Poor deal for the rich

IT may sound peculiar, even bizarre, but one of the most maligned groups is the rich.

Regardless of which country, they are often perceived as the epitome of greed and inequality. That imbalance is what many politicians and society aim to address.

Economists often use the Gini coefficient to demonstrate the inequality of wealth distribution in a society, but there is another way to look at it.

Everyone wants to be rich. People work hard to improve their careers or build a business so that they can afford the finer things in life. Many want to be as rich as Elon Musk and no one wants to be penniless.

The proposals in Budget 2025 prioritise one thing: it is time that the rich do not enjoy the multitude of government subsidies to keep costs under control for everyone else.

These direct subsidies have helped keep inflation under control but cost billions of ringgit each year. In 2024, it is projected to fall by RM8.8bil from RM61.4bil to RM52.6bil.

That is a lot of money considering the operating expenditure of the government is forecast at RM335bil in 2025. With income estimated to rise by 5.5% to RM339.7bil next year, the reality for Malaysia is the tax base remains narrow.

That was clearly mentioned very early in the budget speech when the Finance Minister compared Malaysia’s tax revenue base as a percentage of gross domestic product (GDP) to other regional countries, which at 12.4% is very narrow.

This situation is not new. That’s how it was before goods and services tax (GST) was introduced and remains so even after GST was repealed.

Although almost everyone wants the GST back, Datuk Seri Anwar Ibrahim says it is not the right time yet as it will burden the lower-income group.The government needs extra income and has thus decided to “tax” the rich by removing the subsidy for RON95, stopping free treatment at government hospitals, and increasing the sales and service tax on luxury foodstuff like avocados and salmon.

There is, however, a problem with that. There is no cut-off for measuring the T15 (top 15% income group) in the country, a label denoting the well-heeled. That threshold varies from state to state with Kelantan at the low end and Putrajaya topmost.

For argument’s sake, let’s assume the T15 average for Malaysia is RM15,000 per household. At that level of income, quite a few of Malaysia’s “richer” families will have trouble buying a house, let alone living a more luxurious lifestyle.

After all deductions, the net pay is around RM11,100. After paying more for avocados and salmon, higher petrol prices, medical costs, and education for their children, whatever remains will surely be considerably reduced.

There are certain criteria to be considered rich. One must be able to save money at the end of each month and put it towards investments and other productive endeavours.

Because the cost of living in cities is much higher than in rural areas, using gross pay as a benchmark can be misleading.

Being rich is also being able to eat what you want, buy what you want, go on non-budget holidays and not be bound by counting whether one’s budget can handle the discretionary purchases.

Furthermore, the T15 of society is responsible for much of private consumption and they pay more in taxes that the M40 and B40 combined.

And surely whatever subsidies they consume from petrol is way less than the tax they pay each month.

Considering the taxes they pay to the government and the economic support they provide, they deserve certain benefits.

Another issue is the amount of petrol consumed. No one really knows how much the rich pay to fill their cars each month, so that’s a guess at the moment.

What will be the impact on GDP and inflation if the T15 has RM8bil less to spend after the subsidy is removed?

Is rationalising subsidies at the expense of the T15 the best course of action?

There is always the argument that petrol prices should be floated for all and then let the economy adjust itself.

The long-term outcome of maintaining a welfare economy that gives handouts to the B40 may not be the best.