Thread by @elanorng

On GST: I realised many are claiming that GST is efficient, in Parliament, newspaper, social media etc.

I think most are referring to collection efficiency, not economic efficiency.

I don't think many understand what it means when economists label a tax as efficient. /1

The problem is economics of course - we appropriated the word efficiency and used it to mean something rather different. This is done quite often...

Anyway, a tax is considered more efficient if it destroys less economic activity than an alternative tax. /2

For eg. income tax lowers incentive to work, GST lowers consumption etc. A tax is more efficient if it leads to the lower overall reduction in RM term of work/consumption etc per RM tax raised.

(There's also this thing on resource misallocation... but let's ignore that) /3

It's often argued that GST is more efficient than a progressive income tax. But this is not a given.

I've not actually seen a proper study for Malaysia that shows that GST is more efficient. If you have, pls share! /4

There's another concept that's separate from efficiency. Equity, ie, how fair a tax is with regards to the poor and the rich. Typically GST is less equitable compared to a progressive income tax.

Again, not a given. Show me numbers! /5

Anyway, there's a tax that's the most efficient and equitable conceptually and I believe in reality too: tax on land/property.

Land/property prices increase has almost nothing to do with how economically productive the owners are. All boils down to the fixed supply of land. /6

And land/property ownership is concentrated on the richest too. It also leads to cost of living in fast growing cities prohibitive for the rest via escalating housing prices.

So ya, perhaps Malaysia should start conversation on land/property tax. /7, end.