Friday, November 16, 2012

Malaysia Needs Reforms

International Monetary Fund’s Christine Lagarde (left) who was in Kuala Lumpur, said in an interview with The Edge Financial Daily that Malaysia needs to (1) speed up its fiscal reforms and (2) broaden its revenue base in order to ensure economic stability.

One comment she made was illuminating and that is pertaining to the allocation of public resources – they could be improved by “the streamlining of untargeted subsidies and wasteful tax incentives and replacing them with targeted assistance to the truly needy”.

Malaysia’s finances are regarded as among the weakest in Asia due to its high debt-to-revenue ratio and over-reliance on petroleum to finance its budget. Approximately one-third of federal government income is from oil and gas alone – contributing about RM60 billion to government coffers – and only one-third from taxes paid by companies and individuals. Taxes from individuals amounted to just RM14 billion last year while the total from companies came up to about RM40 billion. And a paltry 1.7 million out of 12.8 million working adults paid income tax in 2011 and only 130,000 companies out of 700,000 paid taxes (Webpage http://www.themalaysianinsider.com/malaysia/article/malaysia-needs-to-step-up-tax-and-subsidy-reforms-says-imf-chief/, published November 14, 2012).

Lagarde’s advice is going to fall on deaf ears. Najib Razak cannot afford to heed it because he needs to stay popular to win GE13. That is why he is delaying the introduction of GST. That explains why he is pandering to the civil service and other voting blocs. That is why he keeps spending, spending and spending. The thought of him losing his job is a more terrifying prospect for him than making Malaysia bankrupt.

Malaysians know only too well that Najib has been agonizing for over two years on when to call for the 13th general election – not because of any high national consideration but as DAP’s Lim Kit Siang said, “purely from the selfish standpoint of his own personal political survival”.

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