INCREASING the number of middle-class taxpayers is the surest way to tackle corruption in Malaysia, according to a former director-general of the World Trade Organisation. 

Pascal Lamy, who is a member of the advisory board of Transparency International, said a large population who pays taxes would result in more attention to corrupted practices. 

“My medium to long-term view is that a growing middle-class is the best prophylaxis against corruption,” Lamy told reporters after a forum promoting the Paris-based World Expo 2025 in Kuala Lumpur today.

“Because what I have observed in many countries, the moment people start paying taxes, they don’t want to pay it twice,” said the former European Commissioner for Trade.

To this end, Lamy said there would be a need for better public relations, more transparency, more rules where there are conflicts of interest and more rules where there are intersections of business and politics. 

Currently, only about one in 10 Malaysians pays taxes, according to the Inland Revenue Board Of Malaysia.

“At the end of the day, growing part of your population that pays taxes is the best way to fight corruption,” he said.

Malaysia currently ranks 49th in Transparency International’s Corruption Perception Index 2016.

The country has been wracked with financial scandals, chiefly involving 1Malaysia Development Bhd (1MDB).

The US Department of Justice, through its investigations, said a total of US$4.5 billion had been misappropriated from 1MDB, a fund Prime Minister Najib Razak established in 2009 and whose advisory board he once chaired. 

The department has filed suits to seize over US$1 billion in assets linked to Penang businessman Low Teck Jhow, reported to be a close associate of Najib.

Najib has denied wrongdoing. 

Lamy, who is currently the honorary president of Paris-based think tank Notre Europe, said the country’s aim to become a high-income nation would be delayed if corruption was not tackled.

“How long? I don’t know. What I know is that there is a direct connection between growing your economy and getting rid of corruption. 

“Take Singapore, which is a very good case where, thanks to a very stringent public policy, very stringent public discipline, also paying the civil servants quite high (salaries), you’ve gotten rid of corruption,” he said. 

Lamy said the country could still achieve high-income status by 2020. According to World Bank simulations, Malaysia is projected to achieve high-income status as early as 2020.

“My clear answer is, yes, it is achievable. You are roughly on track to your 2020 goal.” 

He said the country had been “reasonably successful” with its economic policies, education, public institutions, a social safety net and good trade. 

The World Bank’s Malaysia Economic Monitor report published last month showed that Malaysia was projected to exceed the threshold that defines a high-income economy some time between 2020 and 2024.

The World Bank currently defines high-income economies as those whose gross national income (GNI) per capita stands at US$12,236 (RM49,916.76) or more.

In 2017, Malaysia’s average GNI per capita is estimated to stand at US$9,660 (RM39,407.97), just short of US$2,576 (RM10,508.79) of the threshold.

Lamy said, however, that although the country had natural resources, it should increase its “value-addition” services.

“The more you specialised in things you do better than others, the more you grow your economy. In two decades, a large part (of growth) will come from human labour and services and less from natural resources. 

“The way to do that… (is to) direct resources to education qualification and training.” 

He said rising inequality would be inevitable. Malaysia’s Gini coefficient, a measure of the level of income inequality, was recorded at 0.399 in 2016.  

“We know from experience that there has been no quick and substantial economic development without inequality increasing at some stage. 

“This is what the experience from the 19th century (Europe) tells you. This is what the story of China tells you. This is story of emerging countries.”  

He said there will be increases of inequality for some time.

“The question is how long and can it be addressed through economic development that creates more value addition.”

Lamy said “huge public resources” would be needed to address inequality, such as expanding social welfare programmes, which might require a hike in taxes for high-income earners. – January 4, 2018.