The Revised Budget

At the time of reduced fiscal revenue in Malaysia due to lower crude oil prices, a budget revision is required. The government can either increase revenue by increasing taxes or reduce spending by cutting fiscal expenditure. While increasing taxes will anger the voters, potentially threaten the political position of the elected politicians, cutting expenditure will slow down domestic economic growth, reduce corporate revenue and potentially causing retrenchment and higher unemployment rate.

I have always thought the government in their revised budget announced today will increase corporate taxes (which the general public is less sensitive about) and to cut certain amount of fiscal spendings. I was wrong. 

Today, they showed me that there is a third way to increase fiscal revenue, that is by increasing public spending through the lowering of compulsory individual contribution to the public retirement fund. By encouraging people to spend the money supposedly for retirement, the government can charge even more taxes through the GST, resulting in increased fiscal revenue. This is a very smart move as it indirectly increases tax income for the government, without the need to increase tax rate, and without angering the voters as not many will understand the implications of this move. In fact, some will even feel happy because now they have more money to spend, rather than being forced to save for their retirement. By the time these people retire with lower savings, it is no longer a problem for the current term government to solve. 

But I have to admit that not all is bad from this move. Higher disposable income spurs consumer spendings, which is exactly what the already slow domestic economy needs. Consumer products companies like Padini, Oldtown should be the direct beneficiaries.

One more thing. This showed that there are very smart people working in the government, serving the not-so-smart politicians.