PETALING JAYA: The private sector and government-linked companies need to be roped in to revitalise the economy badly hit by the Covid-19 pandemic, said economists.
They said tax reforms will also help put the country back on track to recovery.
Damansara MP Tony Pua, who was also the former political secretary to ex-finance minister Lim Guan Eng, said the government would not be able to revive the economy on its own.
He said this was because the government only contributes about 15-20% of total revenue in the country.
“Even if you double the expenditure, which means a 100% deficit, that still only works out to 30% of the entire economy.
“The point here is the government needs to make sure it doesn’t fall into the trap of wanting to compete in terms of spending in order to stimulate the economy,” he said in an online forum organised by the Institute of Democracy and Economic Affairs (IDEAS).
He said Putrajaya should instead focus on the private sector and GLCs to increase their involvement in revamping the economy.
“Crowding out is an issue when the economy is booming and the GLCs compete for scarce resources from the private sector.
“The problem we have today is the reverse — resources are not that scarce any more and they are waiting to be utilised. This is when GLCs should actually be activated (to stimulate the economy), particularly during the crisis.
“It is during the boom time when the GLCs should actually pull back so that the private sector can grow more.”
Meanwhile, Permodalan Nasional Berhad (PNB) Research Institute CEO Intan Nadia Jalil spoke of expanding the social safety net. She said there was no clear indication of when the economy might start recovering.
“Ideally, it’s when the vaccine is widely available but this won’t be for another 18 to 24 months,” she said.
“There will be an extended period of time that the government will really have to step in, particularly in terms of providing a more expanded social safety net, which is a challenge given the limited fiscal space that we have.”
Meanwhile, Richard Record, a lead economist from the World Bank, said Malaysia went into the Covid-19 crisis with a small fiscal space and a lot of debt. The Malaysian government’s contribution to the national GDP was also very small compared with other high-income economies.
However, globally, Malaysia has a slight comparative advantage in various export markets that may become more attractive in light of the pandemic, he said.
For example, he said Malaysia produces about 65% of the global demand for sterile rubber gloves, an essential part of personal protective equipment for frontliners.
Questions about the stimulus package
Meanwhile, Pua questioned the effectiveness and efficiency of the RM260 billion Prihatin economic stimulus package, announced by the government in April.
“Some spending looks good on paper but are terrible in practical terms because they never get implemented.”
He questioned the composition of the package and how much of it was accessible to the productive sectors in the national economy.
“How much of it is handouts to politically connected parties just to do something — this is leakage. How much of it is wasted?”
Speaking on the RM12 billion wage subsidies for small and medium enterprises (SMEs), he said the finance ministry had only approved RM2.4 billion so far.
“What are the reasons? If companies don’t need it and didn’t bother to apply, then that is good news for us. But if it’s because it’s too cumbersome, then the RM12 billion is a made-up number.”
Record agreed, adding that there was debate over the regressiveness of withdrawals from the Employees Provident Fund (EPF) under the Prihatin stimulus package.
He raised questions over the EPF withdrawals as there was a huge population of Malaysians who were self-employed, with either no, or very little, EPF savings for withdrawals.
More taxes for government revenue?
Meanwhile, on the issue of reforms to the tax system, Pua said the former Pakatan Harapan (PH) government was previously working on improving the under-collection of taxes.
He attributed this under-collection to “some form of a shadow economy” — which was quite large in Malaysia —whereby people do not declare their income.
He said one of the plans was to introduce a compulsory personal income tax number in 2021 to ensure greater compliance. This would require individuals to state their personal income tax number in financial documents, such as bank loan forms, so they may be identified and traced.
He also suggested that the government should also start implementing the capital gains tax (CGT), which taxes the profits generated from the sale and purchase of assets such as stocks.
“There are plenty of countries with CGT in the world, like Australia, US and UK. And some of these countries are the most economically entrepreneurial.
“We need to get away from this fixation that the CGT will kill the economy.”
On a similar note, Record added that there should be even more reforms to the tax system. “There are far too many types of relief on the real property gains tax (RPGT) as well.”
He noted that there was still a large number of items currently rated at 0% under the sales and services tax (SST), giving an example of higher-end seafood such as smoked salmon.
“We know these items are not being consumed by the B40, so they should not be 0%.”
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