By Daniel N. Ansari
Many of my peers have been asking me how the Malaysian economy is going to master its financial challenges post abolishing GST and reintroduction of subsidies. It seems that most are very concerned since GST is the second highest nominal revenue stream of the Federal Government, and the currently projected budget deficit of Malaysia doesn’t seem to allow room for further financial burdens such as subsidies or reduction of taxes and levies.
Although it is not customary for our organization to publish opinions, I have been fortunate enough to be able to convince my Organization to allow my statement to be published outside of our closed circle of members and associates. I sincerely thank our president and the esteemed members of the council for making this exception.
I will try and formulate my answers and views addressing the main concerns in bullet-points, as brief and concise as possible.
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The GST was hastily introduced by the previous administration on April 1, 2015 to fill large gaps in the Federal budget due to fiscal mismanagement by the previous administration that could not be filled without change of policies.
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The very un-coordinated, unresearched and flawed implementation of GST caused many new gaps to open-up and its net result on the National economy seems to be less than desired, if not outright negative.
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The previous administration was extremely wasteful with cash handouts to ensure and buy the support of the lower income households, which didn’t achieve much other than inflationary pressure and thereby not being meaningful as an offset mechanism for scrapping directed and focused subsidies.
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The gaps in the Malaysian Federal Budget were partially a consequence of heavy foreign & national currency interest payment obligations of the Government for direct & indirect debt of the Federal & State Governments, since the previous administration was focused on heavy Government borrowings rather than allowing the private sector to participate and invest in the development push.
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The lower Oil prices of the preceding years resulted in a significant drop in tax and royalty revenues from Petronas and other Oil & Gas companies, as well as agricultural related industries which constitute a considerable portion of the Malaysian economy.
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The prominent factor contributing to the deteriorating finances of the Malaysian Government was a result of rampant and uncontrolled kleptocracy and corruption at all levels, as well as lack of proficiency of previous officials. Those became the trademark of the previous administrations, both at State and Federal Level.
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Most borrowings were for seemingly arbitrary and less sensible projects of the Federal and State Governments, which in my opinion were motivated by individual and institutionalized greed factors, with a focus on commission and fee generation rather than being supported by sound macro and micro economic principles.
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Tun Dr. Mahathir has proven in the past that a wisely managed economy, streamlined and focused Public and Private Partnership Investments based on sound and well researched business and repayment concepts can lighten the financial burden of the Government and ignite the entrepreneurial revolution that made Malaysia’s economy to become one of the most promising and leading economies among the developing Nations.
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My Team & I assess the Malaysian private sector’s condition as solid, dynamic and resilient. Curbing foreign contractors and re-directing contracts to Malaysian PLCs will likely result in the same positive effects as in the period of 1980s to mid-2000s, providing another round of boost to the Capital Markets and Malaysian Exchanges. Such will increase market demand for the Malaysian Ringgit, thereby supporting and stabilizing the national currency, and rebuilding of the Central Bank’s currency reserves.
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Budget and fiscal discipline, curbing corruption and introducing transparency and checks and balances will reduce the budgetary constraints and certainly result in improvement of the Government’s cash flow in the immediate future.
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I deem Malaysia’s Federal Government’s revenues to be sufficient and robust enough to offset re-introduction of limited and focused subsidies and to replace GST with SST, if fiscal discipline and meticulous planning is enforced.
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Re-Introduction of the single stage Sales & Services Tax (SST), being a far simpler and very directed system, will provide much needed relief to the consumer, since the mutli-stage GST has increased consumer prices and caused large administrative costs and constraints throughout the value chain. Consumers and small business owners are burdened with the accumulated costs and levies throughout the value chain, thereby reducing the median purchasing power of the consumers.
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Higher oil and by correlation agricultural products prices are expected to increase Government and private sector revenues 2018 onward.
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The focus of the current Prime Minister is to counter the reduced purchasing power of Malaysians by increasing domestic contributions to GDP versus uncontrolled and expensive foreign currency borrowings as seen during the previous administrations.
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Tun Dr. Mahathir seems focused on the well-being of Malaysia and Malaysians and not in frantic pursuit of numbers reported to IMF and World Bank, which have proven to mean little to the psychological and subjective consumer and business managers’ sentiments.
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International investors confidence in Malaysia or any other country is a mere reflection of the domestic confidence expressed by consumers and businesses.
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An increase in Median Purchasing power will trigger the much-needed perception of betterment, and thus will result in return of Foreign investments, of which a fair portion will be invested via the Malaysian Stock Exchange and capital markets, which translates to higher demand for the Malaysian Ringgit.
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Even though Tun Dr. Mahathir is not formally an economist, I as an economist and seasoned Investment Bank executive can attest that he proved me and my colleagues to be wrong many times prior to 1998 and it took us more than a decade to understand his very special, unique and unconventional economic philosophy and compassionate approach. He puts the people’s wellbeing and purchasing power on top of his agenda compared to most economists and analysts using standard Western models and looking at mere numbers.
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Tun Dr. Mahathir has once again surrounded himself with seasoned and tested capable brains beyond partisan divides, i.e. Tun Daim Zainuddin, Robert Kuok, Tan Sri Zeti Akhtar Aziz, Dr. Jomo Kwame Sundaram and Tan Sri Hassan Merican, which should provide grounds for renewed confidence in the future of the National economy of Malaysia.
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I am certain that Tun Dr. Mahathir has returned to the helm of the Nation to ensure his Vision 2020 will become reality, on time and in totality. I for one don’t doubt this giant of a man and resolute leader to achieve his final goal before handing over the Nation’s fate to younger and capable leaders, while having reformed the system to a point that no one man or party can ever again derail the development of the Nation.
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I advise the International Investment and Financial community to have faith in Malaysia. Malaysia has a lot more to offer, and vast unrealized potentials than the current numbers may show.
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I am certain that the Malaysian business community that has been ever more divesting from Malaysia and going abroad will gradually return to Malaysia, mainly based on offered opportunities and improved domestic sentiments, and do their part to rebuild their beloved Nation and accelerate her further development.
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I advise the Malaysian Government to pay attention to increase of proficiency at all public and private levels, which will result in ever-increasing efficiencies.
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I wish all Malaysians and the coalition of hope all the best in the New Malaysia and can only say Malaysia Boleh!
Ever faithful
Daniel N. Ansari is Group CEO of Knight Group International for Asia Pacific, research fellow of KnightGroup.ORG Center for Strategic Planning and Proficiency Studies and visiting fellow of VoVo Research. His research fields include Macro Economics, International and Constitutional Law, Development and Security Studies among others.
Disclaimer:
The views expressed in this publication do not necessarily reflect the views of Knight Group International or its Worldwide Community KnightGroup.ORG.