KUALA LUMPUR: Fiscal reform is a challenging yet necessary step to reinvigorate the country's economy, which has remained stagnant for over 20 years, said Datuk Seri Anwar Ibrahim.

In a Facebook post, the prime minister disclosed the crux of his meeting with the Fiscal Policy Committee (FPC) on Mar 26 to discuss Malaysia's economic scenario and its fiscal projection.

He said the Madani government needs to implement fiscal reforms to ensure a sustainable and robust foundation to propel Malaysia towards a high-income economy based on human values.

"With tax revenue accounting for only 11.8 percent of GDP, the government has limited space to invest in people-centric development and provide necessary assistance to vulnerable and needy groups.

"Fiscal reform will focus on targeting subsidies and expanding the revenue base to create fiscal space that can be allocated to improving the welfare of the people," he added.

The government will also address the issue of debt addiction to restore confidence among foreign investors, he said.

The committee members had unanimously agreed to strengthen the Debt Management Office (DMO) to enhance government debt management and streamline the role of the Investor Relations Office (IRO) under the Ministry of Finance, which serves as the primary reference centre for market investors.

When contacted by New Straits Times, economists echoed the importance of fiscal reforms and proposed careful implementation and citizen impact consideration. They stress comprehensive measures addressing spending, revenue, and citizens' well-being.

Malaysian Economic Association deputy president Dr. Yeah Kim Leng said the thrust of the fiscal reforms is to expand the government's revenue base so that spending can increase in tandem with the growing needs of the country and its people.

Key milestones of the government's fiscal reform, he said, can be indicated through the fuel subsidy rationalisation and the service point increase in service tax.

"With higher revenue mobilisation, we can expect increases in social spending that will uplift the livelihood and well-being of the citizens without raising the country's debt level," said Yeah.

"(But) the public must understand that full economic restructuring will likely pick up pace over the next two years," he added.

Economist Professor Dr. Geoffrey Williams highlighted the positive impact of new frameworks like the Fiscal Responsibility Act and the Medium-Term Fiscal Framework on fiscal policy discipline.

He said: "The framework enhances government policy and boosts confidence in economic management."

While working on the tax reforms, he added the government must also look at new taxes (e-payments) that are not just income or consumption based (SST versus GST).

"A 1 per cent e-payments tax can raise RM15 billion per annum (based on Bank Negara Malaysia's estimated value of such payments) and is very broad based."

On the nature of the government's reform, Malaysian Institute of Economic Research senior fellow Dr. Shankaran Nambiar said drastic shifts could present immediate challenges for the average citizen.

"The goal of enlarging fiscal space and reducing reliance on debt (by the government) is clear.

"However, careful monitoring and behavioural considerations in the reform process are needed to avoid past experiences like the issues encountered with the GST implementation due to vested interests and administrative shortcomings."

https://www.nst.com.my/news/nation/2024/03/1031397/pm-fiscal-reform-necessary-reinvigorate-malaysias-economy