Trump’s democratic destruction and Asian absenteeism


December 31, 2017

Trump’s democratic destruction and Asian absenteeism

by TJ Pempel, University of California, Berkeley

http://www.eastasiaforum.org/2017/12/30/trumps-democratic-destruction-and-asian-absenteeism/

 

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United States President Donald Trump stands next to Vietnamese Prime Minister Nguyen Xuan Phuc at the G20 Summit in Germany on July 8, 2017. Photo by: VGP

In the twelve months since the 2016 elections, the United States has undergone an unrelenting series of attacks on its constitutional provisions, its regulatory regime, its democratic procedures and its social cohesion. US President Donald Trump has been the knife-edge of these assaults.

He has repeatedly challenged judicial and media independence. He threatens banana republic-like judicial retaliation against his political opponents. He has green-lighted white supremacy and Nazi marchers while attacking religious, racial and ethnic minorities. He has refused to enforce existing laws while his appointments and executive orders have undercut the missions of numerous government agencies. He has exploited the presidency to enrich himself and his family while following the authoritarian’s playbook by muddying the line between fact and fiction through shameless denials of inconvenient facts — whether they be the size of his inaugural crowd, the science of climate change or the conclusion of US intelligence agencies that Russian interference helped his election.

Yet his actions are hardly those of an unsupported autocrat. A Republican Congress and an animated support base provide steady enabling. They seem convinced that they are in an existential gang war, and beneath their red jerseys, they have proven themselves better armed and more willing to sacrifice principles for one-party autocracy than their blue-jerseyed ‘enemies’.

Darkening for democracy as this domestic situation is, the immediate impact on Asia is largely indirect. As US political power focuses inwardly, US engagement with Asia atrophies. Nothing telegraphs the minimisation of foreign policy more than the evisceration of the Department of State. A diplomatic novice leads it, the department faces major budget cuts, scores of senior diplomats — including 60 per cent of the United States’ senior ambassadors — have resigned while 74 top posts at the State Department remain vacant with no announced nominee.

Despite a purported concern with North Korea, the Trump administration (as of 29 November), had not even nominated individuals to fill such key posts as Assistant Secretary for International Security and Non-Proliferation, Assistant Secretary for East Asia or Ambassador to South Korea.

Some might offer Trump’s 12 day, five-nation trip to Asia as counter-evidence. Yet aside from a physical presence in the region and a number of showy photo ops, the trip generated few concrete outcomes. Trump’s ‘America First’ speech at APEC was an unapologetic broadcasting of his government’s domestic obsession and its obliviousness to the reality that the global and regional trade regime he vilified has been vital to Asia’s post-war economic success. His last-minute decision to skip the plenary session of the East Asia Summit testified further to his administration’s narcissistic approach to Asia, including its multilateral institutions.

Underscoring the absence of an integrative strategy was the schizophrenic insistence that Asian countries should cooperate multilaterally with the United States regarding North Korea but simultaneously that they should all behave unilaterally on trade and in doing so follow the lead of the US. Equally inconsistent was Trump’s decision to decertify Iran’s compliance with the nuclear deal forged by his predecessor Barack Obama and major world leaders. The signal sent to the North Koreans could not be clearer: why enter a deal with us if we are free to ignore prior international agreements?

Such diametrically antagonistic impulses have left allies and adversaries alike confused about the United States’ motives and staying power: what are the United States’ goals, what tactics will advance their implementation and will anyone be in office to advance them?

Unfair trading practices — most particularly China’s mercantilist behaviour and constraints on foreign companies — deserve criticism. But rather than aligning allies such as Japan, South Korea and Germany, all of which have suffered from Chinese practices, the Trump administration has been approaching the issue unilaterally and inconsistently, minimising the chances for support from others victimised by Chinese practices. Thus, in his recent visit to China, Trump basked in his host’s flattering pageantry while ignoring earlier declamations about trade practices. Instead, he concentrated on pressuring China to tighten sanctions on North Korea.

Meanwhile, as its democracy deteriorates domestically, the longstanding appeal of US soft power withers. Admittedly, the United States has never been especially forceful in promoting human rights and democracy in Asia. But it is difficult to convince locals that democracy and citizens’ rights remain a high priority in the face of the Trump administration’s domestic behaviour and its expressions of admiration for Asian authoritarians like Chinese President Xi, Russian President Putin, Philippine President Duterte, Thai Prime Minister Chan-ocha and Malaysian Prime Minister Najib (not to mention Kim Jong-un, whom Trump labelled ‘a pretty smart cookie’).

Not surprisingly, during his visit to China, Trump played his ‘get out of jail free’ card on behalf of three UCLA basketball shoplifters while ignoring the many prominent political prisoners languishing in Chinese prisons. As former US national security advisor Susan Rice phrased it: ‘the Chinese leadership played President Trump like a fiddle, catering to his insatiable ego and substituting pomp and circumstance for substance’.

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The longstanding regional order now faces major challenges, and realists across Asia must deal with the United States as it is — not as they would like it to be. Thus the other participants of the Trans-Pacific Partnership have moved ahead without the United States to forge their own eleven-nation agreement (suspending provisions previously negotiated to benefit the United States).

Meanwhile, China utilises the absence of the United States and its own economic strengths to enhance its influence over regional developments. For example, Vietnam and the Philippines have reached an accommodation with China in the South China Sea while in return for an easing of Chinese economic pressures against THAAD, South Korea has capitulated to ‘three nos’ that abdicate key security options with the United States and Japan.

As the regional order shifts, it is unfortunate for both the United States and many in Asia that Washington, obsessed with its own domestic battles, is likely to observe these changes from the sidelines.

TJ Pempel is Jack M Forcey Professor in the Department of Political Science, University of California, Berkeley.

This article is part of an EAF special feature series on 2017 in review and the year ahead.

 

A sweetheart tax deal — for the Trumps


December 22, 2017

A sweetheart tax deal — for the Trumps

by Eugene Robinson Opinion writer

https://www.washingtonpost.com/opinions/a-sweetheart-tax-deal–for-the-trumps

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President Donald Trump with his fawning Republican legislators celebrating the historic Tax Deal

 

One of the biggest beneficiaries of the massive, slapdash tax bill that President Trump and Republican lawmakers celebrated at the White House on Wednesday will be, wait for it . . . President Trump. What a coincidence!

The rest of Trump’s wealthy family will benefit lavishly as well, including his son-in-law and all-purpose adviser, Jared Kushner. And, of course, it’s not a coincidence at all. The chance that this President would preside over a revision of the tax code without lining his own pockets was zero. Anyone who believed Trump’s claim that the tax bill would “cost me a fortune” hasn’t been paying attention.

It is not possible to calculate precisely how much money the President will save, because he — unlike all other recent presidents — refuses to release his tax returns. But the figure is surely in the millions, assuming Trump is anywhere near as wealthy as he claims. His extended clan will have plenty of liquidity for Donald Jr. and Eric to jet off to Africa and kill more leopards and water buffaloes; for Jared and Ivanka to disappear on ski trips whenever they need to claim deniability regarding the latest administration outrage; and for the president himself to consume as many Big Macs, Filet-o-Fishes and chocolate shakes as his constitution can bear.

Trump says he is worth $10 billion; Forbes estimates his wealth at $3 billion, and some analysts think the true figure is lower. Any way you look at it, however, he’s a wealthy man — and the tax bill, which awaits only Trump’s signature to become law, is designed to make the very rich even richer.

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Republicans celebrate tax wins as Trump fumes over FBI Russia probe

Like all 1-percenters, Trump will benefit from the lowering of the top tax rate from 39.6 percent to 37 percent. But that’s just for starters. As is always the case with the tax code, the devil is in the details.

Trump conducts his business affairs through hundreds of “pass-through” companies whose income is taxed at the personal rate, not the corporate rate. The House wanted to dramatically slash the pass-through rate across the board, but the Senate initially balked. At the last minute, however, the Senate wrote into the final bill a 20 percent deduction for pass-through income. If a taxpayer had, say, $100 million in pass-through earnings, he or she would be taxed on only $80 million; the rest would be tax-free.

t first, senators sought to limit this sweetheart deal to companies with large numbers of employees or high payrolls — unlike Trump’s pass-through businesses, which are mostly paper entities. But the final legislation gives the full deduction, regardless of the number of employees, to pass-through companies that own a lot of depreciable property, such as commercial real estate. Which just so happens to be the president’s livelihood.

It would be hard to craft a measure more tailor-made to enrich Trump and his family. If he wanted to avoid even the appearance of corruption, of course, Trump could decline to take this tax break or donate an equivalent amount to the treasury. Somehow I doubt either of those things will happen.

Trump also gets to continue using a frequently abused tax loophole called a “like-kind exchange.” Usually, if you sell a piece of property at a profit, that profit is considered income and is taxed. Creative accountants and tax lawyers came up with ways to structure sales so that they technically qualified as trades, meaning that as far as the IRS was concerned, there was no income to tax. This practice is now ending for all types of property — except real estate. Another coincidence, I’m sure.

Oh, and most businesses will be negatively affected by a measure capping the amount of interest expenses they can deduct — except real estate investors and hotel operators, which are explicitly exempted. If this were a movie, lobbyists and lawmakers would have hammered out this last provision in a back room at the Trump International Hotel.

On the flip side, Trump’s ability to deduct the state and local taxes he pays in New York would be drastically limited. But that is nothing compared to the likely upside.

Join me in a thought experiment. Imagine that the legislature of some other country — Brazil, say, or Mozambique, or Thailand — decided to rewrite the tax code, with no public hearings or expert testimony, in a way that benefited the rich overall, with maximum financial gain for businesses like that of the sitting head of gov ernment.

What would you say?I’m pretty sure you’d use the word corruption. And you would be right.

 

Maybe Trump knows his base better than we do


December 3, 2017

Maybe Trump knows his base better than we do

by Dr. Fareed Zakaria

https://www.washingtonpost.com/opinions/maybe-trump-knows-his-base-better-than-we-do/2017/11/30/b4ca2164-d60e-11e7-b62d-d9345ced896d_story.html?utm_term=.227592e3afbc

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The most important revolution in economics in the past generation has been the rise of the behavioral scientists, trained in psychology, who are finding that people systematically make decisions that are against their own “interests.” This might be the tip of the iceberg in understanding human motivation. The real story might be that people see their own interests in much more emotional and tribal ways than scholars understand. What if, in the eyes of a large group of Americans, these other issues are the ones for which they will stand up, protest, support politicians and even pay an economic price? What if, for many people, in America and around the world, these are their true interests?—Dr. Fareed Zakaria

 

 

Watching the Republican tax plan race through Congress, one is reminded of a big apparent difference between President Trump’s program and other populist movements in the Western world. In the United States, Trump is leading something that is best described as plutocratic populism, a mixture of traditional populist causes with extreme libertarian ones.

Congress’s own think tanks — the Joint Committee on Taxation and the Congressional Budget Office — calculate that in 10 years, people making between $50,000 and $75,000 (around the median income in the United States) would effectively pay a whopping $4 billion more in taxes, while people making $1 million or more would pay $5.8 billion less under the Senate bill. And that doesn’t take into account the massive cuts in services, health care and other benefits that would likely result. Martin Wolf, the sober and fact-based chief economics commentator for the Financial Times, concludes, “This is a determined effort to shift resources from the bottom, middle and even upper middle of the U.S. income distribution toward the very top, combined with big increases in economic insecurity for the great majority.”

The puzzle, Wolf says, is why this is a politically successful strategy. The Republican Party is pursuing an economic agenda for the 0.1 percent, but it needs to win the votes of the majority. This is the issue that University of California at Berkeley political scientist Paul Pierson discusses in a recently published essay. Writing in the British Journal of Sociology, Pierson notes that Trump’s program does have strong populist aspects, especially on trade and immigration. But, he points out, “On the big economic issues of taxes, spending and regulation — ones that have animated conservative elites for a generation — he has pursued, or supported, an agenda that is extremely friendly to large corporations, wealthy families, and well-positioned rent-seekers. His budgetary policies (and those pursued by his Republican allies in Congress) will, if enacted, be devastating to the same rural and moderate-income communities that helped him win office.”

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Republican Party is cleverly and successfully hoodwinking its supporters, promising them populism and enacting plutocratic capitalism?  –Thomas Frank’s book “What’s the Matter with Kansas?

Pierson argues that Trump entered the White House with a set of inchoate ideas and no real organization. Thus, his administration was ripe for takeover by the most ardent, organized and well-funded elements of the Republican Party — its libertarian wing. Nurtured and built up over the years, this group of conservatives decided to ally with the Trump administration to enact its long-standing agenda. Pierson quotes Grover Norquist, the fiercely anti-statist GOP operative, explaining in 2012 his views on the selection of a Republican presidential nominee. “We are not auditioning for fearless leader. We don’t need a president to tell us in what direction to go. We know what direction to go. . . . We just need a president to sign this stuff.”

Image result for “The plutocrats are riding on a hungry tiger,” writes Wolf.

Is it that the Republican Party is cleverly and successfully hoodwinking its supporters, promising them populism and enacting plutocratic capitalism instead? This view has been a staple of liberal analysis for years, most prominently in Thomas Frank’s book “What’s the Matter with Kansas?” Frank argued that Republicans have been able to work this magic trick by dangling social issues in front of working-class voters, who fall for the bait and lose sight of the fact that they are voting against their own interests. Both Wolf and Pierson believe that this trickery will prove dangerous for Republicans. “The plutocrats are riding on a hungry tiger,” writes Wolf.

But what if people are not being fooled at all? What if people are actually motivated far more deeply by issues surrounding religion, race and culture than they are by economics? There is increasing evidence that Trump’s base supports him because they feel a deep emotional, cultural and class affinity for him. And while the tax bill is analyzed by economists, Trump picks fights with black athletes, retweets misleading anti-Muslim videos and promises not to yield on immigration. Perhaps he knows his base better than we do. In fact, Trump’s populism might not be as unique as it’s made out to be. Polling from Europe suggests that the core issues motivating people to support Brexit or the far-right parties in France and Germany, and even the populist parties of Eastern Europe, are cultural and social.

The most important revolution in economics in the past generation has been the rise of the behavioral scientists, trained in psychology, who are finding that people systematically make decisions that are against their own “interests.” This might be the tip of the iceberg in understanding human motivation. The real story might be that people see their own interests in much more emotional and tribal ways than scholars understand. What if, in the eyes of a large group of Americans, these other issues are the ones for which they will stand up, protest, support politicians and even pay an economic price? What if, for many people, in America and around the world, these are their true interests?

 

On Republican Tax Bill


November 4, 2017

The Donald Trumps Stand to Gain Millions from the Republican Tax Bill

 

Watching Paul Ryan and his Republican colleagues struggling to finish writing their long-awaited tax bill over the past few weeks brought to mind an adage attributed to Al Smith, the street-schooled New York politician who served four terms as governor, during the nineteen-twenties: someone is going to be cheated; the question is who. The Republicans—having committed to huge tax cuts for corporations, unincorporated businesses, and very large estates, while also pledging to help out middle-class households—were in a bind. According to some reports, they were trying to fit five trillion dollars’ worth of tax cuts into the $1.5 trillion allotment they had pencilled into their budget for 2018.

You don’t need to have gone beyond eighth grade, which is where Smith completed his formal education, to know that this was a tricky task. The size of the math problem helps explain why the bill unveiled on Friday morning by Ryan, the House Speaker, and Kevin Brady, the chairman of the House Ways and Means Committee, was so long (three hundred and thirty-six pages), complicated, and filled with the kind of accounting that would have fit in at Enron. But, despite its complexity, the basic thrust of the bill is straightforward: the Donald Trumps of the world get caviar; the ordinary person gets peanuts; and future taxpayers, who will bear the burden of all the new debt issuance necessary to finance the package, get shafted.

In announcing their bill, both Ryan and Brady claimed that a typical middle-class family, with two kids and about fifty thousand dollars in earnings, stood to save close to twelve hundred dollars in taxes. (To be precise: $1,182.) “This plan is for middle-class families who are living paycheck to paycheck,” Ryan said. The owner of a small business that makes sixty-two thousand dollars a year would save more than three thousand dollars, Ryan added.

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Donald Trump–The Tax Reformer–Making America’s Rich richer while the ordinary person gets peanuts; and future taxpayers get shafted.

Figures like these demand close scrutiny. In reducing marginal tax rates, doubling the standard deduction, and expanding tax credits for children and other dependents, the bill would benefit many middle-class households. But abolishing personal exemptions could hurt middle-class families who have a lot of children. As could eliminating the deductions for state and local taxes, health-care expenditures, and student-loan interest.

The treatment of state and local taxes, and the new limits the bill would place on mortgage-interest deductions, appear to be targeted at households in blue states, such as New York and California, which have high taxes and expensive real estate. No surprise there: it’s partisan politics. Other aspects of the bill would affect households everywhere. Unlike the tax cuts for corporations and other businesses, the tax cuts for families are temporary: after five years, they expire.

Without taking factors such as these into account, it is hard to reach any firm conclusions about what the bill means for middle-class families. (In the coming days, various tax experts will make some assumptions and produce over-all distribution tables.) But, in gauging how the legislation would affect corporations and very wealthy people, we can be definitive: they will benefit hugely. Despite the fact that the bill keeps the top rate of income tax at 39.6 per cent, it represents a big giveaway to the rich, particularly the very rich.

How so? The measure shifts the burden of taxation in the U.S. from corporations, which are largely run and owned by rich people, to households. It cuts the top rate on “pass through” business income—the sort of money generated by sole proprietorships, investment partnerships, and S-corporations—from 39.6 per cent to twenty-five per cent. And it phases out the estate tax, which falls most heavily on the largest estates, starting in 2024. Indeed, according to an analysis by the Committee for a Responsible Federal Budget, fully three-quarters of the over-all tax cuts in the bill are directed at businesses and large estates.

But that’s not all. The bill also repeals the alternative minimum tax, which was designed to ensnare rich people with clever accountants and a lot of sheltered income. In doing so, the bill creates enormous incentives for engaging in tax-evasion schemes, particularly the conversion of highly paid employees into unincorporated businesses.

To understand how all this could work in practice, it might be helpful to consider the case of a single very rich taxpayer (or non-taxpayer): Donald Trump himself. As I noted back in September, when the central proposals of the G.O.P. plan were already public, Trump stood to benefit in three different ways; that analysis has now been confirmed.

First, consider the abolition of the A.M.T. According to Trump’s 2005 tax return, parts of which were leaked earlier this year, he paid $38.4 million in federal taxes on income of $152.7 million, which means that his effective tax rate was about twenty-five per cent. But $31.3 million of his payment went to cover his A.M.T. liability. If there hadn’t been an A.M.T., he would have paid just $7.1 million, or about five per cent of his taxable income. To look at it another way, if this tax bill had already been in effect, Trump would have seen his tax bill reduced by more than eighty per cent.

Because Trump owns hundreds of unincorporated businesses, he also stands to be a big beneficiary of the new flat rate on pass-through income. In his 2005 tax return, he declared $67.4 million in income from “rental real estate, royalties, partnerships, S corporations, trusts, etc.” Since pass-through income is currently taxed like salary income, income of this sort would theoretically be subject to the 39.6-per-cent top rate. In actual fact, Trump offset much of this income by itemizing a huge, unexplained loss that was probably carried over from the early nineteen-nineties. But when those carryovers eventually run out, as they probably have by now, Trump will have a great deal of pass-through income to pay tax on. Thanks to the Republican bill, he’d pay a rate of just twenty-five per cent.

Finally, there is the abolition of the estate tax. To be sure, Trump may have already taken precautions to avoid the estate tax, by, for example, setting up specialized family trusts. But if he lived another ten years and then left his heirs, say, two billion dollars of unsheltered assets, then, under the current system, they would face a federal tax bill of eight hundred million dollars. Under the Republican bill, that liability would disappear.

The tax affairs of very rich people are all differently arranged, of course. But in some ways Trump’s finances are fairly typical. He earns most of his income from businesses. He already exploits the tax system to the max. And he has benefitted enormously from the great asset-price boom of the past twenty years. On Thursday afternoon, he said the Republicans were giving the American people a “big, beautiful Christmas present.” For some reason, he didn’t explain that the biggest presents, by far, would be handed out to people like him.

Lim Kit Siang’s Take on Najib Razak’s So-Called Mother of All Budgets 2018


November 2, 2017

Lim Kit Siang’s Take on Najib Razak’s 2018 BudgetThe So-Called Mother of All Budgets

The Budget is a tool or instrument for presenting a statement about the state of the economy, its prospects, and policy announcements for improving governance. A well-crafted budget statement should be an objective and honest presentation meeting the goal of accountability.

Sadly, the budget he (Najib Razak) presented fails these basic tests. His speech of almost 12,000 words was more akin to a laundry list of giveaways, expenditure allocations both real and imagined, and vague statements about the economic consequences that would result.–Lim Kit Siang

http://www.malaysiakini.com

MP SPEAKS | Prime Minister Najib Razak described Budget 2018 being about “gifts, rewards and incentives.” It is a most mistaken view.

The Budget is a tool or instrument for presenting a statement about the state of the economy, its prospects, and policy announcements for improving governance. A well-crafted budget statement should be an objective and honest presentation meeting the goal of accountability.

Sadly, the budget he presented fails these basic tests. His speech of almost 12,000 words was more akin to a laundry list of giveaways, expenditure allocations both real and imagined, and vague statements about the economic consequences that would result.

The speech omitted any reference to urgently needed policy changes to restore the competitiveness of the economy that would enable the nation to escape the middle-income trap it finds itself in. The speech was silent about measures to correct the stagnation in real income, and address the looming danger associated with the mountain of debt – public, corporate and household.

The budget has been turned into an unabashed and irresponsible first salvo in the campaign for the 14th General Election. Page after page of the speech detailed expenditures and proposed allocations; no group was ignored in the largesse being extended.

Najib’s laundry list of giveaways, expenditure allocations both real and imagined, and vague statements.-2018 BUDGET

Little was said about how the proposed expenditures were designed to advance the overarching economic goals; no reference was made to how the addiction to deficit spending was to be overcome.

The projected deficit was itself a meaningless figure as the profligate spending in some measure would be financed outside of the budget, and nor did the PM in his speech or in the economic report provide details about the level of contingent liabilities or the new liabilities being assumed.

Electioneering

The PM chose to describe the budget as the “mother of all budgets”. Ironically, he was on target as this budget was an exercise in deception and was an unvarnished sales pitch seeking votes in the upcoming election.

Najib’s claim about “good news” needs to be taken with a large pinch of salt. The reality is that the news as reported in the budget statement is more in the nature of “fake news”. The budget framework is built upon dubious interpretation of statistical data in a highly selective manner.

The PM gloated over the growth numbers but was being selective. He failed to make any reference to issues of a structural nature raised by the World Bank and the International Monetary Fund (IMF) in particular in the latter’s Annual Article IV Consultations and reported on its website.

Economic growth rates

Najib also made much about the revised growth rates issued by the International Financial Institutions and attempted to claim credit. He omitted to indicate that the revisions pertained to almost all countries – Malaysia being one in the group.

The revised growth rates should not therefore be interpreted as an approval of the competence of the government in managing the economy. Growth rates are revised to be higher because of global economic developments, primarily resulting from changes in monetary policies by the US Federal Reserve Bank and its counterpart the European Central Bank, and the partial recovery in prices for oil and gas.

The PM has been selective in the use of data. This is best illustrated by his use of the year 2009 as the base for measuring change. There is no rational reason for this choice other than an attempt to glorify his own tenure of office. It is also pertinent to note that 2009 marked a global recession. The choice of this low base amplifies the recovery in the years since.

Najib, however, chooses to remain silent about the negative developments, for instance, in the losses in the country’s external reserves (from a peak of US$ 140.0 billion in 2012 to US$101.2 billion in Sept 2017; total reserves as a percentage of external debt fell from a high of 121.1 percent in 2007 to 47.2 percent in 2016 or the decline in the value of the ringgit from US$1 = RM 3.34 in 2007 to US$1= RM4.20 in September 2017. These are not indicative of “efficient governance and prudent discipline” as he claimed.

Putrajaya’s fiscal situation

For two decades the government has operated with a deficit; the reported federal government debt now approximates 55 percent. Additionally, the Putrajaya has concealed its borrowings and the true size of its debt by making government-linked companies and other quasi-government entities undertake borrowings to finance public sector projects under the guise of so-called public-private projects.

The government has, at the same time, accumulated large hidden contingent liabilities by extending guarantees for borrowings by GLCs and other entities.

The fiscal situation has been worsened by corruption, mismanagement and other abuses including non-competitive acquisition of goods and services. The absence of competitive bidding results in price distorted costs. Tax revenues have been eroded by way of so-called “incentives” extended to government cronies without resulting in any discernable rise in private investment.

NEM goals

The reference in the speech to the New Economic Model (NEM) is more in the nature of a throwaway remark.

Certain clear-cut goals and policies adopted at the launch of the NEM have fallen by the way side. It should be recalled that there was a commitment to pursue further privatisation of the government’s non-financial public enterprises and reduce the government’s holdings in the GLCs which in reality function as state-owned enterprises.

It is significant that the speech contained no reference to the pursuit of these stated goals.

The findings from a recent highly professional study led by Terence Gomez has highlighted the dominant role played by GLCs in almost all sectors of the Malaysian economy, from aviation, banking, manufacturing, plantations to various modes of transportation.

In 2013, a total of 455 companies (including subsidiaries) were classified as government-linked investment companies (GLICs). There were 35 publicly listed companies which were among the top 100 companies listed on the Bursa Malaysia. The latter account for an overwhelming percentage of the capitalisation of the exchange.

Without a doubt, the government’s footprint is large in the business and commercial sectors. The entities in question act as monopolies or privileged entities, thus stifling private enterprise. This has led to flagging private investment despite tax and other incentives.

Of late several entities (e.g., Mara, Felda, Tabung Haji) have become mired in financial scandals. There is little or no accountability by such entities.

Furthermore, it is strange indeed that while Malaysia as a upper middle income country seeks to attract FDI flows, yet government linked agencies are currently exporting capital. These endeavors taken represent contradictions. But, more troubling is the fact that they give rise to abuses and corrupt practices.

The claims of successes in employment creation merit comment. While indeed some 2.3 million jobs have been created in the past eight years, most of these have been low paying jobs with many filled by migrant workers.

Serious shortages of skilled workers exist; paradoxically the brain drain continues unabated. These labor market developments along with the stagnation in wages are indicative of a failed set of policies that are contributing to the loss of competitiveness and entrapment as a middle-income country.

The self-congratulatory remarks about export growth are yet another example of delusion. While the current level of exports are expressed in ringgit terms, the PM has chosen to ignore the fact that he is comparing values based on different exchange rates.

The comparison of international reserve levels is rather devious – this is the only comparison linked to 1997!

The reporting of an increase in income per capita from RM27,819 in 2010 to RM49,713 in 2017. This trend is contradicted by the World Bank as the following numbers show:

The significance of these numbers points the extent to which Malaysia is lagging in terms of achieving “high income” status which in 2016 was set as income levels in excess of US$12,235.

Indeed, taking account of the current level of GNI per capita, projected exchange and growth rates, it is patently clear that the much-touted goal of achieving “high income” status by 2020 is a fading dream.

Budget allocations

The budget allocations for 2018 are projected at RM280.25 billion, an increase of RM20 billion, with RM234.25 billion for operating expenditure and some RM46 billion for development.

While further details are highlighted, Najib chose to be silent about a large item, namely debt service which amounts to 11 percent of the operating expenditure. The increased allocations are largely to restore cuts that were imposed earlier in the year.

Revenue collection in 2018 is projected at RM240 billion, an increase of approximately nine percent from RM220 billion in 2017.

No details are given either about the sources of revenue, or the amounts reduced by way of tax cuts and exemptions. The projected growth lacks credibility given GDP growth rate, reductions in revenue attributable to the exemptions from GST granted for big ticket items alongside the reductions in income tax rates.

In brief, the rosy estimates of modest growth in expenditure coupled with unrealistic levels of revenue receipts follow a pattern. Revenue projections are pitched high whilst expenditures are restrained in the budget.

Thus, there are inevitable supplementary expenditure requests later in the year. These approaches in budgeting enable the government to put out massaged numbers for the deficit. These practices appear to be sharpened in the preparation of the 2018 Budget.

Lip service was paid about fiscal consolidation without mention of how the PM proposes to reduce debt levels. While he was upbeat about all manner of “progress”, no mention was made about the record concerning deficits. It is noteworthy that it is now more than 20 years since Malaysia enjoyed a budget in surplus.

Once again total debt along with contingent liabilities will rise in the year ahead. These will represent burdens passed on to future generations. With an ageing population, the burden will be all the greater. The nation’s long-term interests are being sacrificed for short term political gains.

The claim that this budget will chart the course for building the nation for the next 30 years is a farfetched assertion. This is all the more questionable considering the fact that the Budget hardly lays out any long- term policies and goals but is only concerned with the “here and now” issues assumed to be of interest to a highly jaded electorate.

Rewriting history

Most remarkable, however, is the PM’s assertion: “Since we declared Independence, we have been fortunate as our forefathers have governed and administered this country embedded with shariah requirements”. Najib appears to be rewriting history by ignoring the fact that the country adopted a secular constitution and up until recently shariah played no major role in administration.

To claim that for six decades a shariah framework has operated with the federal constitution playing a secondary role is an outright distortion of the facts. The formulation used by the PM ought to raise a red flag about his coalition’s intentions regarding the status of the Constitution.

While acknowledging that “the framework has not been written in any government documents, but its practices are reflected in all inter-related national philosophies and policies” Najib appears to be outlining a position that the government will adopt in the event it is returned to power. It is thus a signal of how the secular federal constitution will be further sidelined.

Trends in investment

The PM set out several targets dealing with investment and trade. The statistics about trends in investment were selective.

Once again by choosing a low bench mark year (2009), a year that recorded a global recession, and inflated targets for 2018, he attempted to project progress.

These statistics appear impressive in attributing performance of private investment. A closer review, however, paints a different picture.

Given that the GLCs dominate the private sector, and that they largely operate as SOEs, much of the “improvement” can be attributed to government initiatives handled by these entities.

The process permits the government to by-pass concerns about the debt ceiling and at the same time permit nefarious projects as evidenced by the 1MDB saga.

The trends in private investment are erratic as inappropriate policies and political uncertainties have impacted on private investment, both domestic and foreign. The failure to announce corrective policy measures will result in sluggish investment patterns along with continuing outward capital flows

Passing reference is made in the 2018 Budget to accelerating exports. However, no indication is given as to what policies will be introduced to develop capacities in new products and promoting industries involving new technologies for instance the use of artificial intelligence.

No mention is made about how the government proposes to deal with the withdrawal of the US government from the TPPA; the PM was silent about what posture it intends to take viz. other trading arrangements within ASEAN or with the EU and the China-led proposals for a regional trade arrangement.

The claim that “…for the first time in the history of the nation’s budget…” a large allocation “is provided to assist farmers, fishermen smallholders and rubber tappers” appears to be a most strange claim. Every Five-Year Plan, every budget over the past six decades has contained allocations for these groups; it is disingenuous indeed to make claims that are short on a factual base.

 

The mega rail transportation projects that have been announced raise multiple concerns. For a start, cost benefit and feasibility studies have not been disclosed, assuming these have been done.

It is worthy of note that the projects will be financed by loans from China; the terms of these loans have yet to be announced. Reports in the media appear to suggest that major parts of these projects will be assigned to China’s enterprises who will invite some Malaysian entities to collaborate.

Najib evaded the entire issue of port expansion using loan funds in the face of overcapacity in the nation’s major port, Port Klang, following the departure of a major user. Many of the other transportation projects highlighted in the speech will not be financed from the Federal budget.

The following quote from his speech is most remarkable – it projects self-glorification and is somewhat insulting of past holders of the office of Finance Minister:

“This Budget that has never been crafted so well, even during the last 22 years or the past 60 years of our own nation, and marked in history, making this Budget the Mother of All Budgets.”

Ironically, this Budget may indeed qualify as the “mother of all budgets” for reasons other than those offered by the PM. The speech represents an open attempt to create fake news in pursuit of gaining credibility with an electorate that is largely disenchanted by the workings of a government tarred by endless scandals, led by someone viewed as a kleptomaniac.

The current budget also qualifies as such for its extensive giveaways, without a realistic vision or any demand for sacrifices. It provides no coherent strategies to permit the nation to escape the middle-income trap.

Malaysia urgently needs a course correction if it is to regain dynamism to enable it to move forward on the road to greater prosperity.


LIM KIT SIANG is DAP Parliamentary Leader and MP for Gelang Patah.

 

Malaysia: The Huff and Puff of Budget 2018


October 29, 2017

Malaysia: The Huff and Puff of Budget 2018

Image result for Najib and Zahid at Budget 2018Two Jokers in a Unity Pact to safeguard a kleptocratic and corrupt Malay-centric regime with 2018 Budget Proposals

 

COMMENT | Prime Minister Najib Abdul Razak and his team should learn how to manage public perception, than recycling year after year the same huffs and puffs that will just fade away after the general election.

Right after the election, we will again see the likes of minions Jamal Md Yunos (UMNO Sungai Besar division leader) and Gerakan Merak leader Mohd Ali Baharom (known also as Ali Tinju), veteran Abdul Rani Kulup, lecturer and Muslim convert Redzuan Tee Abdullah, Perkasa’s Ibrahim Ali, Isma’s Abdullah Zaik and extremists like Zakir Naik, becoming the heroes.

There will be others like the self-styled “Raja Bomoh” Ibrahim Mat Zin who hog the headlines. So far, Ibrahim has never been prosecuted despite appearing on the grounds of the Kuala Lumpur International Airport and making a nuisance of himself.

Image result for Hussain Najadi murder

To date, the investigation into the protest over a cross erected by a church in Taman Medan has not proceeded any further. What about the probe into people missing in action, such as Pastor Raymond Koh and several others? What about the death of Teoh Beng Hock and former customs officer Ahmad Sarbani Mohamed and the murder of banker Hussein Najadi?

What was the motive behind the killing of former Mongolian model Altantuya Shariibuu? Who was behind the Scorpene submarines scandal and after Abdul Razak Baginda was charged in France, why have investigations on the Malaysian side stalled? Who was behind the death of deputy public prosecutor Anthony Kevin Morais?

Instead of prosecuting people for their wrongdoings, we see the MP of Batu, Tian Chua agreeing to go to jail over a small matter which could have been solved at a personal level and coming out more as a hero of the people.

There will then be the same old issues again – the banning of use of the term “Allah” by non-Muslims; stateless Indian children; Chinese schools being threatened to be closed down; the likes of Abdullah Hussain’s book “Interlok” where Indians were called by names; and yes, a thousand and one issues that UMNO and its proponents would try to harp on.

Ordinary Malaysians like me are already fed up with all the polemics by now because the leaders have lost their credibility. A decision would have been made a long time ago.

We can only wait for the coming general election, when we will come out once again in droves like in the previous general election.

Outstanding problems

Image result for 1mdb

That is why despite all the huffs and puffs of the budget, we know it will not bring the country forward. While we will take what is rightfully ours, most of us look at the 1MDB scandal as the bigger problem that Najib has failed to solve.

For a long time, the Chinese community have been harping on the need for more Chinese schools. However, the Ministry of Education has been moving snail-slow on approval of the Chinese schools.

Applications for a new school have gone into a “black hole”. When I showed the news about 10 new Chinese schools being greenlit by Putrajaya to the chairperson of the board of governors of the affected school, he merely said, “Year after year, election after election, it is nothing but empty promises”.

Image result for tan sri ramon navaratnam

Economist Ramon Navaratnam@ASLI Public Policy Studies

Chairperson of ASLI’s Centre for Public Policy Studies, Ramon Navaratnam, pointed out to me that Sekinchan has had the most productive paddy growers in the country.

“Yet, they are not given the incentives to become even more productive,” he said. “The government should focus on the strengths of each community and boost their productivity even further.”

Licenses for fishing are given to cronies when the fisherpeople themselves are unable to get more licenses. With these cronies and Ali Baba licence holders, the prices of goods rise. The real beneficiaries are not the fisherpeople themselves, but some cronies.

Likewise, I pointed out the plight of taxi drivers in this country. Although mostly Bumiputera, they too have been earning pittances. Now with Uber and Grab, who is most badly hit? Taxi licenses should not be given to a consortium, but to individual taxi drivers to motivate them to work even harder.

According to Ramon, budget proposals must address the “structural problems of low productivity, rising unemployment, inflation, the weak ringgit, the brain drain, sustainability and the fight against extremism and bigotry.”

As fellow columnist R Nadeswaran rightly put it, “The prime minister, his ministers and the government must stop treating Malaysians as fools by making all kinds of statements which more than not, appear like a page from Grimm’s Fairy Tales”.


STEPHEN NG is an ordinary citizen with an avid interest in following political developments in the country since 2008.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.