My Say: Cash handouts should not go on indefinitely

-A +A

THE IMPLEMENTATION of the Goods and Services Tax (GST) in April 2015 is expected to rake in a revenue of RM23.2 billion for the government in that year. However, on a net basis, the government will see only a RM690 million addition to its coffers, mainly because some RM22.5 billion will be deducted via the abolition of the sales and service tax (RM13.8 billion) and GST exemption (RM3.8 billion). Additionally, RM4.9 billion will be channelled back to the people through assistance programmes such as Bantuan Rakyat 1Malaysia (BR1M).

The bulk of the money will be spent on BR1M with the amount given out raised to RM950 from RM650 for households with an income of RM3,000 and below and to RM750 from RM450 for those with income of between RM3,000 and RM4,000.

Since 2015 is the first year of GST implementation, it is only expected that the government will need to increase its assistance to the people, especially those in the lower-income group.

Such handouts and assistance, however, can only be a short-term measure to address the economic hardship of the people when prices rise, which most economists opine should be one-off, although it will take time to filter through to the rest of the economy.

This means that inflationary pressures will be felt the most in 2015 and early 2016, and projections are for inflation to peak at 4% towards the later part of 2015. By the second half of 2016, inflation should taper off, economists say.

For the longer term, it must remain clear that the objective of the government in implementing GST is to raise its revenue in order to reduce a fiscal deficit that has persisted for 16 years. At the same time, GST will help bring about a more equitable tax structure because no one will escape the tax. We are all consumers, whether rich or poor.

For sure, safety nets for the poor are needed but they should not go on indefinitely. This is where a timeline to phase out such assistance would have made the government’s policies clearer.

Indications are BR1M will continue for several more years, at least until the next general election.

Yet, cash handouts are not be in line with Malaysia’s Economic Transformation Programme (ETP), which aims to take the country into the high-income bracket by 2020.

Success is on the assumption that all the ETP initiatives to address the structural weaknesses in the Malaysian economy are not watered down but implemented according to schedule. It is also predicated on more equitable income growth across the board.

The rationale is simple: put more money in the people’s pockets through strong economic growth and wealth creation and there will be less need for handouts.

While on the subject of the ETP and economic growth, Prime Minister Datuk Seri Najib Razak has introduced more development blueprints in Budget 2015 — Services Sector Blueprint and Malaysia National Development Strategy (MyNDS), which will accompany the 11th Malaysia Plan (2015-2020).

The reason for MyNDS is that it will be the key basis for the planning and preparation of programmes and projects under the 11MP.

“The emphasis is on using limited resources optimally, with focus on high-impact projects and programmes at low cost as well as efficient and rapid implementation. This means Budget 2016 will be the trigger for the final five years of Malaysia’s progress to a high-income advanced economy by 2020,” said Najib.

If we hark back to the New Economic Model and the ETP when they were introduced in 2010, among the key objectives were boosting productivity through efficient use of resources and implementing high-impact projects to generate employment and income growth. The Performance Management Delivery Unit (Pemandu) was created to execute the implementation of the programmes.

It is not clear at this point where MyNDS fits into the ETP. The ETP is a national development and economic transformation blueprint and roadmap. Going by its name, MyNDS is also a development strategy that will see through the 11MP. The policies and programmes under the plan should resonate with the ETP. With Pemandu in place, do we really need a new development strategy?

At this point, six years to 2020, it is a good time to take stock of how much has been achieved so far. Structurally, is the Malaysian economy on a stronger footing to get out of the middle-income trap? Is income growing fast enough to wean the people off needing cash handouts and other forms of aid?

GST, after all, works better when an economy is doing well.

This article first appeared in The Edge Malaysia Weekly, on October 13 - 19, 2014.