Madani economy for a better Malaysia

People walking past a mural depicting the faces of Malaysian children at Jalan Raja Chulan, Kuala Lumpur. — AZHAR MAHFOF/The Star\

THERE are numerous structural weaknesses, challenges and issues hindering Malaysia’s current and future growth trajectory.

These include a complexity of business regulations and investment climate; a lack of private investment dynamism; slower productivity growth and capital efficiency; a low level of technology adoption, lack of innovation and technological advancement; shortage of talent and skilled manpower; high dependency on low-skilled foreign workers; corruption; income inequality and regional growth disparity.

Pressures from external sources are getting more complex and intensified on the aspects of competitiveness, geo-economic complexity, economic security threat as well as the disruption of environmental and climate change.

The state of the nation needs a fundamental reset to cope with external shocks and seize new opportunities. It is no longer a choice but a must take fundamental re-orientation.

The “Madani Economy: Empowering the People” framework navigates our desired economic development path (mission, execution and targets) over a 10-year period to rebuild a Better Malaysia that is sustainable, competitive and resilient.

The re-engineering of Malaysia will be anchored on Madani values – sustainability, care and compassion, respect, innovation, prosperity and trust. The seven targets to be achieved over a 10-year period are:

> Top 30 largest economy (currently at 37),

> Top 12 in global competitiveness (currently at 27),

> Top 25 on the Human Development Index (currently at 62),

> Increase labour share of income to 40% (currently at 32.4%),

> Improve Malaysia’s position in the Corruption Perception Index to Top 25 (currently at 61),

> Towards fiscal sustainability, targeting deficit of 3%, or better (currently at minus 5.6% of gross domestic product or GDP in 2022), and

> Increase female labour force participation rate to 60% (currently at 55.5%).

The Madani Economy framework offers clarity on what we aim to achieve; what are the broad strategies and enablers to get there from where we are now.

It consists of two pillars:

> “Raise the ceiling” – which is aimed at restructuring and elevating the economy through greater regionalisation and enhancing competitiveness, driving foreign direct investment (FDI) and domestic direct investment (DDI), digitalisation, sustainable green investment (climate resilience, renewable energy, electric vehicles and food security) as well as moving up the value chain, and

> “Raise the Floor” – ensuring inclusive growth, quality jobs and higher wages and equality of opportunities for all the vulnerable households regardless of race and geographical location.

The narrative serves a framework for current and future actions. It is a call to action to move the agenda forward; to address a broad spectrum of critical issues that we collectively face; and aiming to shed light on what future we face, what future do we want and what must be done to get there.

The initiatives and strategies for addressing the structural problems must be formulated in a coherent way, providing a mapping of macroeconomic policies and constructive policy proposals on the “no finishing line” transformations agenda, and the reshaping of the Malaysian economy is a continuous process.

We know what went wrong and what needs to change. We have to endure the painful transition costs and adjustments when making radical reforms and overhauling the system.

The consideration of our development, economic and social priorities require new systemic changes, reforms of state intervention to facilitate private sector’s growth dynamism, more radical welfare reforms and well-being policies, competitive and high-quality and durable taxation measures and rising awareness of climate change, ecosystem degradation and pollution destroying the environment.

Towards this end, public sector and fiscal reforms are urgently needed to rebuild the fiscal buffers through broadening a narrow revenue base (tax revenue at 12% of total GDP), re-prioritisation of non-critical expenditures, containing high public debt (more than 60% of GDP) and targeted subsidy rationalisation.

We need strong fiscal resources and effective administration capacity. Good fiscal governance is needed to plug leakages, strengthen public delivery efficiency with enhanced tracking of fiscal programmes and spending.

Political rhetoric, including populist rhetoric, must not be deviating from realism. The government needs to carefully weigh on the fiscal budget deficit and ballooning debt sustainability when considering the populist measures as fiscally unsustainable measures can undermine investors’ confidence in the soundness of managing the country’s public finance.

The rollout of the National Energy Transition Roadmap (Part 1) has identified 10 flagship catalyst projects and initiatives (an estimated total investment of more than RM25bil and 23,000 job opportunities) to accelerate the pace of the energy transition.

The New Industrial Master Plan 2030 will map out a comprehensive industrial direction as well as strategies with the aim of positioning Malaysia for new catalytic sectors and industries.

It is a mission-based approach with identified mission-based projects to drive the manufacturing industry transformation in four ways, that is by advancing economic complexity, tech-up for a digitally vibrant nation, pushing for net-zero target, and safeguarding economic security and inclusivity.

While we have the elements (diversity strengths, strategically located in Asia, and diversified economic sectors with strong industrial base) to build on to make Malaysia great again based on a whole of nation approach, strong political conviction is needed and all stakeholders must be committed towards making a “total national reset” to secure a better future for Malaysia.

If we continue with “business as usual” and implement half-baked reforms, Malaysia will continue to regress and achieve sub-par economic growth, and continue to lag behind her regional peers.

Can the country rise to these challenges and restore its economic vibrancy?

Radical changes are needed for transformations to be a competitive nation, and to deliver more just, equitable, sustainable and resilient futures.

This requires fundamental cognitive, behavioural and mindset shifts, including rethinking the role of state, rethinking growth dimension, rethinking resources efficiency, rethinking the commons and rethinking as well as upholding justice and ensuring equitable.

Attempts to promote reforms are politically hazardous, especially when the potential losers are politically influential.

Our observations showed that some political interests often override economic consideration, and any push for economic and market reforms will necessarily have to come from within.

The government must regain credibility and trust of our people, businesses and investors when it comes to economic agenda matters to Malaysians.

These include building a sustainable and resilient economy, fixing the middle-income trap, raising the households’ income, reskilling our manpower for future-proof, providing quality and affordable core services (housing, healthcare, education), as well as making our community safer, inclusive and equitable for all Malaysians regardless of race, religion and geographical location.

Lee Heng Guie is Socio-Economic Research Centre executive director. The views expressed here are the writer’s own.

by Lee Heng Guie

Writer

Source link

Related post:

Malaysia Madani to Uplifting economy and quality of life

• 

  Malaysia Madani to Uplifting economy and quality of life

  New initiative aims to increase GDP, improve wage levels and quality of life The Madani Economy framework to restructure the country...

Prime Minister Anwar Ibrahim's Malaysia Madani similar to Islam Hadhari

Related:

TheEdgeMalaysia.com

Anwar's 'Ekonomi Madani' speech can be the catalyst for Malaysia's second

SST - for better or worse ?

What is Sales & Service Tax (SST) in Malaysia? - SST Malaysia

Today, the Sales and Service Tax (SST) makes a comeback on our tax radar screen to replace the three years and two months old Goods and Services Tax (GST), which was implemented on April 1, 2015.

The abolition of the GST and replaced with SST is an election promise of the Pakatan Harapan manifesto.

It has been claimed that the GST is a regressive broad-based consumption tax that has burdened the low- and middle-income households amid the rising cost of living. The multi-stage tax levied on supply chains also caused cascading cost and price effects on goods and services. That said, the Finance Minister has acknowledged that the GST is an efficient and transparent tax.

Following the implementation of the SST, the Government will come to terms that the budget spending will have to be rationalised and realigned with the lower revenue collection from the SST to keep the lower budget deficit target on track.

The expected revenue collection from SST is RM21bil compared to an average of RM42.7bil per year in 2016-17 from GST.

During the period 2010-2014, the revenue collection from the SST, averaging RM14.8bil per year (the largest amount collected on record was RM17.2bil in 2014), of which 64% was contributed by the sales tax rate of 10% while the balance 36% from the service tax of 6%.

Faced with the revenue shortfall, the Government expects cost-savings, plugging of leakages, weeding out of corruption as well as the containment of the costs of projects would help to balance the financing gap between revenue and spending.

The sales tax rate (0%, 10% and 5% as well as a specific rate for petroleum) and service tax of 6% is imposed on consumers who use certain prescribed services. The taxable threshold for SST is set at annual revenue of RM500,000, the same threshold as GST, with the exception for eateries and restaurants at RM1.5mil.

As SST is levied only at a single stage of the supply chain, that is at the manufacturers or importers level and NOT at wholesalers, retailers and final consumers, it has cut off the number of registered tax persons and establishments from 476,023 companies under GST as of 15 July to an estimated 100,405 under SST.

The smaller number of registered establishments means no more compliance cost to about 85% of traders.

The distributive traders (wholesalers and retailers) will be hassle-free from cash flow problems, as they are no longer required to submit GST output tax while waiting to claim back the GST input tax. During GST, many traders imputed refunds into their pricing because of the delay in GST refunds. This was partly blamed for the cascading cost pass-through and price increases onto consumers.

For SST, 38% of the goods and services in the Consumer Price Index (CPI) basket are taxable compared to 60% under the GST.

It is estimated that up to RM70bil will be freed up to allow consumers to spend more.

Expanded scope

The proposed service tax regime has a narrower base (43.5% of services is taxable) compared to the GST (64.8% of services is taxable).

Medical insurance for individuals, service charges from hotel, clubs and restaurants as well as household’s electricity usage between 300kWh and 600kWh are not taxable. However, the scope of the new SST has been expanded compared to the previous SST. Among them are gaming, domestic flights (excluding rural air services), IT services, insurance and takaful for individuals, more telecommunication services and preparation of food and beverage services as well as electricity supply (household usage above 600kWh).

For hospitality services, the proposed service tax lowered the registration threshold of general restaurants (not attached with hotel) from an annual revenue of RM3mil under old service tax regime to RM1.5mil, resulting in expanded coverage of more restaurants.

Private hospital services will be excluded under the new SST regime.

How does SST affect consumers?

Technically speaking, the revenue shortfall of RM23bil between SST and GST is a form of “income transfer” from the Government to households and businesses. This is equivalent to tax cuts to support consumer spending.

Will it lead to higher consumer prices?

The contentious issue is will the SST burden households more than that of the GST? It must be noted that the cost of living not only encompasses prices paid for goods and services but also housing, transportation, medical and other living expenses.

The degree of sales tax impact would depend on the cost and margin (mark-up) of businesses along the supply chain before reaching end-consumers.

The coverage and scope of tax imposed also matter.

As the price paid by consumers is embedded in the selling price, this gives rise to psychology effect that sales tax is somewhat better off than GST.

The good news to consumers is that 38% of the goods and services in the Consumer Price Index (CPI) basket are taxable compared to the 60% under the GST.

Technically speaking, monthly headline inflation, as measured by the Consumer Price Index, is likely to show a flat growth or even declines in the months ahead.

It must be noted that consumers should compare prices before GST versus the three-month tax holiday (June-August).

Generally, consumers perceived that prices should either come down or remained unchanged as the sales tax is levied on manufacturers.

On average, some items (electrical appliances and big ticket items such as cars) would be costlier when compared to GST and some may come down (new items exempted from SST).

Nevertheless, we caution that consumers may experience some price increases, as prices generally did not come as much following the removal of GST in June.

There are concerns that prices may still go up in September when the new SST kicks in as irresponsible traders may take advantage to increase prices further.

Household consumption, which got a big boost during the three-month tax holiday in June-August, could see some normalisation in spending.

The smooth implementation of the new SST, accompanied by strict enforcement of price checks and the curbing of profiteering, especially for essentials goods and services consumed by B40 income households, are crucial to keep the level of general prices stable.

Strong consumer activism with the support of The Federation of Malaysian Consumers Association and the Consumers Association Penang as well as the media must work together to help in price surveillance and protect consumers’ interest.

Credit to Lee Heng Guie - comment

Related post:

GST vs SST. Which is better?