THE budget started out by highlighting the positives that the economy is now experiencing.
Growth is going to be good this year but the expectation is that it is going to be even better next year, with GDP forecast to grow between 4.5% and 5.5%.
Inflation is judged to be under control and the fiscal spending is forecast to come under control a little more, with the deficit seen to drop to 3.8% and the promise that it will eventually head to 3%.
The positives can be seen now.
The ringgit is trending in the right direction and there is palpable enthusiasm that the huge flow of investments will benefit the country after reaching RM160bil in the first half of this year.
It is with this strength that the government has decided to strike from the position of strength when it laid out the case for subsidy rationalisation and an expansion in the sales and service tax (SST) collection.
The reason for that is simple. The government spends 16sen from each ringgit it collects on just servicing the national debt.
A level of 15sen is seen as the upper safe limit and the government is inching higher from that level in the past couple of years.
The fact is as long as there is a deficit, debt will increase.
It then made the case for higher taxes when it compared Malaysia’s share of taxes to GDP, at 12.6%, which is among the lowest in Asean.
With that, it proposed a few changes that essentially mean seeing those who can afford to pay higher prices to pay their fair share, incrementally removing subsidies from the top 15% of income earners in the country.
A sample of some of the moves includes the widening of the collection of sales tax on imported premium food, and scope of service tax to service transactions between businesses.
That will boost the collection of SST, but to ensure it is spending that money on the right stuff, some of that extra money will be spent on healthcare and education.
It then said what most Malaysians have been expecting, which is to take away the blanket subsidy given out for RON95 petrol.
Prime Minister Datuk Seri Anwar Ibrahim said the top 15% of income earners use 40% of the RON95 subsidy, amounting to RM8bil a year, and that the subsidy will be maintained for the remaining 85% of the public at a cost of RM12bil a year.
Some will say that the rich do pay taxes and should enjoy some tax benefits, but that is the direction the government is heading in a region where there is little subsidy to speak about anymore.
Another tax collection levied on the rich is the 2% tax on dividend income exceeding RM100,000. The issue is how this will hit retirees that depend on dividend income to maintain their lifestyle, and once a tax is introduced, the question then is can it increase in the years ahead?
Maybe this is a trade-off of not having an inheritance tax, and again, it does hit the pockets of those who have benefited from shrewd investing in the past.
The T15 will also over time see their children excluded from receiving education subsidies, and this group will also receive lower subsidies when getting consultation and treatment at government hospitals.
The removal of those subsidies will mean that the B40 and M40 groups will continue to receive government assistance and subsidies.
A pertinent question then is what will be the threshold to define the T15 in the country, with the salary threshold differing from state to state in the country?
These changes mark the start of how subsidies are meant to be enjoyed by the raykat.
Of course, those most in need should receive a helping hand from the government, but the continued expansion of subsidies and the reluctance to remove them will mean that the welfare economy may continue to grow in future.
Unless there is a planned approach to see most Malaysians pay for what they consume, then the question of increasing taxes and removing subsidies for the largest group of individual taxpayers and those largely responsible for driving domestic consumption is not healthy in the long run.
