taxation and Spending: Begin With Small Reforms

Economist Jomo Kwame Sundram has aged, not from being in the Council of Eminent Persons for 100 days past, but because he has been repeating himself for the past few decades on what path the country's economy should be treading on.

He chides those who have been appointed for economic reforms and those who think that they know better than others.

"Basically you think you know the tip of the iceberg but you basically don’t know what lies under the water," said Jomo, to a crowd of mostly young working professionals and students at an event on industrial and economic policy in Malaysia Baharu recently.

For Jomo, it is pertinent that the small reforms of the economy be taken seriously and done properly to ensure that the whole nation gain.

Soon after the conclusion of the CEP’s 100 days of operations, he took centre stage at the Perdana Foundation event and talked about catering to the majority of the nation's needs.

Jomo suggested doing away with regressive taxation, upping the ante on public transport, political will to ensure eradication of poverty, recognising inequality of wealth, investing properly into education and health and learning to empower the people by looking at the successful models which Malaysia can mirror.

He emphasised that Malaysians and the government should stop obsessing with jargons and blueprint.

What the government needs to do is to not spend too much time and money on all kinds of studies and testing. He suggests, yet once again, to look at the economic problems logically and start with small reforms which may result in big gains.

One issue he explained at length was about the need for progressive taxation.

While taxes indeed fill the coffers of the country, Jomo said that there is such a thing as regressive taxation.

"We always assume tax is progressive - you take from the rich and give to the poor. We think the government is Robin Hood. Unfortunately this is a myth."

"My friend Ismail Salleh (a renowned economist) who is physically blind but could see much better than us, pointed out that income distribution after tax was more unequal before that. After paying tax, inequality was greater."

"For the years he studied, from 1963 to 1979, it got regressive. It is important for us to recognise income taxation as a proportion of total taxation has declined. Income taxation was and is still more likely to be progressive. Consumption taxation is more likely to be more regressive. When there is SST or GST, it is likely to be more regressive."

"You can make it less regressive in various ways - by exempting the basic necessities the poor people need, or by having a progressive consumption tax. For example, car owners from the top brackets get charged more according to engine capacity. We stop subsidising petrol - these things would be progressive if RON97 taxed more than RON95. Consumption tax generally is regressive," he added.

Jomo explained that in spending, the government needs to ensure that the people's money is spent progressively. He cited the government's expenditure on healthcare which has resulted in us having among the best public healthcare in the world.

"Simple reforms, not costing much, can do a lot. In 1960s, the Director General of Health Services was married to a midwife and it occurred to him why can't we have more midwives? So, women who were trained as bidan kampungs (village midwives) were retrained and as a result of that, reduced death of infants and less death in childbirths," said Jomo.

However, on the other hand, the same cannot be said for our education system where the outcome has not been consistent with the amount spent by the government.

Jomo said that while the government has invested great amounts into education, the quality of graduates have worsened.

He also showed that government agencies in individualising and privatising, tend not to think carefully in spending the people's money. He took the simple example of fogging by the municipal councils which would fog only those houses who paid their bills but the mosquitoes don't really go away. The neighbour which does not pay do not get fogged.

"Despite us having eliminated malaria virtually, we have the steady increase of dengue cases. Collectively, the result is chaos," said Jomo.

He further pointed out that that facts and figures from various studies on the economy will be used by different people for their own agendas, not to mention that as market values change, one must remember the situation at that very point of time.

"It is always important to remember that when one looks at the market values there will be changes. Market values in different times of history tell different stories.

"You can tell any story you want to tell through a selective rendition. You can tell the story without looking at public listed companies and Chinese-owned and then look at larger owned companies - that is usually what politicians do, selective rendition of the economy and then buoy the nation with their stories," explained Jomo.