Budget 2023 not anti-rich, economists say

SHAH ALAM - Budget 2023 is not 'anti-rich', in fact its a way to reduce and prevent economic leakages, say experts.

Professor of Economics in Universiti Malaya Datuk Rajah Rasiah said it shows an attempt to reduce free riding and to prevent economic leakage.

"In the past budgets, too many free riders dominated subsidies meant for the poor. There was also massive amout of subsidy leakages at the borders," he told Sinar Daily.

For instance, in 2021, the government gave only 25 per cent to the targeted poor, out of the RM78 billion subsidies.

When asked on the purpose to taxing luxury goods higher, Rajah said increasing taxes on luxary goods are a common way to address rising debt or falling revenue issues.

"There is some reduction in income tax on taxable income between RM35,000 and RM100,000 and a slight increase in the categories for those earning until RM1 million.

"When governments are concerned about rising debt and falling revenue, and worsening inequality particularly with rising living costs, increasing taxes on luxury goods are often a common instrument deployed to address those issues.

"Besides, luxury or ostensius goods typically enjoy rising demand with rising prices, which is why they are referred to as superior goods," he said.

Rajah also said the government does not provide subsidies to attract tourists as that cost will be borne by the government.

"Of course, governments can optimise taxes (rather than zero-rate) to be relatively low in the Asean region to attract tourists.

"The luxury tax the government is talking about does not relate to the simple consumables and non-luxury items. I take it as probably refers to jewellery, luxury cars, and musical instruments," he said.

Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim announced in the 2023 Budget that the government will introduce a Luxury Goods Tax from this year with a certain value limit according to the type of such products. The move is seen as a new step to broaden tax base on the rich.

Meanwhile, Academy of Professors Malaysia (APM) Professor Dr K. Kuperan Viswanathann said Budget 2023 is the right way to re-distibute wealth.

He also said that taxes are imposed on luxury goods as a way of distributing wealth.

Commenting further, Universiti Malaya Deputy Dean Research Professor Dr Izlin Ismail said tax affecting tourism depends on regional competitors.

"If they are taxing higher, then there are no issues of losing business. If the tax is marginal relative to the price of luxuries, it may not be problematic.

"Those buying luxuries do not really get deterred by the price as demand is relatively inelastic," he said, adding that taxing luxury goods would deter those who could not afford.

It was reported that a think thank Center for Market Education (CME) CEO Carmelo Ferlito said Budget 2023 merely passes fiscal burden over to firms and the rich.

Ferlito said the government did not introduce any attempt to rationalise government expenditures. Instead, the burden of reducing debt was only shifted on firms and individuals with new and questionable taxes.

He added that he was dissapointed with how slogans like “tax the rich” or “tax luxury goods”, which are good to gain political consensus but are unlikely to produce any real benefit for the country, were apparent in the fresh budget.

He added, "new anti-rich or anti-business taxes will only undermine the local investment ecosystem."