After ‘green light’ from Agong over austerity, how should Putrajaya juggle fiscal deficit and public welfare?

Malay Mail
Malay Mail

KUALA LUMPUR, March 19 — Putrajaya must tread lightly on any further austerity measures despite the Yang di-Pertuan Agong’s support, several academics have said amid heavy debt saddling the country and its people struggling to make ends meet.

While the experts polled by Malay Mail were in favour of frugality in government spending, they also said that the backing of the monarch should be interpreted as urging the government to be more astute with their policies.

“The path forward is a fiscal reduction path which means the government still needs to spend but only for necessary projects that benefit the economy,” economist Lee Heng Guie told Malay Mail, agreeing with the consolidation programme instituted by the unity government.

Similarly, economist Nur Ameera A Jaz from the University of Malaya’s Centre for Foundation Studies in Science said the government should prioritise austerity measures while focusing on people’s welfare via targeted subsidies.

However, Universiti Putra Malaysia’s academic Ida Md Yasin asserted that any abrupt austerity measures will hurt some groups.

“We need to set a target for a few years. We need to do it bit by bit. We cannot do it so abruptly because there will be a group of people affected,” the economist said.

Similarly, Universiti Sains Malaysia’s (USM) political scientist Azmil Tayeb has pointed to the austerity measures taken by the previous Pakatan Harapan administration under then finance minister Lim Guan Eng, which he said were not well received.

“It was not popular nor significantly benefited the people who need the help the most,” he suggested.

An increased aggressiveness in austerity measures may cost political parties their supporters, as plugging loopholes will affect some people despite being advantageous to many, his colleague from USM, Ahmad Fauzi Abdul Hamid also cautioned.

“If they are responsible politicians, they will indeed be thrifty for the sake of future generations but not to the extent of jeopardising livelihoods which are made up of real men and women. Therefore, targeted subsidies is a reasonable action,” the professor said.

Last month, Yang diPertuan Agong Sultan Ibrahim said he supports the government’s move to immediately take austerity measures including implementing targeted subsidies since the government has always been in a position of fiscal deficit since 1998.

This weak financial situation, he said, will make it difficult for the government to implement new development projects or provide financial infusions to stimulate economic growth.

Sultan Ibrahim also said he hopes that the government will be firm in curbing the leakage and misappropriation of public funds, including reviewing weaknesses in governance at all levels of statutory bodies and government-owned companies and their subsidiaries.

To address the country’s fiscal position, the government in the past year has among others raised the rate of the sales and services tax (SST) for some services, implementing low-value goods tax and luxury goods tax, and rationalising subsidies for electricity tariffs and diesel.

“By carefully directing subsidies to those who need them most, the government can save significant amounts of money, which can then be channelled back to the people, fostering economic stability and prosperity in the long term.”

“Successful implementation of targeted subsidies will have huge savings that will prevent the government from doing austerity drives,” political scientist Azmi Hassan suggested.

The experts polled by Malay Mail suggested that further moves can be taken after the backing of the Agong, including revamping the pensions scheme, taxing the ultra-rich, and holding off implementing the goods and services tax (GST).

“The government can consider promoting double or triple pension recipients to honourably opt for only the highest pension, as Datuk Seri Anwar Ibrahim’s wife Dr Wan Azizah Wan Ismail had done.

“This kills two birds with one stone, as the move will be politically popular with the people while at the same time is economically prudent,” Ahmad Fauzi said.

Azmil and Azmi however disagreed, suggesting that Putrajaya should increase tax on the super-rich and highly profitable corporations and channel the revenue back to the people in the form of subsidies for the low-income and tax breaks for the middle class.

“A blanket austerity measure especially when they affect the social safety net would be foolhardy and not help to spur the economy, especially domestic consumption,” Azmil said.

“Austerity drive — it will hurt some sectors in this case,” Azmi agreed.

Given the dire need to recover economically, Azmi said is confident that Prime Minister Datuk Seri Anwar Ibrahim can prove it in parliament.

“The spending of money will be more efficient and more responsible, this is tied to the Public Finance and Fiscal Responsibility Act that was passed last year,” Azmi said.

But, to successfully implement austerity measures such as targeted subsidies, educating the public on targeted subsidies would ensure the success of its implementation, Nur Ameera said.

“Many people may not see the immediate benefits of such measures, leading to scepticism or resistance. Effective communication ensures stability,” she said.