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Wednesday, October 8, 2014

Navaratnam: Bad move to cut taxes for the rich

It's a contradiction to impose GST while favouring high income earners, says the prominent economist.
Ramon Navaratnam300PETALING JAYA: Prominent economist Ramon Navaratnam disagrees with the move to reduce the corporate tax and the income tax levied on high-income earners, saying it is unnecessary if the objective is to boost investments.
In an interview with FMT, he said the move was especially unwise when considered in the light of the government’s decision to introduce the Goods and Services Tax (GST) next April.
“You can’t tax the ordinary man via GST and at the same time reduce taxes for the rich,” he said. “It’s a contradiction.”
He explained: “There is this prevailing notion that if you raise the income and corporate taxes, investors may shy away from Malaysia.
“Investors generally don’t invest due to tax concessions alone, but other incentives, such as the environment, peace, stability, ease of doing business, security and safety.
“And Malaysia has scored very high on the World Bank’s ‘ease of doing business’ list.”
Navaratnam, who heads the Asian Strategy and Leadership Institute, said the “confidence factor” and fiscal discipline should be paramount considerations in any economic development plan.
“Factors such as the quality of expenditure, wastage and growing corruption have great impact on the fiscal deficit and they relate to the confidence factor.”
Navaratnam also said “racial and religious bigotry in economic policies” would have a negative impact on the country’s credit rating because they frighten foreign investors and affect their decision to expand, stand still or withdraw altogether.
He criticised the government’s attempts at structural reform as inadequate, saying its New Economic Model should be used more widely.
“There is still this idea of affirmative actions and restricted tendering and negotiations. They don’t help to improve the cost of production and efficiency.”
Meritocracy
He called on Malaysian leaders to be more willing to promote meritocracy, saying this would encourage competition in attracting investments and thereby improve the country’s balance of payments.
“I’m not asking for complete meritocracy overnight, but there must be a sense of phasing – a sense that it should move at a faster pace – in the minds of our leaders.”
Responding to former prime minister Mahathir Mohamad’s recent statement that “government shouldn’t be in the business of running businesses,” Navaratnam pointed out that it was during Mahathir’s time that the government started running businesses in a big way.
“That’s part of the affirmative action, which in itself is not bad, but it was abused,” he said.
“Government can run businesses in the interest of equity and income, but they must have the right people to run the businesses. Can you seriously say that all the government linked companies have the best Malaysians working for them?
“Mahathir once said that meritocracy is not possible as long as Malaysia is a multiracial society. I find that unacceptable.”
He said there were a lot of “able and brilliant” Malays in top management positions who would do well in a meritocratic system.
“It is wrong to assume that one or more race will be left behind in an open, free market.”

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