At first glimpse and judging from the arguments put forward by Noor Yahaya Hamzah on her(or his? Pardon me if I just assume the author is a her, Noor, my experience tells me it is a lady’s name) letter to MalaysiaKini, the idea of negative income tax (NIT) sounds plausible, as compared to other proposal like minimum wage. At least I am much convinced NIT over minimum wages because the latter will/can cause unemployment. And that is the major setback I have over minimum wages.
Well, just found out that another reader is responding to her proposal. I can understand why Mr. Azhar is worried about the development of dependant mentality (waiting for hand-out) on those who are “waiting” for the extra bonus from government on negative income tax. Can we say that actually NIT is quite similar to unemployment benefit in the West? Government would surely worry about the free-riding issue as well, that’s why there are/should be certain measures are counted in to take care the free-riding issue as well. At the same time, I am not much convinced to believe that a basic income at RM900 (as proposed by NYH) is a “very good” incentive for people to sit back and waiting for the “extra bonus” from government. The amount we are dealing here is probably just good enough to cover the basic or neccessity of living, but if you want more than that, you have to earn it by your work.
As for where the Malaysia government can get the money from to support the idea of NIT, that’s another issue. But I guess NYH had pointed out few major problems in her letter already (reduce red tape, free the capital market, increase efficiency etc). As for tax more on the rich (wonder how rich is consider rich), there is something to be wary of not to overkill and hence decrease the “incentive” of people to work hard or/and creatively, aka, daylight (sanctioned) robbery. So much for the trade off I can think of, imho…
P/S: Mr KokTheng, please do visit this post regularly to see if you can add something… sort of taking care of my blog while I am gone for 1 week
PP/S: Well, it certainly surprises me to see my post was having 128 hits in short 2 hours time, thanks to Malaysiakini referral’s link here. I was having more thoughts on the NIT over my dinner just now, about the incentives… If NIT is implemented, what would happen to the incentives to all party involved - employee, employer and government? I was thinking would the existence of NIT encourage the employer the cut back on the salary, slow increment, no bonus and etc? Would the workers are more encouraged to take up the least working-hours job, merely making enough to pass the minimal wage in order to get the extra from NIT? What would happen at the point of RM900 job? More thinking for me about incentives, supply, demand…
PPP/S: As Rajan pointed out in the comment, the structure of NIT is different from what NYH proposed, and to curb the “incentives” of employer (read tauke) to offer lower wages than RM900 (the proposed basic wage) and employee (worker) has no incentives to bargain higher salary (after all, they will be getting same amount of money, regardless from whom - employer or government). Thus, the burden will or is expected to be shifted towards government.
As explained by Rajan, and now I put in table format, let’s say tax at 5, 10 and 20% and rebate at RM400 and RM500:
The lower the original income is, the higher amount of rebate or NIT you will be getting. However, the employee will still have the incentives to work hard for higher salary because the final income will be increased, even though the amount of rebate will be reduced compared to lower income. Furthermore, it makes fair sense that the government is giving out more rebate/subsidy to those who need it, like RM300 original income earner (amount subisidy/revate received=RM370 [tax 10%+RM400]) compared to RM2000 original income earner (RM200 [tax 10%+RM400]).