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Wednesday, October 23, 2013
Urgent need for measures to boost long-term fiscal sustainability
Posted on October 23, 2013, Wednesday
KUALA LUMPUR: The need for measures to boost long-term fiscal sustainability is urgent and the 2014 budget will be an opportunity to set the stage for the introduction of more significant measures.
Key measures which are expected to be announced in Friday’s 2014 Budget includes the gradual removal of distortionary energy and food subsidies and the phasing in of a goods and services tax (GST) as well as further rationalisation of tax incentives.
“We expect the government to adopt a GST of five per cent,” said Nomura Holdings Incorporated in a special report titled ‘Malaysia – At a Fiscal Crossroads’.
However, Malaysian Rating Corp Bhd Chief Economist Nor Zahidi Alias said the initial rate of GST should not be too high as it may affect both consumers and the business sentiment.
“The experience in Japan in 1997 has taught us that a high rate would temper private consumption, which we should avert especially at a time when the external sector remains fragile,” he told Bernama.
The government would also be able to gauge the impact of a relatively low rate on the country’s inflation rate, added Nor Zahidi.
In April 1997, the Japanese government raised the consumption tax to five per cent from three per cent, resulting in the country’s economy sinking into a recession. — Bernama