A group of rich Germans has launched a petition calling for higher taxes on the rich to help their country recover from its economic crisis.
The campaign – “Vermoegende für eine Vermoegensabgabe” (Wealthy people in favour of a wealth tax) – proposes a five per cent wealth tax for two years followed by a reduction to one per cent for those with a personal fortune of more than 500,000 euros (US$750,000).
This is in sharp contrast to Malaysia’s move over the years to a regressive taxation model – reducing taxes for corporations and the rich, and now shifting the tax burden to the larger public, including the low-income group (currently exempted from income tax), through a new Goods and Services Tax (GST). Corporate tax has been progressively reduced from 40 per cent in 1988 to 26 per cent now, and now GST will be imposed probably at 4 per cent – for a start.
A partner in a leading audit firm in Malaysia reportedly predicts the GST strategy as follows:
“The strategy will be to start a low rate at the start and pulled up every few years,” he said.
As in most countries with GST in place, a reduction in corporate and personal tax will also follow suit, he said.
Contrast that with the German group, which estimates that a five per cent wealth tax would raise 100 billion euros ($150 billion):
The group (in Germany) says it does not want to see those gains swallowed by the general budget, but earmarked for specific projects in the areas of environmental protection, education and social services like health care and social welfare.
“The gap between the poor and the rich in Germany has widened during the last 15 years,” said Dieter Lehmkuhl, a retired doctor and one of the group’s founding members. One of the reasons for this, he added, were past governments’ tax reduction policies that favoured businesses and the rich, he added.
Unfair distribution of wealth in Europe’s biggest economy
“Hardly anywhere else in the world has the number of millionaires increased as much as in this country,” Lehmkuhl pointed out, while the incomes of most Germans had stagnated or even decreased.
Germany will soon be “among the most in-equal countries of the industrialized western world if unfair taxation policies continue,” Lehmkuhl warned and urged the government to reinstate the property tax that had been abolished 12 years ago. Full report here
Well, we have also seen a sharp rise in millionaires in recent times in Malaysia while many workers’ real wages have remained fairly stagant. This has made the country under BN rule one of the most unequal in the Asian region when measured by the Gini coefficient.
It’s time to move towards a more progressive tax model instead of shifting the tax burden towards the lower-income group. If it ever came to power, would the Pakatan shift towards a progressive model?
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Thanks for the info Anil. Issue of inequality in Malaysian context nicely argued in this blog also bro.
Not only does Germany have a better class of rich people, they have better criminals too:
http://news.bbc.co.uk/2/hi/europe/8376532.stm
I think progressive tax models might scare people who aren’t so good with numbers. I think it ought to be possible to effectively tax people with only 1 or two bands (with perhaps a wide zero-band, or a decent across-the-board tax-credit), topped up with taxes on non-essential services, products and investments that the very rich are likely to spend a disproportionate amount of money on.
For the Malaysian situation, I’m not at all sure it’s easy to judge what’s best. So little is known about where money comes from and where it goes to, fiscal policy might as well be divined from goat’s entrails.
and ye,they’ll argue our country’s gross margin of income is low..subsidy increased…bla….bla….U know the rest.
Will the 4 percent go to the government? I doubt. Businessmen have ways to circumvent the need to pay to the government. WIll they charge 4 percent? No. They will charge more to the customers by increasing the prices of goods. Will the rich be affected? Not really. They have the money to spend. WIll those earning less than RM3000 be affected? Yes. The poor in general will be affected. In this business culture of ours, prices of goods will shoot up. The end result: inflation and the poor will suffer more. This is a stupid way of managing the economy. Don’t our politicians have better ideas on how to collect revenue for the government? That’s the problem when we vote for leaders who are blank about the economy.
I’m not convinced by arguments against a value added tax. I grew up in the UK, and while anything with ‘tax’ on the end is met by complaints, I have never heard the argument about ‘regressive tax’ until I moved to Malaysia and followed the links to USA websites also making the same complaint.
In the UK I think most goods are subject to VAT, though many are reduced-rate and some are zero-rate. Most (non confectionery) food, public transport, water, children’s clothes (when I did a lot of sport at Uni, I often bought clothes frmo the 14-year old aisle, I was so thin and so poor!) for example are all zero-rated or exempt:
http://www.hmrc.gov.uk/VAT/forms-rates/rates/goods-services.htm
I think it’s important to avoid just taking sides on an issue without exploring all the possible consequences. It would be interesting to see what detailed effect a change in taxation would have for people in different circumstances. Didn’t I read somewhere that Sergey Brin has a ‘nominal income’ of 1 dollar per year? Try “sergey brin salary” at Google. How much income tax will he – a man who has his own Boeing 767 – pay on his one dollar?
I read recently too – perhaps at TMI – that only 10% of Malaysians declare an income. Perhaps that’s why they dread GST so much!
Anil,
Germany does have VATs. Very high VATs. I think we should work on ways of how to bring food on the tables for the poors. Development first! The rest later.
Why not introduce Working Credits? Negative tax? Singapore has introduced it. Singapore Shares, creating a stakeholders among all Malaysians. Not that ASN …
LGE has elaborated this in details
Just for the sake of posterity, I found an URL (doesn’t seem like the article I remember) at TMI with the ‘ten percent’ quote in:
http://tmi2.themalaysianinsider.com/index.php/opinion/liew-chin-tong/41422-time-najib-meant-business–pauline-ng
Does Malaysia really have an 11-million workforce in a population of 27 million? I suppose that could be about right … if the replacement ratio was 1 adult: 1 child and a working age of 18-50 with a life expectancy of 70 years. Perhaps greater fecundity might be offset by adult-skewed immigration. It would be interesting to see the raw figures.
The quote says “ten percent … /pay tax/”, so it’s not the same as ‘declare an income’ – that may be creative writing on my part.