In its most recent consumer outlook report, Fitch Solutions, the research arm of international ratings agency Fitch Group, raised doubt over the Malaysian government’s ability to finance current and future stimulus packages due to the various constraints it is facing.
It added that any future stimulus that is announced is not likely to top the aid measures introduced last year, during which RM305 billion in aid was rolled out, including RM55 billion in direct fiscal injection.
Carmelo Ferlito, CEO of the Center for Market Education, said he too had long been concerned with the government’s long-term plan to finance aid measures, particularly as lockdowns had been prolonged and the economic situations of the people and businesses had worsened.
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“A targeted protection strategy paired with targeted investments in healthcare and pharmaceutical research could have been not only cheaper, but would have also avoided destroying the economy so aid packages would not be necessary,” he told FMT.
At this point, he said, raising taxes would not be wise given the way many are struggling.
Acccording to Ferlito, additional borrowing might be the government’s only option although it was approaching the 60% debt-to-GDP threshold.
“The government would thus have to swallow all the negative consequences that will appear over the years as a result of taking on more debt,” he said.
Ferlito added that after recovery from the pandemic, the government would need to reintroduce the goods and services tax (GST) to address Malaysia’s “chronic issue” of a small tax base.
“GST should not have been abolished in the first place. I think there is a general agreement on reintroducing it, maybe a multi-layered one.
“I’d also propose that the excess collection between SST and GST should be entirely spent on strengthening the healthcare system,” he said.
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Geoffrey Williams of the Malaysia University of Science and Technology (MUST) agreed that taking on more debt to finance aid packages was a feasible option if the government was low on funds, as would be the creation of new money.
“I don’t think the consequences would be dire provided Malaysia’s growth rate after the pandemic exceeded the cost of borrowing,” he said.
Willams noted that direct fiscal injection made up less than a fifth of the government’s aid measures, with the rest coming by way of policies such as those allowing EPF withdrawals and loan moratoriums.
This meant the government should be able to afford to finance aid going forward, he said.
He added that widening the country’s tax base through a form of GST must be on the long-term agenda and so too should adjustments of tax rates to be on par with other countries.
“For the moment, however, tax reform is not a priority because the situation is critical for so many companies, especially micro, small and medium enterprises in all sectors.
“The emphasis must be on ending the lockdown as soon as possible. Then activity will rise, tax revenue will rise and the need for government stimulus will recede,” he said.
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