MALAYSIA is no exception. The Covid-19 pandemic has inflicted collateral damage on the economy and society, compelling painful adjustments to the new reality; and how we can be more prepared on all fronts (fiscal space, economic resilience, business vitality, health and social protection) to withstand future financial, economic and non-economic shocks such as health, geopolitical and climate change.
After enduring the painful pandemic impact for two years, Malaysia has transitioned into an endemic phase from last Friday which comes at a time when the world economy is still in turbulence.
A multitude of shocks pose significant downside risks to the global economy – the war in Ukraine, new negative supply shocks, strong inflation pressures and the ending of super easy monetary.
Global stagflation and recessionary risks threaten some advanced economies.
The economic despair experienced during the pandemic gives us an opportunity to reflect on current structural issues and constraints that require us to recalibrate and undertake politically feasible reforms to deliver a more inclusive, resilient, and sustainable future.
Leaner govt, rebuild public savingsThe government needs to fix its budget and should save during the good times and resource boom (especially high crude oil prices).
The federal government’s spending on operating and development expenditures must be closely scrutinised and prioritised to ensure that they are productive (getting good value for money in public spending); and contribute to the expansion of productive capacity in the economy.
It would be better for the government to get leaner and rebuild savings for a rainy day. We need the government to spend prudently and run budget surpluses, and add to national savings, and ramp up investments in productive assets that will boost economic growth and raise our living standards. Large fiscal space allows it to adopt counter cyclical short-term fiscal stimulus programmes.
The unsustainable deficits and public debt would have a negative effect on households’ savings as they have to pay high taxes to help fund the budget deficit and service the debt service charges. This means that persistent budget deficit constrains will lower future tax rates as it reduces tax revenue collection.
Politically feasible tax system reformsThe tax system must reward greater work efforts and productivity – relying less on labour and capital income taxes and more on consumption taxes would encourage household savings.
Reduce compliance, regulatory costsFor businesses, too many taxes, regulatory and compliance costs, notably corporate income taxes and property taxes raise costs and encourage distribution of earnings rather than reinvestment.
These taxes are expected to tilt private investment away from investing in plant, machinery, equipment and intellectual property and toward speculative and quick gains investment such as real estates.
Gaps in the education sector to utilise technology for online educationImproving the delivery and quality of online education should be a key priority, especially in the rural and less affordable households. Enhance the quality of manpower with appropriate skills through a better enhancement framework of technical and vocational education and training for serving cost and a product-competitive business and industry.
Inadequacies and inefficiencies in the healthcare sectorMalaysia’s health expenditure (both public and private spending) has been steadily increasing from 4.2% of gross domestic product (GDP) in 2016 to 4.7% of GDP in 2020.
Besides increasing public expenditure in the health sector, a universal healthcare system must be given priority.
A leaner, efficient and capable healthcare administrative structure is crucial to ensure prudent utilisation of funds for maintaining the quality of access and affordable healthcare services.
Gaps in social protection schemesSocial assistance schemes rose from 95 in 2012 to 137 in 2020.
The weak points of Malaysia’s social protection system include fragmentation and duplication of programmes.
Faced with fiscal constraints, the social protection schemes can be streamlined, have better targeting and a stronger administration mechanism and effective delivery to the beneficiaries using digital technologies.
Aged care reforms and retirement savings must be enhancedMany Malaysians are in danger of not having retirement savings to maintain their minimum standard of living during retirement.
The problem is getting worse over time and brewing the retirement crisis.
In 2020, 10.3% of the total population (3.4 million persons) were aged 60 compared to 7.9% in 2010. As the population age increases, it will become a more central aspect of any public programme to bolster national savings.
The government will be responsible for the provision of an adequate social safety net to protect as well asto supplement the essential needs of the needy elderly through the provision of subsidised public services such as public healthcare, housing, transportation, long life learning programme and community care centres for the elderly.
Malaysia needs a fundamental reform and approach to enhance the existing retirement protection system in enabling the vulnerable elderly to maintain a reasonable standard of living in their twilight years.
Maintain a clear focus on the long-term best interests of members to ensure a consistent, better dividend payment, while preserving contributors’ savings and safeguarding their interests and retirement.
Enhance proper financial planning awareness for retirement savings; create a conducive policy environment to encourage the market to develop more retirement investment financial products and wealth management such as annuity plans or retail saving bonds with a longer-term maturity; and provide tax concessions to incentivise more voluntary retirement savings.
Reset agriculture, rural farming sectorsThe pandemic-induced supply chain disruptions, climate change and a risk of food scarcity (food security) necessitates a total fundamental transformation of agriculture.
Modern and smart farming for increased productivity via a digitalised technology and developing robust supply chains for agricultural products should be key areas to focus on.
The country should have bolder farm land reforms (longer land leasing) to improve the efficiency of land allocation.
Agricultural logistics and delivery systems along the whole supply chains should be strengthened to curtail the influence of the middlemen.
We should focus on research and development in agricultural products to increase high value-added food production and export potential.
Launching of programmes such as One Village, One Product or One District could create local employment and rejuvenate rural economies.
Source: https://www.thestar.com.my/business/business-news/2022/04/04/reform-beyond-covid-19-no-time-to-waste