Thursday, 18 October 2012

Some ways to improve the government

Very good article from Tommy Thomas in The Edge of October 15, 2012, in the "Notes to the cabinet" series.

MALAYSIA is at a crossroads 55 years after Merdeka. Remedial measures must be taken on a wide range of areas in order to improve the well-being and welfare of the people, which, after all, is the pre-dominant purpose of every government. I would like to highlight two key areas of national life, which require the government's attention.

The issues the government has to tackle on the economic front are numerous and varied. Some can be addressed immediately, some over the course of a five-year term and some over an even longer time horizon.

The government must avoid the precedent set in the previous and present administrations where the prime minister also serves as the Minister of Finance. Of all the cabinet posts, managing a nation's Treasury is the most demanding and time-consuming. Even in a small company, a managing director seldom serves as the CFO. Public-listed companies also split the positions. Accordingly, the cabinet should appoint someone who enjoys its trust and confidence and who is conversant in financial matters as its Minister of Finance.

(i) Fiscal measures — collection of revenue

The present system of income tax collection is terribly inefficient. It defies belief that out of a labour force of more than 10 million, only about 1.3 million pay any form of income tax. Further, apparently only about 30,000 individuals pay tax at the highest rate of 26%. Common sense will indicate that most businessmen, (whether running companies, small and medium-scale enterprises or even small stores) earn sufficient income to pay at the highest bracket, which is just RM100,000. So do most professionals, politicians, civil servants and academia across the nation. Surely there are at least one million Malaysians earning an income which would which would place them in the highest tax bracket! If one drives around greater Kuala Lumpur, one would notice hundreds of thousands of homes with luxury cars. All these persons should be paying tax at the highest rate.

Similarly, there is inefficiency in the collection of corporate tax. Of the one million companies incorporated in Malaysia, about 500,000 actually carry out businesses. They should all be paying significant sums of corporate tax. The well-known phenomenon of keeping many sets of financial books and records to avoid paying the true amount of tax must be attacked by more efficient and honest investigation. If the collection of income and corporate tax and customs and excise duties enhances by a substantial level, there would be no need for the Goods and Service Tax, which would operate harshly and inequitably on the poor because it is a tax on consumption, as opposed to a tax on income.

Finally, reliance on Petronas, which apparently is the source of about 45% of all government revenue, must be reduced.

(ii) Reducing deficit

The 15 successive years in deficit from 1997 must cease within a reasonable period. The government should quickly announce a timetable by which we should return to surplus, say, over a period of five to seven years. Whether our true debt as at December 2011 is RM456 billion, representing 52% of GDP, or RM573 billion (if contingent liabilities are also included in its calculation), which would represent 67% of GDP, it is too high for comfort. A substantial proportion of the annual deficit has been used to finance the salaries, bonuses and pensions of the bloated civil service; a classic case of consumption rather than investment. We must stop the habit of living beyond our means!

(iii) Diminishing state intervention The government should not be entering into what would clearly be private sector areas, for instance, undertaking huge building construction projects like mega-projects mentioned in Budget 2011 — the RM26 billion KL International Finance District and the RM5 billion 100-storey Warisan Merdeka Tower. We already have both a property bubble and an overcapacity of buildings in Kuala Lumpur, Penang and Johor.

Subsidies paid by Petronas to rich companies for gas supplies, which totalled RM11.6 billion in 2011, must cease. A major review of lopsided contracts and concessions to favoured businessmen in the energy, transport and other sectors must also be undertaken. Open, transparent tender systems must be used for the awarding of all contracts.

(iv) Reducing dependence on foreign labour

Apparently there are about four million immigrants (both legal and illegal) in our labour force. Apart from causing socio-political problems, they keep wages low, to the detriment of Malaysian workers. Accordingly, there should be an announcement that over a reasonable period of time, say, five to seven years, reliance on foreign labour would drastically reduce. At the same time, trade unions must be encouraged, salaries for Malaysian workers must increase substantially over time and productively must be bettered. Greater collaboration with labour must be encouraged.

Democratic space

One cannot enjoy full economic freedom without full political liberty. In order for the nation to be a fully functioning democracy, the administration must govern with a "light touch" by opening up space for the people. Access to the media must increase by leaps and bounds. The national radio and television systems are funded by taxpayers' money: they are national assets that should not be the monopoly of the ruling party.

The international model for this is the BBC. Thus, liberate the broadcast services from government control by appointing persons who are truly independent to manage them, free from governmental interference. Opposition parties, civil societies and others must be given equal access.

Likewise, the newspapers. Political parties should cease controlling newspapers, both at the shareholder and management levels. If the government does not wish the newspaper industry to be a sunset industry because of the Internet revolution, remove all the fetters holding it back.

Organisations that take up causes critical of the government must not be intimidated by the mighty power of the State. Persons who challenge the government's actions or omissions must also not be harassed.

Diversity of views and real tolerance must be the catchwords of the administration. Free speech and expression mean listening to statements that are critical and condemnatory of the government, for free speech is not just adulatory!

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