Governments do not have money, but very few realize it. To create money in order to pay debts, to fund public services or to build infrastructure, a government either borrows by selling bonds or generates revenue through taxation. While governments may also receive income from other sources like fees, interest or commodities, taxes are generally the largest and most significant source of income.
Most of the people, especially the illiterate and gullible villagers, have no idea how a government gets its money. They assume the government has unlimited flows of money by freely printing money whenever it likes. This mentality has led many ignorant people to ask for cash handouts, free education, free healthcare, free housing, subsidies and whatnot.
Corrupt administrations like the previous Barisan Nasional government capitalized on such ignorance by giving out cash handouts in exchange for votes. For every RM100 borrowed or taxed, the ruling Barisan Nasional government would steal RM80 through corruption and kickbacks, leaving very little for development hence forced it to borrow even more, which led to the ballooning national debts.
Former Prime Minister Najib Razak is arguably the pioneer in giving cash handouts to buy votes in order to stay in power. His signature “Bantuan Rakyat 1 Malaysia (BRIM)” was a genius scheme to hook the voters with free money under the pretext of easing the burden of lower income groups, whilst his family and UMNO cronies quietly stole taxpayers’ money behind closed doors.
The 1Malaysia People’s Aid, also known as BR1M, was introduced in 2012. Initially, a one-time payment of RM500 was given to households with monthly incomes below RM3,000. In the subsequent next 5 years, the cash handout program had increased by 100%. However, in the May 2018 General Election, the Najib corrupt regime lost power anyway – UMNO’s first defeat since independence.
Money doesn’t grow on trees. As people addicted to the handouts demanded even more free money, crooked Najib had to find new sources of revenue so that his scam could continue. That was when he used 1Malaysia Development Berhad (1MDB), a sovereign wealth fund established in his first year in office in 2009, to do money laundering, fraud and theft by selling national assets.
While part of the money borrowed in the 1MDB scandal was used to fund election campaign, billions had gone into Najib’s own pocket – both local bank account and foreign offshore account. Still, the BRIM burden was too huge that the highly unpopular Goods and Services Tax (“GST”) was bulldozed on April 1, 2015. The 6% GST would be the “Waterloo” for Najib.
It did not help that wasteful expenditures and widespread corruption were estimated to cost the economy about RM10 billion annually or 1-2 percent of GDP every year, while traditional sources of tax revenue were performing poorly. The narrow income tax base was further eroded by populist measures disguised as pro-poor initiatives that have periodically raised the number of tax reliefs.
The initial revenue outcomes of the GST were impressive – generated revenue of RM27 billion over the nine months of its implementation in April 2015 (16% of tax revenue). In the full year that followed (2016), GST revenue rose to RM 41.2 billion (24.3% of tax revenue), jumped to RM 44.3 billion in 2017 and RM 43.8 billion in 2018 before it was scrapped by the new Pakatan Harapan government.
Overall, the GST collection from April 2015 until it was abolished in May 2018 amounted to RM184.8 billion. In comparison, within the same period, the total amount of BR1M (Bantuan Rakyat 1Malaysia) given was approximately RM23.8 billion. That means only 13% of taxes collected in the GST were used as cash handouts, leaving the remaining RM161 billion at Najib’s disposal.
The best part is despite the massive GST taxes, Malaysia’s foreign debt skyrocketed to RM1.09 trillion in 2018, while the local currency – Ringgit – deteriorated to RM4.2 to the U.S. dollar. And we have not even talked about the billions of dollars in savings (that had gone missing) as a result of cuts in the subsidies for vehicle fuel, sugar, and gas for cooking under Najib government.
It certainly brings back the memories of Najib Razak when current Prime Minister Anwar Ibrahim revealed new measures yesterday (July 23) to address the rising cost of living, including a RM100 cash handout for all Malaysians aged 18 and above. The “one-off” payment will be channelled through the adult citizens’ MyKad under the Sumbangan Asas Rahmah (Sara) programme.
The cash assistance will be available for use from Aug 31 until Dec 31 and can be spent on essential goods at more than 4,100 stores across Malaysia. Mr Anwar said – “The assistance is provided on an individual basis, not by the household. It means, for example, a household consisting of a husband, wife and two adult children will receive a total of RM400,”
The cash handouts, which Anwar had earlier tried to excite the people by announcing that he would make an “extraordinary tribute”, would benefit 22 million Malaysians with an allocation of RM2 billion. Of course, there’s no such thing as free lunch. The money would not come from Anwar’s own pocket, let alone UMNO corrupt politicians’ offshore accounts. It’s from the expanded SST collection.
Beginning July, a sales tax rate of 5% or 10% is imposed on non-essential and luxury goods such as king crab, salmon, imported fruits, racing bicycles and antique artworks. Avocado, which Anwar insists is rich-man’s fruit, is affected too. Meanwhile, a service tax of 6% or 8% will be slapped on property rentals or leasing, construction, financial services, private healthcare, education and beauty services.
Anwar, who is also the Finance Minister, said he projected an additional RM5 billion in SST expanded revenue in 2025 and RM10 billion by 2026. Therefore, the RM100 cash handout actually comes from the people, and not from the government. In other words, the Anwar government uses RM2 billion out of RM5 billion collected to give the RM100 handout. And people are supposed to be grateful and thankful to the government.
Because this is a “one-off” payment, the government might or might not spend another RM2 billion cash handout next year. If it doesn’t, it will keep the entire RM10 billion from the new SST revenue in 2026. Arithmetically, Anwar is returning RM40 after taking RM100 from you in SST. That’s better than Najib taking RM100 in GST, but returned just RM13 in the form of BR1M.
Using the same arithmetic, the RM10 billion in SST collection in 2026 also translates to Anwar Madani taking RM500 on average from every adult next year. This is yet another classic example where the government slaps new taxes before giving people some crumbs to keep them happy. People will always lose because both GST and SST came from people’s own pocket in the first place.
It was not a coincidence that the announcement came ahead of a planned protest to be held in Kuala Lumpur on July 26, calling for Mr Anwar to step down over escalating prices and a failure to deliver on promised reforms, among other concerns. And it was also not a coincidence that the cash is given after public anger over the prime minister’s interference in the judiciary system.
To boost revenue, Prime Minister Anwar has increased electricity tariffs, introduced new sales taxes and cut various subsidies. While he tried to downplay the impact, arguing that the moves were mainly targeted at large businesses and the wealthy, critics have voiced fears that higher costs would eventually be passed down to consumers, including lower and middle income earners.
But the cash handout was not the only “good news” announced by the premier. Malaysians will see fuel prices at the pump drop to RM1.99 per litre – compared with the current price of RM2.05 – for the widely used RON95 petrol. Foreign nationals, however, will have to pay unsubsidized market prices for the fuel. But Anwar Anwar did not provide details on how the measure will be enforced.
Assuming a lower income family pumps about 30 litres per week, the saving from the reduced RON95 petrol price would be RM1.80 every week, or RM7.20 per month. Unless all Malaysians regardless of income get to enjoy RM1.99 per litre, the inflation impact on a family would definitely be higher than RM7.20 per month because logistic companies and business owners will certainly pass down higher RON95 fuel price to consumers.
As an example, the cost of a meal that may increase by just RM0.50 will see 3 daily meals suddenly become pricier by RM1.50 (RM10.5 per week or RM42 per month). It’s impossible that inflation will remain at zero after the petrol subsidy changes are implemented. Clearly, the RM100 handout is also a preemptive tactic to pacify people over potential inflation due to changes to the fuel subsidy rationalisation scheme.
Get real, if the removal of subsidies on RON95 petrol – originally set for mid-2025 – will have zero impact on lower income families as PM Anwar tried to trumpet, he would not have delayed it out of fear of public backlash. No matter how you slice it, a disaster is waiting to happen when the RON95 fuel subsidy is slashed. The chain reaction is inevitable and the public discontent could be explosive.
On the contrary, the current RON95 price should have come down automatically months ago because the crude oil has tumbled from about US$90 a barrel in November 2022 to the current US$65. So, the burning question is why the Madanistan government only managed to cut the fuel price by merely 3% when the global oil price had already gone down by almost 30%?
Crucially, the move appears to fulfil an infamous pledge Mr Anwar made nearly two decades ago, which has now come back to haunt him. As opposition leader during the 2008 General Election, he had proclaimed that if he were to become prime minister, petrol prices would go down instantly the very next day. As his popularity plunges, Anwar’s premiership is being mocked and ridiculed for the same fairy tale.
Unconvinced that his RM100 cash handout and RON95 price drop will boost his popularity, the prime minister has also thrown in a bonus – a public holiday on September 15 to allow Malaysians to enjoy a long weekend from September 13, which falls on Saturday, till Malaysia Day on September 16. “This public holiday is to appreciate the unity and significance of Malaysia’s formation,” – Anwar claimed.
Anwar’s latest announcement is nothing extraordinary. He just copied a page from Najib’s playbook, whose “Cash is King” mantra had led to extraordinary corruption. Nevertheless, many people, especially the poor, gave the prime minister’s moves a thumbs-up. After all, who doesn’t like free cash? It would provide a “short-term” fiscal boost. But the RM100 won’t solve the long-term problem of escalating cost of living.
Source : Finance Twitter
