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This article first appeared in The Edge Malaysia Weekly on May 21, 2018 - May 27, 2018

ALTHOUGH the Pakatan Harapan coalition’s promises have won the hearts of voters in the 14th general election (GE14), it still has some work to do to convince the business community.

Sunway University Business School professor of economics Dr Yeah Kim Leng tells The Edge that an overarching concern of businesses, economists and analysts is how the 10 campaign pledges in Pakatan Harapan’s manifesto will be implemented in its first 100 days in power.

“Given their wide-ranging impact on the economy, businesses will need assurances that the new government is able to implement them effectively with the necessary mitigation measures in place to minimise disruption to businesses and government finances,” he says.

Last week, it was announced that the Goods and Services Tax (GST) will be zero-rated effective June 1.

Rating agency Moody’s has deemed an abolishment of the tax a credit negative if it is done without adjustment measures being put in place.

“If GST is eliminated, it would increase the government’s reliance on oil-related revenues and narrow the tax base,” the agency said in a statement a day after the Ministry of Finance zero-rated GST across the board.

MIDF Amanah Investment Bank chief economist Dr Kamaruddin Mohd Nor points out that the Malaysian Institute of Economic Research’s Business Conditions Index has dropped to 98.6 points in the first quarter this year from above the 100 points threshold in 2017.

“At this juncture, various key macroeconomics determinants are on the uptick. The domestic and global economies are expanding and social stability is in order. In the near term, the reform agenda pertaining to governance and accountability is critical to restore business confidence in Malaysia,” he says.

Kamaruddin adds that clear policy objectives and intended outcomes as well as well-laid implementation plans are vital for the new government to be successful with any policy introduction.

“With better communication with and feedback from various stakeholders, the execution of the key policies such as minimum wage and foreign labour will be successful. Some of the policy measures are structural in nature, thus short to medium-term adjustment periods are unavoidable to ensure that long-term goals are reached. In short, there will be short-term pain but long-term gain for the nation,” he says.

University of Tasmania Asia Institute director James Chin says restoring business confidence requires the new government to reform the civil service. “Over the last few years, the constant complaint about the civil service has been that it is not business-friendly. Second, the civil service in Malaysia, since the 1990s, behaves more like Umno branches. So, reforms must be in the civil service, which can provide certainty.”

“Another important thing is governance, because the business community has a very bad view of the government. They think there is too much corruption,” he adds.

Therefore, Chin says it is a very urgent task for the government to resolve the 1Malaysia Development Bhd (1MDB) issue. “Foreigners are saying if we don’t have rules in place to stop this thing from being repeated, then they are not able to trust the Malaysian governance system,” he says.

Penang Institute research fellow Wong Chin Huat says cleaning up 1MDB would send a clear message that no one is too high up to be investigated and prosecuted.

Wong says there is an urgent need for a reform of the judiciary and the separation of the Public Prosecutor’s role from that of the Attorney General’s. “That is a key condition for the rule of law — namely, that businesses won’t be punished by the use of laws for having wrong political connections.”

As for consumers, Sunway University’s Yeah says while the removal of GST and reinstatement of fuel subsidy will help to ease the immediate burden of rising cost of living, the reforms should also give equal focus on generating good-quality, high-paying jobs and income opportunities, particularly for the low-income group.

“The supply-side reforms can be prioritised in two streams, namely the government-linked companies (GLCs) and the private sector,” he says.

Besides shaping up the underperforming GLCs and revisiting their role, mandate and relevance in the new economy, Yeah says the government will need to fine-tune existing policies to be more market and business-friendly, be in line with the needs of the digital economy, reduce regulatory burden, improve public services and delivery systems and further strengthen the investment climate.

“By fostering a dynamic business environment, firms will be forced to continuously raise productivity and move up the value chain whereby they will be able to pay higher wages while keeping prices low to maintain purchasing power of the people,” he says.

 

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