Road Tax Relief leads to Car-Buying Frenzy – Malaysian car market is boosted, leading to stronger economic growth and higher government receipts.

The above is a headline you will not see as a result of the “peanuts” given by the government in the form of a road tax reduction.

In general, any tax cuts or tax relief is deemed to be beneficial to a country's economy. As consumers spend the extra money in their pockets, businesses thrive, and via the multiplier effect, the overall economy is boosted, correspondingly, tax revenues increase.

However, the recent news of lower road tax in the Star (dated 31.12.2006), “Relief for Motorists" is at best a bad policy and at worse, an insult to every Malaysian who has seen prices of various everyday staples increase.

The "tax relief" ranges from RM10 to less than RM55 per YEAR. Assuming that the majority of Malaysians enjoy the maximum RM55 reduction, that works out to less than RM4.60 a month. RM4.60 a month, or RM1.15 a week, is nothing to shout about.

For any tax relief to be really effective, it has to make each and everyone of us feel richer. Not substantially, but sufficient to make us spend a little bit more of our income, or work a little harder (since the taxman is taking less). The incentive has to be significant enough to gently nudge consumer spending or corporate investment upwards. Implemented correctly, the tax reduction may even pay for itself via increased government receipts spurred on by a mini boost in economic activity.

You have to forgive the average Malaysian if they do not bring out their champagne bottles in reaction to the news. RM4.60 savings a month is miniscule - it hardly cause a dent in creating a "feel-good factor". Does it "lessen the financial burden" of the people? Hardly (unless we are talking about the hardcore poor in Third World countries who are surviving on less than USD1 a day - but they will have to buy a Malaysian car first).

It does not make sense for the Government to lose this RM250m revenue per year over this poor policy. It does nothing for the average taxpayer and the economy. It does not generate any financial or social returns for the foreseeable future. This RM250million should have been channeled to other areas where it can make a significant impact on the economy. How about assisting 1st time home purchasers so we can reduce the housing glut by subsidizing their home loans? How about sponsoring deserving students to pursue their education in Ivy League universities? There are so many ways to spend this large sum of money where the government can be assured of positive socio-economic returns , whether in the long-term or in the immediate term.

And why should the road tax savings be extended to those who own a (or a few) Ferrari or Porsches? The few dollars hardly matters to them as it cannot even cover the costs of polishing their already gleaming cars sitting in air-conditioned garages.

This is really bad, bad economic policy. Lets hope the next goodie from the government is really worth the money.