Debt, revenue and subsidy management key to economic stability, says economist
Published on: Thursday, December 21, 2023
By:
Jason Thomas, FMT
Economists welcome the government’s efforts to manage debt and increase income streams towards further stabilising the economy. (AP pic)
PETALING JAYA: The government’s commitment to managing debt, increasing income streams, and rationalising subsidies is commendable for its foresight and responsibility towards economic stability and social equity, says an economist.
Universiti Malaya senior lecturer Goh Lim Thye said while measures such as the 2% hike in the sales and service tax (SST) might not be “politically favourable”, it would help strengthen the country’s fiscal health.
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Goh also hailed the passage of the Public Finance and Fiscal Responsibility Bill 2023, a key feature of which is the requirement to publish a mid-year expenditure performance report and a fiscal risk statement.
There are four targets under the new legislation passed by the Dewan Negara on Nov 27, the first of which is to keep the annual development expenditure at 3% or more of the GDP. The second objective is to keep the fiscal deficit at 3% or less over the next three to five years.
The third objective is to keep the debt level at not more than 60% of the GDP in the next three to five years. Lastly, the government plans to keep its guarantees or contingent liabilities at not more than 25% of the GDP. The average over the past eight years has been 17.8%.
“These measures are expected to foster stronger accountability in fiscal management, ensuring more transparent and effective budget planning,” said Goh.
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“By taking these steps, the government is setting a precedent in prudent fiscal management, aiming to secure a more stable and sustainable economic future.”
On the government’s efforts to increase revenue, Goh noted that enhanced tax collection was a prominent feature of the 2024 budget.
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He said key measures include raising the SST from 6% to 8% and introducing a capital gains tax (CGT) at a rate of 10% on net profits from the disposal of unlisted shares by local companies, effective March 1, 2024.
Goh also voiced hope that the additional revenue generated would be efficiently redirected to aid those in need, ensuring a more balanced and supportive approach to national economic growth and social welfare.
He added that the government’s recent initiative to revamp its subsidy system, particularly concerning RON95 petrol, reflected a “nuanced approach” to social and economic policy.
Last month, economy minister Rafizi Ramli said the government would introduce a targeted subsidy mechanism for RON95 in the second half of 2024 to “those who need it most”.
Rafizi has also said Putrajaya is considering three types of targeted subsidies – individual, households, and card-based – to be introduced by next March.
Meanwhile, economist Barjoyai Bardai of Universiti Tun Abdul Razak said targeted subsidies were a step in the right direction for fiscal management as they would help cut down on wastage and tackle smuggling.
He also said the current subsidy system benefitted high-income groups as the B40 income group consumed much less petrol than their richer counterparts.
“It’s a good initiative as we want to reduce or eliminate wastage,” he said.
“For example, diesel… There is a lot of manipulation and smuggling via the sea, and that is a very serious thing.”
On methods to boost government revenue, Barjoyai said the recently introduced electronic invoicing (e-invoicing) system would result in greater transparency within the shadow economy.
“We have a shadow economy worth RM300 billion, and if the government can tighten this up, it can get a sustainable source of revenue.”
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