Budget 2015: An Assault on Capital and People Economy

By Medecci Lineil

Last Friday, Prime Minister Najib Razak introduced and stressed on the importance of capital economy and people economy in Budget 2015.

In my view, the budget in fact is an assault on capital economy and people economy.

Here’s why.

Government spending and taxation distort and destroy both capital economy and people economy.
What’s worse, many people, especially middle- and low-income families, are realising that our money is losing purchasing power.

As a result, it costs them a lot of money to purchase daily items.

It is public knowledge that our personal savings are declining.

Everyone is told to increase their spending and consumption to ensure our economic growth remains resilient.

Everyone is desperate to spend their money now to cope with the pressure of cost of living, leave no room for saving.

There are bills to pay – taxes, utilities, education, house, healthcare and petrol. All seem to be going up.

Their standards of living are further depressed. Individuals go bankrupt every day.

Apparently we are increasingly more dependent on the government.

We are now repeatedly hearing about the needing to allocate more amounts of BR1M as income support.

This is an evidence of severe under-capitalisation of our economy which directly affects the people economy.

What must be done?

First, to build a capital economy, we need savings. The accumulation of capital requires both productive effort and saving on the part of individuals.

To consume more, people must first produce more and to produce more requires better capital goods, better jobs and better salaries.

Second, to build savings, we need higher free market interest rates.

Artificial interest rates lead to inflated prices that alter the allocation of economic resources in production and encourage artificial production.

Third, wealth distribution via taxes, welfare, public works and consumption engineered by political force must be abolished at all levels.

Too much capital is being transferred today through political welfare programmes and government purchases.

Public works like the RM27 billion Pan Borneo highway, for example, which was authorised by politicians and administered by bureaucrats constitute a waste of scarce resources and consumption of productive capital.

Lastly, no more price and wage controls. Direct controls are always below the market prices and set above the market for wages.

This means destruction of capital productively employed and the creation of a permanent barrier to new productive activity.

First published at The Malaysian Insider on the 13 October 2014 and Free Malaysia Today on 14 October 2014.

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