Date of publication: Nov 15, 2013
Section heading: Business Times
Page number: 016
Byline / Author: By Lidiana Rosli
KUALA LUMPUR: THE public needs to look at the bigger picture instead of just thinking of price hikes when it comes to the implementation of the goods and services tax (GST) in 2015.
"It is normal for us as consumers to just think about ourselves. It is normal to be concerned with how theGST will affect us and think that things like 'fiscal deficit' are but foreign words applicable only to the government and not us," Malaysian Rating Corporation Bhd chief economist Nor Zahidi Alias said at the Business Times Insight series on GST: Are Malaysians Ready? here, yesterday.
He was commenting on a remark by a member of the audience that the fiscal deficit is not a matter of public interest.
"But really, a country's economic problems such as deficits are a matter of public interest. If not properly addressed, they will eventually lead to economic calamity in the long term. And should this happen, everyone will be affected as jobs will be gone, unemployment will go up and prices will escalate. At the end of the day, Malaysians will have to pay a heavier price," he said.
The rationale for the implementation of the GST has always been to fix the fiscal deficit, which currently stands at four per cent. It was at 4.5 per cent last year.
"Earlier this year, Fitch Ratings downgraded Malaysia's sovereign outlook from 'stable' to 'negative', and one of the reasons behind the downgrading is the revenue we're generating in relation to the gross domestic product (GDP).
"The country's revenue to the GDP has been about 25 per cent for the last three years, which is lower than the country's rating band of 'A'. If you compare our revenue to Poland or South Korea, which shares the same rating band, the average revenue for these countries are about 35 per cent of compound growth rate (CGR).
"Prior to the Asian Financial Crisis between 1990 and 1997, revenue was growing at 12 per cent of CGR while expenditure was growing at nine per cent. However, in the 10 years between 2003 and 2012, it was the other way around. Revenue was growing at nine per cent of CGR, while expenditure was growing at 12 per cent, so it is no surprise that we have had this fiscal deficit for the last 15 years," Nor Zahidi explained.
He said in order to tackle this problem, the government has begun trimming and rationalising subsidies that stood at RM44 billion in 2012 and growing by 36 per cent per year.
It has also turned to the GST as an additional revenue generator in order to diversify Malaysia's revenue stream, which is too reliant on oil-related industries that currently provide one third, or 23 per cent, of the country's revenue.
"Research houses have projected that the country will be able to generate about 50 per cent more than the current revenue in the first year of the GST is implemented. By 2020, the estimated figures will double or triple that in 2015, but will that be enough?" said the chief economist.