Prime Minister Datuk Seri Anwar Ibrahim's leadership and Cabinet have finally proven their parliamentary support after the 15th General Election was held about a month ago. His unity government consists of leaders from multiple political parties, and most Cabinet members, including himself, have prior government experience. With Anwar himself helming the post of Finance Minister, Rafizi Ramli as the Economy Minister, and Tengku Datuk Seri Zafrul Tengku Abdul Aziz as the International Trade and Industry Minister, including Petronas former president and CEO Tan Sri Hassan Marican as the leading economic advisor, people inevitably place high hopes on them, and expect the new government to lead the country out of the current plight of high prices and the economic downturn as soon as possible, and embark on the road to recovery.
Let me share some of my thoughts and suggestions from an economic perspective. We know that when the economy improves, people's livelihoods will naturally improve, especially in terms of rising prices. Besides, the political situation will also stabilise. So, it is of utmost importance for the new governments to stabilise and revive the economy and restore the confidence of foreign and local investors.
The three-year pandemic, the war between Russia and Ukraine, the tension between China and the US, fluctuating currency exchange rates, logistics interruptions and high crude oil prices that have brought about food shortages and inflation have impacted the global economy. Malaysia is no exception despite seeing a gradual economic recovery. The various aids and subsidies introduced previously to ease the people's burden during the pandemic have also affected the national treasury. Therefore, the government must formulate sustainable development policies while avoiding instability to retain and attract local and foreign investments. Increased investments can create more job opportunities and stimulate tax revenue and the GDP. In the long run, investments - especially in the high-tech and high-value-added fields - bring in relevant talents, expose our local human capital through technology transfer, and simultaneously drive the development of complementing industries and small and medium enterprises (SMEs).
Besides introducing various incentives for investors, the government must also create a business-friendly environment, avoid unnecessary red tape, and avoid U-turns or overnight policy changes. On the long-overdue labour shortage issue, the government must have a strong political will to make up its mind. When the foreign labour policy sees no improvement and our local workforce cannot fill the shortage, no preferential policies for foreign investments would help due to the labour shortage, which would eventually impact production.
According to the Malaysian Department of Statistics, the unemployment rate in the third quarter of this year was 3.7%, equivalent to 611,800 people. Malaysia currently has a conservative estimate of 2.4 million legal foreign workers; according to previous statistics, there is still a shortfall of nearly 2 million. So, even if all the unemployed locals are fully absorbed into the workplace, more is needed to fill the needs.
After the new Cabinet takes office, I hope it will collect opinions from all stakeholders and draw up a clear timetable to gradually reduce the dependence on foreign labour. They must remember to give certain assistance to business operators, especially SMEs, before solving once and for all issues that were caused by the previous flip-flops in foreign labour policies. The assistance mentioned here is not limited to financial ones. While the relevant government agencies can provide consultation and guidance regarding technical improvement and workforce retraining, the government can cooperate with suitable chambers of commerce or business groups to convey information more effectively to fellow business operators.
Following the implementation of the Regional Comprehensive Economic Partnership (RCEP), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) free-trade agreements, and the tense relationship between China and the US, many foreign capitals are shifting attention to Southeast Asia. They are looking at setting up a regional centre here. Malaysia has already lagged behind Singapore, Thailand, Vietnam and other neighbours in ratifying the RCEP. We must now catch up, especially paying close attention to the timing of China's reopening and lifting its pandemic restrictions. In addition to grasping the opportunity to enter the Chinese market, we must also strive to attract the pent-up wave of Chinese tourists travelling abroad again. We need to be prepared as soon as possible and be ready to attract Chinese tourists to enjoy in-depth tourism in Malaysia so that the industry can recover sooner.
In addition, I hope the government reviews the Malaysia My 2nd Home (MM2H) programme and does away with overly stringent conditions to attract more foreign professionals to reside in Malaysia.
For our national treasury, Malaysia has seen another increase in national debt following various monetary assistance to the people and businesses. So the new Cabinet has another pressing matter: increasing national income and staying prudent by expanding our tax base and reducing unnecessary expenditures. Anwar has set an example by not renovating his office, not changing his official car, not receiving his salary as premier, and announcing a 20% pay cut for all Cabinet ministers, among others. Of course, these are more toward setting an example and have little effect on increasing treasury revenue. In my previous analysis of Malaysia's current tax system, the national revenue is too dependent on direct taxation, which is the corporate and personal income taxes. While the scope of expanding the tax revenue is not significant and narrow base, it is not a suitable methodology for the Inland Revenue Board to increase it revenue via tax audits or investigations by assuming all taxpayers are involved in fraud. Our national tax revenue lags behind the year-on-year expenditure increase and the vast civil service system. The existing sales and service tax (SST) also cannot fill this gap due to the differing tax system.
That is why some quarters have been calling on the government to re-implement the goods and services tax (GST). After comparing the two tax systems, we can see that the GST not only brings more tax revenue to the country, but its transparent tax system can deter business people from tax evasion. Merchants and consumers can also avoid overlapping layers of taxes in the current SST. Of course, we must acknowledge the misinformation and drawbacks in managing the GST previously that had led to soaring prices and distrust among people and businesses. To re-implement the GST, the government needs a great deal of political will and determination, as well as cooperation from all relevant parties, including the media, various industrial and commercial organisations, associations and other groups. They must educate businesses and the public about implementing the GST properly to avoid backlash due to false rumours.
We can also use another term instead of "GST" to avoid public resistance or negative impressions. What's important is that we must learn from previous failures and improve the implementation of this tax system so that while it brings more tax revenue to the country, it benefits the people and businesses.
Last but not least, it is high time we put more emphasis on reforming our education and nurturing talents. We must cultivate more human capital with independent thinking skills, especially in STEM (science, technology, engineering and mathematics) as well as technical and vocational. At the same time, we must also equip the next generation with sufficient soft skills, especially in communication, teamwork and creative thinking, to compete globally.
Anwar's government is the first unity government in Malaysia's history. I hope all political parties will put the country first and build a better future for the people.
- this article is published on Star Biz "Insights" on 21st Dec 2022
Written by:
Koong Lin Loong
• Managing Partner, Reanda LLKG International
• Treasurer General cum Chairman of SMEs Committee, The Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM)