Lingering dissatisfaction with Unity Government's economic performance

02 Dec 2023 07:17pm
The government will implement a targeted subsidy programme for RON95 in 2024. (Small image: Rafizi Ramli)
The government will implement a targeted subsidy programme for RON95 in 2024. (Small image: Rafizi Ramli)

SHAH ALAM - Despite a year in power, the Unity Government continues to face public dissatisfaction, particularly regarding its economic performance.

A recent Merdeka Centre survey revealed a decline in approval ratings for Prime Minister Datuk Seri Anwar Ibrahim.

Former Health Minister Khairy Jamaluddin criticised the government's failure to deliver on its election manifesto promises, citing the weakening ringgit, rising essential goods prices, and supply chain disruptions as evidence of the economic burden on the people.

While the government has taken steps to restructure the economy, such as increasing the sales and service tax (SST) and introducing new taxes on luxury goods and capital gains, these measures have only marginally addressed the underlying economic structural issues.

The central debate revolves around rationalising subsidies, particularly reducing fuel subsidies for gasoline and food.

The government has removed electricity subsidies for the T20 group and lifted price controls on chicken and eggs, but a comprehensive plan for targeted fuel subsidies remains elusive.

Fuel subsidies, amounting to an estimated RM28 billion annually, represent a significant government expenditure.

Providing extensive retrogressive subsidies is unsustainable for a middle-to-high-income country like Malaysia.

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Economy Minister Rafizi Ramli has mentioned plans for targeted petrol subsidies, but concrete details have yet to be released.

Questions arise about the effectiveness of this system and whether it will truly benefit the most marginalised groups.

A 2018 Universiti Utara Malaysia (UUM) study found that the government's fuel subsidies disproportionately benefit the M40 and T20 income groups due to substantial leakage to higher-income earners.

Immediate withdrawal of subsidies, however, risks triggering strong political reactions, as witnessed in 2008 when fuel prices surged by 41 per cent under Tun Abdullah Ahmad Badawi's administration.

The government should act promptly to reduce fuel subsidies, acknowledging the prolonged delay in implementing targeted subsidies.

A more gradual approach, involving a reduction of fuel subsidies over the next four years without targeting specific groups, could be more effective.

Expanding trade agreements with other countries and strengthening the tax system are essential steps towards economic recovery.

The government should also consider introducing more progressive taxes, such as inheritance tax, unexplained wealth tax, and a Goods and Services Tax (GST).

Prior to implementing GST, the government must enhance tax transparency, provide tax compliance risk assessments, and strengthen the tax system overall.