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Spend to stimulate growth

Spend to stimulate growth

THE Pakatan Harapan Government must be commended for introducing the mid-term review of the 11th Malaysia Plan with the new goal of sharing prosperity.

The previous preoccupation with promoting economic growth neglected income distribution amid widening disparities. The rich got relatively wealthier while the poor suffered. We must thus support the Government in righting past wrongs.

Therefore, growing recognition in economic planning to more vigorously tackle these worsening trends of income inequality should be promoted more aggressively.

How much can be done to share prosperity in reality when we are slowing down?

Despite these concerns, it still remains a worthy goal, which is a relatively new emphasis in our overall socio-economic planning.

The economy is expected to grow between 4.5% and 5.5% in the remaining years of the 11MP from 2018-2020.

This is mainly because of global uncertainties like the world economic slowdown, Brexit and the threat of a trade war between the United States and China.

Our own current estimates of achieving even a 4.5% growth rate remains in doubt.

The mid-term review mentions private consumption growth of 6.8% for 2018-2020. Private investment of 6.1% and public investment of a meagre 0.6% for the same period. What if even these low rates are not attained and they worsen further?

We need not be over cautious. The mid-term review could have been less over cautious in dealing with the one trillion national debt.

After all the national debt, although very high, is not critical yet. It is still relatively acceptable at about 60% to 80% of the GDP, depending on what definitions we want to use.

In any case, international rating agencies have not sounded the alarm bells and neither has the World Bank or the IMF.

Thus at this time of global slowdown, should we aggravate the economic decline by drastically reducing development expenditure?

It has been cut by a huge amount of RM40bil from the original allocation of RM260bil to RM220bil for the whole 11MP period of 2016-2020.

Was this really necessary? The mid-term review’s planning could have been unduly affected by the public debt and the budget deficit .

The budget deficit is now estimated at 3% of GDP. It is expected to rise from the current estimate of 2.8% of GDP.

Here again, are we being overcautious? There is no legal or fixed obligation to keep the budget deficit rigidly down to less than 3% of GDP.

Many countries are doing well with higher deficit ratios. Of course the major determinants for sound fiscal discipline would be to ensure that the higher development expenditure is used to generate viable income-generating projects .

I think we can now assume that there are less leakages and corruption in spending our scarce budget funds. To its credit, the Government is tackling corruption, wastage and leakages much more effectively.

The mid-term-review is only a plan and can be altered and improved as we move along depending on global economic developments .

Budget 2019 to be tabled on Nov 2 should be stimulative to achieve higher economic growth and better wealth distribution.

Thus, for the mid-term review to be implemented more meaningfully, I propose the following Budget 2019 measures be adopted.

> Restore some of the major sensitive development expenditure items that have been severely cut.

These could include low cost housing, medical and health facilities, education scholarships, training and research, environment protection and anti-poverty programmes in both the rural and long-neglected urban areas.

> Wealth distribution can mainly be attained with higher taxes to be imposed on the rich.

What about a wealth tax at reasonable rates, estate duties, property and capital gains, sin and carbon as well as soda taxes?

The mid-term review of the 11MP has to be refined in Budget 2019.

We should be brave enough to take the necessary budget measures as above to mildly stimulate the economy, raise wealth taxes and accept that we should not be bound by rigid economic theories but be more flexible and pragmatic in our socio-economic planning.

If we fail to do so, we may worsen the socio-economic challenges facing us now and over the next few years.

TAN SRI RAMON NAVARATNAM

Chairman, Asli Center of Public Policy Studies

 

Mid_term Review , Ramon Navaratnam , Letters

This article was first published in The Star on October 20th. Read more at https://www.thestar.com.my/opinion/letters/2018/10/20/spend-to-stimulate-growth/

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