Facing up to rising prices

It is the first day at school. The usual crowd and commotion can only be expected as parents gather at schools to accompany the first time schoolers and settle any payment due.

Over the past few days, shopping complexes was packed with parents getting new school uniforms, shoes, stationaries and various schooling paraphenalia for their children. Grumbling can be heard of the rising cost. Parents with many children can be heard moaning of the accumulated bill this year.

"Some item still not bought but RM2,000 already spent," lamented a parent is with 5 schooling kids yesterday. He insisted last year's uniform can still be worn.

Rising cost is a real concern and pressure on public daily life.

So when Deputy Minister of International Trade and Industry, Dato Ahmad Maslan tried to encourage online business but humour it as second job to meet rising prices, no one was laughing. The public is in a foul mood with his past promises on GST that turned out wrong.

Nothing really wrong with getting another job.

Extra job

Lets not be naive about second jobs.

Many teachers conduct tuition classes on the side and at times, to the detriment of their occupational responsibility. Many professionals use the access from their job to moonlight. It is an Asian ethos to work hard.

If mak and arwah bapak had not got various income from the sides, they could have given away our younger siblings.

Even then when cost was still low, no GST, and government could afford to subsidise goods to maintain low labour economy, raising eight children with proper education was no easy task. Not for two government servants on meagre income.

At one time, father used to run a private school in Singapore and mother taught at a primary school in Jalan Abdul Rahman Andak, Johor Baru. By noon, father would fetch her in his bike to cross back to Singapore to help teach at the school. 

On several occasions, they indulge in petty businesses like selling cloth, kain pelikat, batik, munchies and popsicles, cakes and cookies, Pontian coconuts to Singapore, etc. When father was government Imam, he part-timed as magazine distributor, and teaching kelas dewasa to weekend ugama classes for kids.

During bad times, we had done embarass-to-mention pursuits in order to survive.  Basically, we've been there, done that.

It is no sin to work. But for those without access to other source of income, the way to survive is to be frugal in their spending.

One Facebooker was complaining of his tight budget but when it was disclosed that he spent almost half his income on private transportation, astro and handphone bill, he was criticised for poorly managing his financial affair.

Some Malaysians are unrealistic in their spending. Despite being VSS-ed, they still maintained the same lifestyle as they still had monthly stream of income. No discipline to keep a tight leash on the spending of their compensation.

In the midst of complain on rising prices, it was startling to hear the airport system was jamned by the  huge number of passengers. Every other person is either in Mekah or having family vacation abroad during the school holidays.

On every weekends, shopping complexes in the urban areas are packed with shoppers. The crowd is crazier during major sales and promotion at factory warehouses.  

Poverty

Off course, our heartfelt sympathy to the poor in facing the reopening of school and struggling daily to meet ends meet.

Rationally, one wonder how some Malaysians, primarily low income Malays had to struggle to live in their own homeland. Indonesian came as labourers some 25 years ago and could now become sub-contractors and own home repair and renovation business. Some are already home owners. 

Poverty can arise for many reasons and usually unexpected. To accuse the poor of lazy, it is inappropriate. Job opportunities in the rural areas, more so in the interiors of Sabah and Sarawak, are limited. However, hard work could still get them through.

The latest Department of Statistics figure as at December 23rd place the workforce figure at 14.4 million of which foreign workers stand at 2.2 million. There are 12.2 million Malaysians gainfully employed out of the national population of 30 million.

A recent media report put the number of foreign workers at 4.2 million. Job is not scare so foreigners are required to fulfill the vacancies. They are filling up in sectors where locals are not interested any more. Some 70% of plantation workers are foreign workers

The argument that there is no reason for locals to still live in poverty is quite valid. It does not exist at the macro level. Unemployment data is at a low 3.1%. Najib mentioned at UMNO GA that abject poverty is virtually nil. Only insensitive to say it openly. 

Policy

For quite sometime, government have been talking about moving up the economic ladder into knowledge economy, skill-based employment over labour intensive production economy, and moving up the competitive edge in technology.

Come Dato Najib as Prime Minister, he acknowledged the national predicament of the middle income trap. The country cannot sustain an economy still based on cheap labour and cost of living heavily subsidised.

Salary and wages have gone up and Malaysia cannot compete with our neighbours like Vietnam, Thailand, Cambodia etc. It was Dato Idris Jala that alarmed the nation with his statement many years ago that Malaysia is doomed towards bankrupt should it remain with the high level of subsidy.

Energy is subsidised. The IPP operators are subsidised and takes up the bulk of energy subsidy. Food, fuel, transport and a long list of items adds up to almost 20% of government budget. 

This blog used to argue that subsidy was one way the rakyat could benefit from the wealth of the nation. However, it has its limits and it is financial in nature.

The argument then was that public finance should be spent more efficiently. Social welfare program has to be focused and not for everyone.  

During the fast pace days to build public and industrial infrastructure, salary and wages was kept low. It served to cover for the shortfall in technology in order to attract MNCs to set-up factories in Malaysia.

Unions were government friendly and understood the economic strategy taken. There was even a lid on salary and wages of certain industries. For instance, Bank Negara Malaysia approval is required to determine Bank's salary scheme, bonuses and top position appointment. 

Unfortunately, that sort of control cannot last forever. Malaysia kept losing its graduates and skill executives abroad. The employment habit of Gen Y to move job and have an expected income level started the upward salary pressure.

This blogger remembered encountering a post Gaddafi Libyan that said this country is wealthy but the people are poor. He said the salary and wages are too low.

So begin the economic policy for high income model with the intention to move away from the low income legacy.

Assuming inflation is under control, the higher income was supposed to absorb the rising prices of goods and services and attracts better skilled worker. It was to spur the transformation of the economic landscape to be more productive and efficient.  

A finding by one NGO claimed that the proportion of salary and wages component in this country is too low vis-a-vis private sector revenue. They claimed employers are making too high profit margin at expense of salary and wages.
  
Instead of moving up the learning curve for more automation, wider usage of equipments, better management and achieve a higher revenue per staff, business are generally still stuck in the old ways and resort to hire foreign workers for cheap.

They complained locals are demanding higher pay, not as hardworking and difficult to disciplined. The availability of permit to get foreign labour makes them lazy and reluctant to hire and managed local workers more effectively.

Practise in corporation is to hire even lower end staff on contract basis. There is no more permanent employment.

All these contribute to the restlessness on the rising prices. Every time public complain of rising prices, some politicians would make statement of plan to form a fact finding committee. What are EPU, PEMANDU, KPDNKK and other government outfits doing? 

GST

One reason being heavily blamed on government for the increase in prices was Good and Services Tax.

GST is similar to the valued added tax on product and services as practised all over the world. For a nation of 12.2 million of employed Malaysians, only 1.8 million paid income tax. This is another element of the economy that need reform.

In the past, there is always Petronas to cover this shortfall. They contribute 65-70% of tax revenue to the government. In any failed project or financial scandal, Petronas is always there to bailout.

Now that the public realised that lower oil prices denied the government some RM30 billion of revenue, a firm decision had to be made. It is a big dent in public finance that cannot be ignored.

The opposition and it's supporter, allies and sympathiser only politicise problem. They accuse Najib government for being spendthrift and implicate the Missus to get the desired public anger and hate. It is as though government have been borrowing more money. Their common attack is corruption.

Malaysians forgot of how they were tricked by the Opposition's Buku Jingga. Behind the political cliche, they proposed a steep rise in spending but could only offer cutting corruption to fill the budget shortfall. It is ridiculous to do a budget by assuming that spending could be cut by 20% and the saved money used to cover the shortfall in spending.

Why the roundabout when they could start with a lower expenditure figure? The reason to all these is politics.

If GST had not been implemented, Malaysian government's public finance would be in disarray. A government with serious deficit problem cannot afford social and welfare programs for the people.

In the past, central bank can keep printing money, government can borrow to kingdom come and Petronas is there to bailout all the time. It is no more the case. The global economic, trade and monetary infrastruture and practices have changed drastically.

Those naive of the economic reality and living in the protectionist past are the ones having issues with GST.

It is the fairest tax regime in the world. There is no issue of avoiding taxes. Those who spend will contribute to the nation coffer. It should have started at a lower 4% but at 6%, it is still comparatively very low.

By right, personal income tax should be brought lower, so that there are more disposable income. The rich pay  taxes through their spending of higher end goods. While the poor pay significantly less GST since most basic goods are GST free.

The bad press with GST was when it did not meet the public expectation as they are made to believe. Retailers and wholesalers are reluctant to wait for the rebate later but choose to charge the extra 6% on consumers. Consumer was paying almost as high as 12% higher.

Part of the blame has to be put on Custom Department's for not able to educate the retailers. It seemed they themselves do not understand it enough. On April 1st, when GST commence, it is heard Customs Department switched off their IT system and office telephone.

The Information Ministry too failed to educate and disseminate the right and honest information. Even in developed countries, prices rise for the first few months of GST implementation. It takes three years for system to stabilise and work smoothly.

Apart from the need to cover Petronas's shortfall, paying taxes is a public responsibility of all season. The Boston Tea Party was about demanding representation for paying tax. Malaysians are getting representation but only 1.8 million and Petronas are contributing to the nation.

Even the fakir and poor are oblige to pay their zakat fitrah despite being beneficiary of Baitul Mal. Recently, oil rich Saudi Arabia begin to implement GST. So why are certain former UMNO leaders playing politics and refuse to understand the problem? 

Transition 

The need for tax is not only on spending for goods. There is the other part and for years been ignored. And, that is the services sector. For instance, stamp duties and legal agreement have by-passed our tax system by stamping it abroad and raising money for Singapore government for deals in Malaysia.

There is more area for government to raise revenue from the services sector. Many revenue are lost and that should be the focus. That way any reduced revenue or deficit in certain item will not lead to a higher GST rate.

Rising prices can be seen as transitional but government have to show earnestness in making its policy work. The free flow of foreign labour permit should not be allowed to continue. 

Government policy makers are focused on making the high income model work. Minister in charge of EPU, Dato Wahid Omar spoke recently on the target to increase monthly income. The government must be firm on employers and formulate laws to enforce on employers to respect the minimum wage.

More effort have to be done on unethical business practise that have culminated into incidents like Low Yatt and Kota Raya.

Police and corruption buster, MACC need to be given the authority and supporting law to stop these practices including the involvement of money laundering, smuggling, and gangsterism and criminal elements in retailing.

The headline in the paper today is on the leakage and smuggling of LPG. After the leakage and smuggling of fuel that eventually lead to removal of subsidy of fuel, such abuse by criminals will eventually make the public suffer. Public tend to shut a blind eye and just mind their own business.

Something also need be done on monopolistic business practises. Government and business need to break control on supply chain by the few. It leads to higher prices for consumers and counter to the free market practises advocated by businessmen and their trade organisations.

But, why are they silent?