Article 7: Why no income tax rate rise for those earning above RM1m?

Treasury sec-gen says didn't want cut to go above 30pc

Summary

The article reports on the Malaysian Treasury Secretary-General's explanation for not increasing
income tax rates for individuals earning above RM1 million. He cited concerns about potential
negative impacts on economic growth, stating that the government aimed to avoid pushing the
overall tax rate beyond 30%. The decision reflects a balancing act between generating revenue and
sustaining economic momentum. Critics argue that higher taxes on the affluent could contribute to
fiscal stability, but the Treasury Secretary-General's rationale emphasizes the delicate equilibrium
between taxation policies and fostering a conducive environment for economic development.

Theory that related

Progressive Taxation and Fiscal Policy:

The decision of the Malaysian government to not increase the taxation rate on people with income
levels more than RM 1 Million is a reflection of a stance on progressive taxation. Progressive taxation
is defined as a fiscal policy strategy where higher-income individuals are taxed at a higher rate.

Income Inequality and Redistribution:

The article highlights the government's attempt to address income inequality by implementing a tax
policy that targets the top 1 percent of income earners. This aligns with the idea of using fiscal policy
and making more affluent contribute to the well-being of the country and not just burdening the
individual whose income is lower than theirs.

Keynesian Economic Perspective:

Adjusting tax rate decisions is aligned with Keynesian economic principles, which suggest that fiscal
policy can be used to manage aggregate demand in the economy. By adjusting tax rates for different
income levels, the government can influence disposable income and, consequently, consumption
patterns.

Critical analysis

Consideration of Trade-Offs and Economic Stability:

Analysis: While the article acknowledges the trade-off, it could provide a more in-depth exploration
of the specific economic indicators or factors considered by the Malaysian government in making this
decision.

Evidence: Countries with moderate progressive tax systems, such as many in Western Europe, have
achieved relatively low levels of income inequality without sacrificing economic growth. However,
extreme progressive taxation, as historically seen in some countries, can lead to capital flight and
reduced incentives for investment

Income Inequality and Redistribution:

Critical Analysis: The government's focus on taxing the top 1 percent to address income inequality
aligns with the goal of redistributive policies. Critics might argue that more comprehensive measures,
such as social welfare programs and education reforms, are also essential to address the root causes
of income inequality.
Evidence : Evidence: Comprehensive social welfare programs and targeted education initiatives have
been successful in reducing income inequality in Nordic countries like Sweden and Denmark. These
countries combine progressive taxation with robust social policies to create a more equitable
distribution of wealth.

Keynesian Economic Perspective:

Critical Analysis: Keynesian economics supports the use of fiscal policy to manage demand, but the
effectiveness of such policies can vary. Critics argue that the impact of tax adjustments on aggregate
demand may be limited, especially if households save rather than spend additional income. Evidence
shows that the success of Keynesian policies depends on the overall economic context.

Evidence : Evidence: During economic downturns, fiscal stimulus measures, such as tax cuts and
increased government spending, have been effective in boosting demand and promoting economic
recovery. However, the effectiveness of these measures can be constrained if households and
businesses choose to save rather than spend the additional income.