KUALA LUMPUR, Aug 18 — Businesses and economists are generally satisfied with Pakatan Harapan’s (PH) performance in its first 100 days as government, but called for more coherent policies and a friendlier business environment.
Asian Development Bank lead economist Jayant Menon praised the maiden PH government’s work in ensuring long-term sustainable economic growth by trading off short-term gains, such as by reviewing several large-scale infrastructure projects.
“Although this can result in short-term negative sentiment that can affect financial and currency markets, it bodes well for long-term economic growth and overall macro stability,” Jayant told Malay Mail.
“I think the PH government has got off to a good start in its first 100 days, but this is not a race. Real reforms and their implementation is a journey that will take a lot longer.”
Prime Minister Tun Dr Mahathir Mohamad’s administration has so far suspended three China-backed projects — the East Coast Rail Link (ECRL) project that connects the west coast to ports in the east, as well as two gas pipeline projects.
The government is also reviewing the Kuala Lumpur-Singapore High Speed Rail (HSR) project.
Jayant, however, warned the government that abolition of the goods and services tax (GST), which will result in a RM21 billion revenue shortfall, and the government’s promise to increase social spending would widen the fiscal deficit despite rising oil prices.
“The current projections in the budget on an unchanged deficit is based on unrealistic assumptions, including expected revenues from GLCs (government-linked corporations). At a minimum, the government should reconsider its intention to reintroduce fuel subsidies,” he said.
The economist noted that the offset from cancelling or delaying infrastructure projects would be spread over many years.
Finance Minister Lim Guan Eng said last May that the government expected to meet its projected budget deficit of 2.8 per cent of the GDP this year, claiming that the RM21 billion gap from abolishing the GST would be partially closed by higher oil revenue, higher dividends from GLCs, reintroducing the sales and services tax (SST), and cutting spending on major infrastructure projects.
Sunway University business school economics professor Yeah Kim Leng applauded the government for prioritising critical institutional reforms, consolidating ministries, and creating a smaller government with promising talents in the Cabinet.
“As attested by immediate attention given to resolving the 1MDB scandal and the clean-up of other major financial irregularities, PH’s commitment to transparency, good governance and rule of law is key to gaining investor confidence and setting the economy on a stronger and more sustainable growth trajectory.
“Thus far, the abolishment of GST and reinstatement of the SST, while positive for consumer sentiments in terms of lower tax burden, needs to be complemented with a clearer policy and strategies on how the fiscal gap can be reduced in the coming years,” Yeah told Malay Mail, estimating the fiscal deficit in 2018 to range between 2.8 and 3 per cent of the GDP.
He also urged the government to hasten the country’s shift to a high-value, productivity-, and innovation-driven economy.
What small businesses want
Small and Medium Enterprises Association of Malaysia (Samenta) said although it was happy with the delivery of some of PH’s election promises, it expressed disappointment that the corporate tax may not be lowered.
“In our recent dialogue with the Minister of International Trade and Industry, the assurance given was that the new government will remain business-friendly and trade facilitative. We are looking forward to that being translated into policy and implementation, so that businesses can feel that on that the ground,” Samenta policy chairman Datuk William Ng told Malay Mail.
He also urged the government to resolve outstanding GST refunds before implementing the SST that is set to come into effect next month.
“As it is, many SMEs are not able to recoup the investments spent in implementing GST. We are eager to support the new Pakatan government, but the government must recognise that above all else, we need policy clarity — and the sooner the better.”
Finance Minister Lim said Wednesday that the government would return GST refunds to businesses and individuals next year, claiming that the previous Najib administration withheld GST refund payments totalling RM19 billion.
Ng also asked the Finance Ministry to release a list of taxable industries and items as soon as possible so small and medium enterprises (SMEs) can prepare for the SST.
He said prices would remain in most sectors despite the replacement of the GST with the SST, except for fashion, electronics, retail and personal services that could see a drop.
“We must remember that the SST has a compounding effect, and given the tough market condition, most SMEs will not be able to absorb fully any incremental cost,” said Samenta.
“The government is adamant with implementing another round of minimum wage rise — and this would certainly raise costs, and hence final price to consumers.”
Malay Chamber of Commerce president Rizal Faris Mohideen called for more specific plans and policies for the Malay business community, pointing out that 88 per cent of Malay companies were micro in nature (RM250,000 and below turnover a year) and 80 per cent of the bottom 40 per cent of income earners were Malays.
“The disappointment is among the Malay community right now. The rumbling on the ground is — what is the new construct as far as Malay economic development is concerned?” Rizal said.
He said many Malay businessmen were living on credit cards and had to work double jobs.
“The gravity of the pain is obviously quite serious that they’re willing to change the government. That’s a very loud message,” said Rizal.
“So our take is that the new leadership should immediately take the bull by the horns and address these issues of cost of living. What are your immediate, short term, medium, long term measures? What are the shake-ups on institutions or stakeholders that are strategic towards looking into managing the topic of Malay economic development? What kind of resources are we looking at that will help facilitate entrepreneurs?”
Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) highlighted PH’s fulfilment of election pledges like abolishing the GST and stabilising petrol prices.
“While there is still much to be done, the early commitments towards a more business-friendly environment as well as greater accountability and transparency are encouraging signs. Let’s not forget — Rome wasn’t built in a day,” ACCCIM president Tan Sri Ter Leong Yap said in a statement.