Monday, June 14, 2010

How can we become another Greece?

We have to admit that our tax structure still has a way to go before we can be forced to turn into a nation of tax evaders like Greece. But with the rolling out of the GST, and hopefully many more prohibitive taxes in the future, we can one day pat ourselves on the back for taking the hard decisions to become a truly bankrupt nation.  
By Jeevindra Kumar 
A few facts about Greece.

Lets start with the tax regime. The top income tax rate is 40%, and the 37% bracket kicks in at an annual income of 30,000 Euros, and 27% at 12,000 Euros! It also has a VAT(like GST) of 21%, which was recently increased from 19%. On top of that, employees pay a payroll tax of 16%, while employers pay an additional 28%!
This brings a marginal tax rate of 65% on an income of 12,000 Euros, without taking into account other taxes, such as property tax etc.
Capital gains in Greece are taxed as regular income, except for sales of shares traded in Athens.

Corporate tax rate is a nice 25%, and income and dividends from shipping are tax exempt, which is great for the shipping barons.
We have to admit that our tax structure still has a way to go before we can be forced to turn into a nation of tax evaders like Greece. But with the rolling out of the GST, and hopefully many more prohibitive taxes in the future, we can one day pat ourselves on the back for taking the hard decisions to become a truly bankrupt nation.
Greece is blessed with a bloated and inefficient civil service, oligarchs that get preferential pork barrel contracts, and the usual bunch of parasitic cronies, who suck the Greek government of its money very efficiently. We are actually ahead of Greece in this area, a tribute to decades of continuous political and socio-economic segregation by race. We can look forward to an even more bloated civil service in the future, as the ruling coalition and opposition front work hard to keep their majoritarian power base happy, and hopefully we will one day boast of a truly mono-ethnic bureaucracy that  employs half a dozen to not do the work of one, an achievement that no other nation in the world will be able to beat. Malaysia Boleh!

We must be careful to make sure that the removal of subsidies, and other reforms, will not result in the preferential deals and subsidies given to IPPs and other important cronies being affected in any way, shape or form. These are some of the important conduits through which we can fast track our transformation into a truly bankrupt nation, as the nation's wealth is siphoned down and out of the country, away from the dirty, grubby people that created the wealth in the first place.
The Greek government has defaulted on their 300 billion Euro worth of debt. This means that it is the government that is bankrupt. The citizens still have their homes and businesses. But being the government they will make the necessary moves to increase taxes, reduce wages, and pass some of the pain to the citizens, while not making the necessary move to reduce spending by cutting down all the excesses in the civil service and oligarch friendly administration and policies. With a debt growth of 12% a year, we can do the same.

The Greek government excelled itself in being uncompetitive. Prior to joining the Eurozone and adopting the Euro, the Greek Drachma went from 50 to 400 to the US Dollar, a devaluation of 8x over twenty years. That gave the Greek economy an effective inflation rate of 11% p.a. Good news for Malaysians, we managed to hit an 11% inflation rate y-o-y from Jan 2008 to Jan 2009. If we can continue to achieve this rate, we can enjoy the same depletion of real savings to the tune of losing 40 days of income and savings for each year we have worked, every year.
Of course we cannot sit quietly and let the Government bear the entire burden of transformation into a bankrupt state. Athens in the year 333 BC had what is considered to be the first property bubble in known history. We must strive to do the same by creating, if we haven't already, and bursting a property bubble of decent proportions in this country as well. I am sure the herd instinct will drive Malaysians to do what is necessary to bring the economy to its knees.
In summary, if we can continue our policy of socio-economic segregation, preferential treatment of parasites; exhibit the lack of will as shown by "legally right but morally wrong" quotes, and allow the government to spend more than its revenue to support a next to useless civil service and make unnecessary purchases, as well as allow the non development of potential talent on the basis of race and religion to promote non-competitiveness, we can capture the headlines just as Greece has in the near future, and join the ranks of truly bankrupt nations in the world.

0 comments: