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PETALING JAYA: Economists are of the view that a comprehensive fiscal reform is essential to put the Malaysian economy on a firmer footing.

Such reform would have to entail, among others, a reduction in the deficit, raising productivity and a review of the subsidy regime, according to UiTM Sabah lecturer Firdausi Suffian and Bait al-Amanah research director Benedict Weerasena.

These reforms, they said, could start with the tabling of Budget 2023 tomorrow.

Prime Minister Anwar Ibrahim will be tabling the new iteration of Budget 2023 in his capacity as the finance minister in the Dewan Rakyat.

Firdausi said reform is not purely about redirecting resources to selected sectors. “It is more about how the government manages its money,” he told FMT Business.

 

 

“Management means more effective spending, greater transparency and cleaner bidding processes.”

On the subsidy programme, Weerasena said while it is regressive, the government must go for an incremental transition to a targeted model to avoid inflationary impact.

He noted that the cost-of-living pressures are likely to persist this year, especially surrounding food items.

“This will lead to a disproportionate adverse impact on lower-income households,” he told FMT Business.

A more targeted subsidy programme would ensure that those in the lower-income group were the primary beneficiaries, he said.

While economists do not foresee a major drive to broaden the government’s revenue base, Firdausi said there is a need to enhance productivity.

“Investing in infrastructure, simplifying institutional processes, research and development as well as reskilling and upskilling of labour will increase competitiveness,” he said.

This would have a knock-on effect on the gross domestic product (GDP). “A higher GDP would result in higher tax revenue for the government,” he said.

Firdausi said efforts to enhance productivity would also send the right signals to potential foreign investors.

However, the economists also cautioned against pursuing expansionary objectives in the first post-Covid-19 budget given that any irresponsible accumulation of debt would put a burden on future generations.

“A recovery driven by unproductive government spending will only lead to other problems, such as rising debt and inflation, in the long run,” Weerasena said.

He said growth is better driven primarily by investments rather than government spending or domestic consumption.

“Making it easier to do business by enhancing regulatory frameworks, banking structures and labour-related legislation will attract wider and higher-quality investments,” he said.

Geoffrey Williams of the Malaysia University of Science and Technology agreed that an expansionary budget is a bad idea.

“Increasing spending in line with inflation is sufficient so long as it is reprioritised. Many of the priorities (related to Covid-19) are no longer necessary,” he told FMT Business.

He said steps must also be taken to reduce wastage and corruption.

On the issue of cost of living, Weerasena and Firdausi agreed that it is necessary to liberalise the food sector to ensure fair prices for consumers.

“Price control is not the best approach to address food inflation. It reduces the incentive to raise production, leading to diminished supply as evident in the shortage of eggs recently,” Weerasena said.

Williams urged the government to continue with plans to do away with the requirement for approved permits for more food items beyond the four announced in May 2022.

Finally, Weerasena said, efforts to promote the formation of free trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership should continue.

This will make the market more competitive, thereby lowering prices and enhancing food security, he added.

Source: https://www.freemalaysiatoday.com/category/highlight/2023/02/23/reforms-needed-to-improve-economic-prospects-say-economists/