Government funding should be visionary and independent of taxation

Pemuda Sosialis notes the recent developments with regards to funding Budget 2021 both from Wan Fayhsal and Syed Saddiq. Wan Fayhsal has floated the idea of BNM printing more money and distributing directly to Malaysians (helicopter money monetary policy, according to the Deputy Minister) coupled with a debt forgiveness scheme.

Pemuda Sosialis appreciates this refreshing change of policy for the Malaysian government, which is seeming to be moving towards lesser reliance on debt-constrained government spending. PSM similarly has pushed for Debt Monetisation to increase the government’s cash-in-hand.

“Debt monetization” is a strategy that is being used by several governments including Indonesia, India, Japan and New Zealand in which the government sells Government Securities to its own Central Bank but at very low interest rates (perhaps 0.1%). This strategy provides government with the extra funds that it needs in a crisis situation without the disadvantage of committing the country to high interest payments in the future.

At this juncture, Pemuda Sosialis would like to explain why we are spearheading this manner of liquidity creation rather than relying on taxation alone.

Whilst it is a socialist ideal to have better, more progressive taxation policies, with greater income taxation for the rich and the introduction of taxes on wealth, inheritance and capital gains, we understand that as a trade nation with an economy reliant on the private sector for now, there is little room to manoeuvre in the implementation of these taxes. We must not be so naïve to think the wealthy capitalists would sit idly by as their profits are taxed. Surely, they would use the Free Trade Agreements we have signed to relocate their businesses or even fund counter movements to undermine these efforts.

Pemuda Sosialis believes that whilst pushing for better taxation, the government must slowly increase its influence in the economy to decrease the reliance on private hands. In that way, any threat of capital flight is diminished as the economy would better survive the impact and laws for good governance, taxation and even complete unionisation can be passed more reliably. Through strategies such as debt monetisation, liquid capital can be made available which, with clever and visionary investment in the local economy, lead to fruitful outcomes in the future.

In this sense, a government’s limit on spending is the rate of inflation, which should be outpaced through economic growth. This way a sluggish economy is accelerated to becoming stable (say, at the point full employment is reached), at which point taxation can come in to limit money circulation and provide for government income.

However, Pemuda Sosialis would like to caution the Deputy Minister on how he plans to use this newly printed money. Whilst handing out hard-cash to the people seems an acceptable way, we would hasten to point out that simply doing this will only further the dominance of the private sector, especially MNCs, as the money would be spent to on goods and services owned primarily by these.

This is why PSM points out that the government must take a leading role in the economy as the private sector has shown itself to be incapable of creating the job opportunities needed with adequate job security, remuneration and benefits. Moreover, the political influence private hands have due to a concentration of capital is undesirable as it may impair the democratic will of the people through political manipulation.

In line with this, amongst others, PSM has suggested government-led investments in expanding food agriculture, expanding healthcare facilities, improving social housing for young families especially from the B20, increasing renewable energy, better our solid waste program and cleaning up our rivers. These foci would at the same time create jobs, deepen state-ownership of key industries and improve the lives of the many holistically. Pemuda Sosialis would also add that a Jobs Guarantee Scheme and a modified UBI would be our thrusts for spending as well.

Hence, an important question we must address is, would this Perikatan Nasional government spend the money they are planning to create properly? Our views of the Budget 2021, which can be read here and here, finds their analysis and spending plans largely lacking and unreliable. Just from a jobs-creation angle alone, Pemuda Sosialis believes that it is over-reliant on the private sector, with a focus on creating incentives rather than direct creation of new industries. With this, then, Pemuda Sosialis concludes that whilst Wan Fayhsal’s approach to create liquid capital is acceptable, the plans his government have to spend it would only lead to more problems later on.

We must, however, applaud his idea of a debt jubilee. In these times of strife, banks have continued to profit in the hundreds of millions whilst people have lost their livelihoods. It is only right that these banks introduce debt forgiveness schemes that eliminates the debt of certain groups (in the form of loans or mortgages) to alleviate their burden. What more, many banks are actually GLCs, hence have a greater responsibility to the people than most companies. In fact, moving forward, Pemuda Sosialis would like to suggest mobilising GLCs away from their profit-accumulating motive and channel the capital they create to funding further job creation and industry growth.

An associated idea we must congratulate belongs to MUDA and Syed Saddiq who suggested a windfall tax be levied on businesses that have profited the most during the pandemic. Glove manufacturers mainly have profited many times over and, as before, it is only natural that they should give a greater percentage of their windfall for improvements elsewhere. Pemuda Sosialis would like to back this idea to generate more capital as well.

Prepared by,

Arveent Kathirtchelvan
Head of the Science and Technology Bureau,
Pemuda Sosialis,
Parti Sosialis Malaysia.

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