January 2, 2010
Tengku Razaleigh on Goods and Services Tax and the Economyby Aidila Razak
With oil reserves fast depleting and the income tax base hardly growing, the government is proposing raising funds by implementing the controversial goods and services tax (GST). But this, former finance minister Tengku Razaleigh Hamzah laments, is unfair to the rakyat who have endured suppressed and stagnant wages, because of the nation’s ‘addiction’ to cheap migrant labour who import other issues to our shores.
“We were declared cholera-free and tuberculosis-free by the World Health Organisation. Suddenly now we find that we have epidemics of some of these things. It’s going to cost us a lot of money,” he said.
This conundrum, he told Malaysiakini in an interview at his residence last week, can be blamed on the failure to 
adhere to the nation’s original master plan nation which had foreseen the middle-income trap decades ago. “We had an industrial master plan which was undertaken with the collaboration of the World Bank at one time, when I was in government but unfortunately that was pushed aside,” he shared.
Worst still, he cautioned, the proposed GST rate of 4 percent may even be hiked up marking tough days ahead for all but especially the poor, whose issues the government has yet to address.
The following are excerpts of the interview. The contents have been edited for brevity.
Malaysiakini: In your Youth Summit speech, you mentioned that we are caught in a middle-income trap. What is your solution to this problem?
Razaleigh: We are talking about a knowledge-based economy. With all the technological progress around us, we thought that we would be able to leap forward and we shouldn’t be reliant on all those old types of technology where we do all those assembly things and provide cheap labour. Instead, we’re continuing with this.
We had an industrial master plan which was undertaken with the collaboration of the World Bank at one time when I was in government, but unfortunately that was pushed aside. In that, it was already suggested or proposed that we should provide education in order to upgrade our people so that we have a meaningful supply of trained people for the future.
Instead, we are now facing problems with the massive brain drain from the country, not just to neighbouring countries but to other parts of the world like Australia and Canada. We can’t afford to lose (the talent), but we just bringing in cheap labour, not just cheap labour but bringing in problems that we find it difficult to cope with.
It has also encouraged a lot of illegal immigrants that have come with the migrant labour that we have brought in. Some come in without jobs waiting for them, and as a result we see all the unintended ills in our society.
I’m not blaming them entirely but they also exacerbate the problems that we face, like the high crime rate and disease. We were declared cholera-free and tuberculosis-free by the World Health Organisation. Suddenly now we find that we have an epidemic of some of these things. It’s going to cost us a lot of money.
But a lot of them come here because they were told they could get a job, when in fact there is corruption within the system, and they have already paid their money to be here. So they have been exploited as well.
They paid agents here and they paid agents in their homelands… so they are exploited to the full. And some of these people don’t want to go home because maybe they think this is paradise compared to the places that they came from. I think we will grapple with this problem for a long time because a lot of them still have permits to bring in cheap labour not just from Bangladesh and Indonesia but also from Burma, China and Thailand. They are here in large numbers.
So we are addicted to oil and cheap labour, but how can wean ourselves from that?
I think the government has to really take bold action in order to rid ourselves of these problems and reinstate the original master plan that was already in place.
Now that oil money is depleting, the government is proposing to implement the Goods and Service Tax (GST). What are your views on that?
You can tax people but is it a fair tax? They have to bring in instruments to raise money for the administration of the country, but is it a fair tax? This is the question that you want to raise. After all, we have a very small tax base. Less than a million people are paying tax, out of the 26 million people of the population.
Is it because a lot of Malaysians are not earning enough?
Yes and no. Number one, the (income) gap is widening, and number two, I think the income level in real terms has not increased. The planning was not done properly to expand the tax base, in order to bring the people to the higher-income plane.
Is it because we have oil, so we didn’t have to worry…
Yes, we are over-reliant on this easy source of income, and we think that it’s not going to end. We will see that the income from this source will just disappear in a short period of time.
The government is proposing to charge 4 percent.
I don’t know what the rate is. That was only a suggestion and it has yet to be concluded.
Do you suspect that it may not be 4 percent?
It may not be, depending on how much money the government wants to raise. Najib said that by imposing the tax on property that is sold within five years, they have lost RM200 million in the expected revenue from source loans.If they are going to introduce GST, it is purely because they want to supplant the revenue that is not forthcoming or revenue that is fast being used up. I don’t think they are going to take things lightly.
But this will affect the poor.
Oh yes, GST will affect all consumers and those with larger families will bear the burden. Why do you want to bring that in now, when the economy is still not growing? The whole world is still like that.
Some argue that other countries like Thailand and Australia have GST, so why not Malaysia?
But have we done enough for the people? Don’t pretend we have solved the poverty question. We have not. You look at Sabah, Sarawak, Kelantan, Terengganu, and even the urban areas, there are a lot of poor people. Look at the exchange rate. Our ringgit has even depreciated against the Thai Baht.
Tomorrow: Umno or Pakatan for Ku Li?
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