SST vs GST: A false debate

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People forget how unpopular the GST was

Anil Netto says it is about time the government considers imposing a wealth tax aimed at the ultra-wealthy.

It was not so long ago that cartoonist Zunar used to take the mickey out of former Prime Najib Razak and his Goods and Services Tax.

But in recent days, some politicians and analysts have floated the idea of restoring the unpopular GST, perhaps with a reduction in rate from 6% to 3%. They argue this would be more effective in widening the tax base.

The government maintains that the Sales and Service Tax, which replaced the GST last year, would remain – and it even expects SST revenue to surpass the past GST collection.

Many seem to have forgotten how deeply unpopular the GST was. The GST, introduced in 2015, was so hated it helped boot out Najib. Many dislike the GST and, to a lesser extent, the SST as these taxes hurt their pockets everyday. Both these consumption taxes are regressive taxes which disproportionately hurt the lower income groups – and to a less extent the middle class – the hardest.

True, SST and GST may be fine-tuned to reduce the burden on the lower-income groups by exempting essential items or perhaps taxing luxury items at a higher rate. But the lower-income group will still feel the impact of these taxes.

Some pro-GST analysts point to many developed countries who have imposed GST, but then they don’t consider that many of these countries have higher incomes, a wider tax base that allows for rebates and strong social safety nets eg free quality education, healthcare, excellent public transport and universal pensions.

Few mainstream analysts seem willing to discuss a move to a more progressive taxation system ie taxing people according to their ability to pay, rather than a blanket tax on spending.

Why would we want to broaden the tax base with GST or SST and burden the masses even more, when there are so many other avenues for raising taxes that have not been fully explored. Consider taxes on property speculation, gambling, forex and commodity speculation and trading; stamp duties on expensive property, taxes on unoccupied property; estate duties; and the super-profits earned by financial institutions and major monopolies. And oh yes, what about all those funds squirrelled away to offshore tax havens and secret numbered bank accounts.

READ MORE:  Budget 2020 could have taxed the rich more

Why don’t we “expand the tax base” by targeting these activities?

Along comes French economist Thomas Piketty with a new heavyweight book Capital and Ideology, analysing the concentration of wealth and income inequality and proposing some measures to tackle it. It is a sequel to his earlier book Capital in the 21st Century, which explained that those with capital found their wealth growing faster because the rate of return of capital surpassed the rate of economic growth over time.

Such yawning inequalities did not happen out of nothing – nor are they something natural or preordained by God.

In his new 1,232-page book, Piketty explains that wide inequalities have come about due to politics and ideological orientation.

Piketty reportedly proposes several key measures to narrow gaping wealth inequality:

  • no shareholder to control more than 10% of voting rights in a firm — even if they have a bigger stake
  • workers to be represented in half the seats on company boards
  • much higher taxes on property, ranging all the way up to 90% for the largest estates
  • a lump sum golden payout of US$132,000 (in France) to everyone when they reach 25
  • an individualised carbon tax calculated based on an individual’s contribution to global warming, tracked by a personalised card

The focus is on creating a more egalitarian society. For Piketty, what propels progress is the struggle for equality and education. Ownership of property is just temporary. This system would not mainly target small-time millionaires but the mega millionaires and billionaires – and we have scores of the latter around.

“The system I propose makes it possible to own several million euros, or even tens of millions, at least for a while … but those with several hundred million euros, or several billion, will have to share power,” said Picketty.

READ MORE:  Budget 2020 could have taxed the rich more

The economist envisions a more participatory form of government that would come up with people-friendly policies to promote equality, social property, education and the sharing of knowledge and power.

His ideas have been taken up in the US by presidential candidate Senator Elizabeth Warren, who together with economists, has crafted a proposed 2-3% annual wealth tax on the net worth of the richest 1-2%, the “ultra-millionaires”. A poll revealed that 54% of Americans supported this plan. Senator Bernie Sanders too has proposed a “tax on extreme wealth”.

Not all billionaires think that more taxes for the richest are a bad idea: 19 ultra-wealthy billionaires including George Soros have written to US presidential candidates saying they support a moderate wealth tax aimed at the top 1%. This tax, they said, could fund environmental initiatives, reduce inequality and help finance universal healthcare.

Wealth at the expense of the environment?

That may only be fair. We are only now waking up to the real extent of the ecological damage inflicted on the planet in the pursuit of great wealth for a small minority.

In not a few cases, the actual process of generating immense wealth for a few has harmed the environment through the release of greenhouse gases, air and sea pollution, the cutting of forests and hills, the depletion of natural resources and massive land reclamation which hurts fisheries.

Plantation companies have cleared land through burning, resulting in hot spots that have emitted enough smoke to blanket the region, harming people’s health in the process. In the Amazon, more fires have blazed, as unbridled greed destroys the rainforests. These fire are happening at a time when much of the world is anxious about climate change.

Meanwhile, many workers may have been paid a pittance compared to what shareholders and top directors have earned.

READ MORE:  Budget 2020 could have taxed the rich more

For activist George Monbiot, it is not just about the super-rich and how their wealth is generated. The lavish spending and consumer habits of the wealthy are also harming the environment.

The more money individuals have, the more likely they are to spend it on unsustainable lifestyles, which will hurt the planet, he points out. Think of the oil-guzzling private jets, superyachts and luxury limousines that the super-rich use to move around.

Research among 2,500 Swedish households found that net income was the most important factor influencing greenhouse gas emissions.

In other words, the higher a person’s income, the greater the impact they will have on climate change, especially when it comes to their choice of transport. This is true even if that person may be environmentally friendly in his or her attitudes eg practising recycling, adopting a plant-based diet and not using plastic straws.

What has a huge impact is how much transport fuel, domestic energy and material goods we consume or use.

Not only that, other research has shown that higher incomes and wealth give individuals a sense of power, making them less compassionate and able to empathise with the vulnerable and suffering in society.

There is a case for capping the incomes of elected representatives to ensure they don’t lose touch with the Rakyat, especially in policymaking.

In Sweden, elected representatives do not get much in the way of luxuries or perks. On the contrary, they earn less than three times the pay of a primary school teacher. They commute in trains and buses like everyone else. This way they are more attuned to any shortcomings in public transport and can experience what ordinary people are going through. Swedish MPs also live in small apartments. Why, they reportedly even have to do their own laundry in public laundries. No private secretaries to wait on them.

And yet Sweden is ranked seventh in the world in the human development index rankings. Clearly, they are on to something there.

So instead of narrowing the debate to whether SST or GST is a better consumption tax, isn’t it about time we consider wealth taxes?

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