Hard decisions to put economy right

Publication: NSUNT

Date of publication: Oct 27, 2013

Section heading: Main Section

Page number: 020

Byline / Author: By A. Jalil Hamid

ON her gross monthly salary of RM4,000, one mid-level manager at a private university in Kuala Lumpur saves just RM500, after deducting her basic expenses such as housing loan, food, pre-paid phone cards and other basic necessities.

The 30-something has to change two buses to get to her office. She spends a minimum of RM10 a day on public transportation, plus another RM5 for lunch. Given her tight budget, she seldom spends on movies or shopping. Once a month, she goes out for dinner at a restaurant.

The 2014 Budget, unveiled on Friday, will certainly touch her and millions of ordinary office workers, some struggling to make ends meet in the face of the rising cost of living.

It was certainly a tough balancing act for budget planners, faced with the twin challenge of pushing for fiscal consolidation and prudence while trying to ease the burden of the lower and middle-income groups following escalating costs.

Almost 80 per cent of households in the country earn less than RM7,000 a month, of which 40 per cent earn RM3,000 and below.

All in, the government will spend RM4.6 billion on cash handouts, benefiting 7.9 million people.

But far from being too loaded with goodies, Prime Minister and Finance Minister Datuk Seri Najib Razak deftly used the budget to push through bold economic reforms that have won praise from investors and market analysts.

He has shown that he was willing and prepared to make hard decisions to put the economy on a firmer path, while dealing with past legacies such as the whopping subsidy bill that has plagued his predecessors.

After winning his own mandate governing the nation and reinforcing his hold on his party, Najib moved quickly to strengthen his grip to improve government finances and avert a credit rating downgrade.

In September, Najib lowered subsidies on petrol and diesel for the first time since 2010 and delayed some public projects after Fitch Ratings cut Malaysia's credit outlook to negative.

And on Friday, he pushed through the politically sensitive Goods and Services Tax (GST), removed the sugar subsidy and trimmed further the yawning fiscal deficit.

Malaysian stocks, bonds and the ringgit jumped last week on optimism Najib would take further steps after the Fitch review, citing rising debt levels and a lack of fiscal reform.

The "budget will be an important input to Fitch's ongoing assessment of Malaysia's public finances and broader sovereign credit profile", Andrew Colquhoun, head of Asia-Pacific Sovereigns at Fitch, said in response to the budget announcement.

"However, Fitch expects it will be important to monitor the implementation and execution of budget measures over time."

The budget is a "step in the right direction for Malaysia", according to rating agency Standard and Poor's.

The Malaysian International Chamber of Commerce and Industry gave Najib a healthy "A minus" for the budget for coming out with a measure of certainty and boldness.

An immediate task for our economic planners and Finance Ministry officials is to get a strong buy-in from the public on the proposed introduction of GST, which is fixed at six per cent, effective April 1, 2015.

The opposition is all out to stoke public anger over the tax measure, telling the people it could pose a bigger burden to them and create inequality among consumers.

A comprehensive and well-thought out public education campaign, needless to say, has to be crafted and executed well. It should put forward a clear and consistent message that GST is much fairer than the existing sales and services taxes.

Being a game-changer for Malaysia's tax system, GST will be discussed, debated and argued for months to come.

What is certain is that there is a strong political will to see through the tax implementation. Now, it is time to get it off the ground.