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Friday, November 1, 2013

Analysts: In GST, a potential firestorm for BN in GE14

NOVEMBER 1, 2013

A money changer counts Malaysian ringgit bank notes while customers
wait at a foreign exchange booth in downtown Kuala Lumpur.
In its own Budget, the three-party Pakatan Rakyat (PR) said it could
still achieve a 5 per cent growth and cut deficit to 3 per cent without the GST. — AFP pic
KUALA LUMPUR, Nov 1 — Putrajaya’s contentious plan to roll out a consumption tax system in 2015 could give the opposition the perfect campaign fodder that could potentially unseat the Barisan Nasional (BN) coalition in the next national polls, analysts said.

While pundits polled by The Malay Mail Online welcomed Prime Minister Datuk Seri Najib Razak’s announcement to introduce the goods and services tax (GST) as a positive move, they agreed that weak implementation of the complex tax system could lead to widespread profiteering and soaring inflation.

And with inflation rate already standing at a whopping 2.5 per cent of gross domestic product (GDP) -- the highest since the Asian financial crisis—and expected to rise further as Najib slashes subsidies to trim government spending, this could trigger voter backlash in the next general election to be held in five years.

“I think it will definitely have an impact. Pakatan Rakyat is already campaigning on it and the government have not done a good job to explain the mechanism and how it will impact the people,” political analyst Khoo Kay Peng told The Malay Mail Online.

In tabling the 2014 Budget last Friday, the prime minister announced plans to implement the GST by April 2015 in a move aimed at widening the government’s revenue base and trimming its fast-growing deficit.

But the federal opposition bloc claimed the Najib administration was punishing voters for its extravagant spending by rolling out a “regressive” tax system that would hike prices up.

In its own Budget, the three-party Pakatan Rakyat (PR) said it could still achieve a 5 per cent growth and cut deficit to 3 per cent without the GST. 

Plugging leakages and ending corruption, it added, would save the country RM30 billion yearly.

“I think it is one of the most unpopular thing the government has introduced in the Budget and if the feedback its negative, I think BN may have to try and adjust,” said Samsu Adabi Mamat, a political analyst at Universiti Teknologi Mara.

PR leaders have vowed to kickstart a nationwide campaign against the GST.

Khoo agreed that the GST issue could provide PR with the opportunity to infiltrate BN’s fortresses in the rural constituencies as a poorly implemented GST would even impact consumers in the remote locations.

The Najib government had the rural voters to thank as he survived a beating in the May 5 general election that saw the ruling coalition record unprecedented losses, losing more seats than the 2008 polls and the popular vote for the first time since 1968.

“Those in the rural areas will also be impacted as the GST will affect the suppliers from the city,” the independent analyst said.

The saving grace for BN, however, would be on how it manages the consumption tax system and should the ruling coalition exempt most basic goods from the GST, analysts believe it would make a much weaker campaign fodder for the opposition.

“The GST in itself, unless it coincides with the spur of inflation, it is not likely to have a big political impact,” political analyst Lim Teck Ghee told The Malay Mail Online.

The chief executive of think tank, Centre for Policy Initiatives, noted that the impact could be alleviated by exempting more basic goods under its least and as Putrajaya has not finalised its zero-rate list for the new tax system, it can give BN time to gain feedbacks and adjust to the ground sentiment.

Najib had also introduced other measures to cushion the blow of the GST and subsidy cuts, lowering income tax by 1 to 3 per cent and increasing its cash handouts under the popular 1 Malaysia People’s Aid (BR1M) programme.

However, Lim said regardless of the GST, Putrajaya’s austerity measures would likely create an adverse impact on the economy. 

He said issues like unemployment, growing income disparity, hike in power and water tariffs stemming from spending cuts, when put next to an inefficiently implemented GST, could still give PR a strong campaign ammunition against BN.

The 13-party BN had lost its parliamentary supermajority and five states in the 2008 polls following a massive urban and minority vote swing caused chiefly by soaring inflation, business news wire Bloomberg had reported.

“There are many other factors that can cause inflation but of course, the GST is a tax that critics will pick on,” Lim said.

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