Expect unorthodox ideas and measures

Tun Dr Mahathir Mohamad smiling after casting his vote in SK Titi Gajah. -Reuters

TUN Dr Mahathir Mohamad is back in action and with lots more gusto too, at 93.

This is a seasoned Prime Minister we are talking about. He ruled Malaysia for 22 years, took a break for 15 years, and now holds the reigns as seventh PM of Malaysia, making him the oldest in power in history.

The transition of power has been impressive, peaceful and historical.

Deep down in the hearts of many, they are relieved and are pinning their hopes of a better future on him and his Pakatan Harapan coalition.

It may be a tall order, but knowing him, he is extraordinaire.

So brace up for interesting times and don’t discount that some unorthodox ideas and measures will creep in.

He is known to come up with solutions others scorn at. When he steered Malaysia out of the 1999-economic crisis by introducing the currency peg, he was mocked at. He stood his ground for blaming hedge funds for the financial turmoil then.

He did the impossible and brought stability to markets and the country, we cannot rule out what he can do this time around.

He understands the economic concerns of the electorate and as he says, he is here to correct all mistakes of the past, restore integrity of institutions and instil validity of the Constitution.

In his first press conference less than an hour after being sworn in as PM, he talked about making Malaysia business friendly again and the stock market being an important barometer of the economy.

His daily press conference lends confidence and shows Pakatan is very much in charge. This is important.

He is about to abolish the goods and services tax (GST) and revert to the sales and service tax (SST) regime. That makes Malaysia the first country to remove GST after implementation and revert to sales and service tax (SST).

There is no point looking at value added tax (VAT) as many countries have failed to do that successfully.

GST brings in about RM40bil-RM42bil a year to the government’s coffers. That is about 18% of government revenue or about 3% of GDP in 2017. In contrast, SST accounted for 8% or 1.6% respectively in its last year, 2014.

To revert to SST means it will be about RM20bil loss in government revenue, though it also means RM20bil expenditure savings for the people, and that will help the rakyat in addressing the high living cost.

There are concerns that without offsetting measures for replacement of GST would result in a higher deficit.

However, Pakatan in its manifesto did say it will stimulate the economy by raising other tax revenues, boost consumer and business activities, including big ticket spending such as motor vehicles and properties. All this will boost other revenues, such as corporate income tax, import, excise and stamp duties, motor vehicle licences and real property gains tax.

To earn more SST, the suggestion is to widen the current SST scope, make it to one rate of 10%, increase the threshold for businesses, and decide which is better – business to business (B2B) or business to consumer (B2C).

There is no doubt the Pakatan coalition will come out with its own budget for 2019, the 2018 allocation is RM280.25bil. Of this, RM234bil is operating expenditure, and RM46bil development expenditure, or 17% of total allocation.

There is a possibility of about 20% leakage in the current system, if he cuts it down to 10% then the government can ride out the next few months.

One of the measures they will introduce is to reduce PM office expenditure to RM8.4bil from RM20bil, and that in itself is huge savings. That also explains why he wants lesser number of ministries, and could announce only ten or so today.

The rising oil and commodity prices could also help offset some potential budgetary gains.

While global crude oil prices are about US$71 a barrel the local adjustment has not been done. The government is going to further introduce fuel subsidies to help the rakyaat and this will be mitigated by better-than-expected oil-related revenues.

CIMB Research is projecting that every US$10/bbl rise in annual average crude oil price will boost Government coffers by RM7bil-RM8bil via oil-related revenues, including Petronas dividend.

Dr Mahathir is savvy and knows that a friendly business environment and vibrant stock market will fuel growth. He is already talking about private sector growth and all these statements are confidence boosting to improve the sentiment.

But a review of how the stock market operates is necessary.

Market makers believe the stock market for a long time has been managed by institutions who play among themselves and give little room for the retail players. For a vibrant stock market, they to re-look at some of the policies and ensure the investing climate for retailers is conducive and also other factors such as exchange and interest rates, money supply, be more private sector driven, there be more room for clarity and allow a certain amount of speculation to make Bursa Malaysia exciting again.

In essence, let the market forces dictate and let the market players play, otherwise it will remain lackadaisical.

Whatever he does, everyone is watching him and they want results in the shortest time possible. It is a race against time and that is why he may bring about unorthodox measures and ideas to make things work faster. Over to you Dr Mahathir.

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