Are we ready to pay the price?

MIDWAY to the current unity government’s five-year term, questions have arisen about why the reform agenda championed by Prime Minister Datuk Seri Anwar Ibrahim has yet to meet expectations – or even the promises made to the rakyat.

Last weekend’s rally demonstrated public displeasure as the rising cost of living is biting hard on the people, while some key institutional and economic reforms have taken longer than expected.

To be fair, the unity government is not a complete failure either, as it took early steps to regain Malaysia’s mojo with the launch of the Malaysia Madani programme in 2023 – a 10-year roadmap aimed at lifting the livelihood of all Malaysians with a clear direction.

This was followed by the National Energy Transition Roadmap, the New Industrial Master Plan 2030, the Mid-Term Review of the 12th Malaysia Plan, the National Semiconductor Strategy last year, and the Johor-Singapore Special Economic Zone this year.

The tabling of the 13th Malaysia Plan on Thursday marks the unity government’s vision for Malaysia’s next five years, complete with clear objectives and targets.

Growth all around

As we are aware, Malaysia continues to register relatively strong economic growth.

The recent second quarter advance estimates came in ahead of expectations, showing growth of 4.5% – up from 4.4% in the previous quarter.

Despite the recently lowered projection, Malaysia’s economic growth forecast of between 4% and 4.8% (down from the earlier 4.5% to 5.5%) is still seen as relatively strong, given uncertain external factors.

The revision suggests that the central bank expects growth in the second half of financial year 2025 (2H25) to be more unpredictable, with a range of 3.6% to 5.2%, following a 4.4% growth rate for the 1H25.

The ringgit has also been a winner this year, rising by 4.7% against the greenback, while Bank Negara’s international reserves reached US$120.9bil as of mid-July 2025 – the highest level in a decade.

Excluding foreign currency loans and net short positions, net reserves stood at US$85bil at the end of June 2025, marking a three-year high.

More handouts

While the Madani government recognises the need to continue supporting those in need through handouts, this effort has come at a significant cost – RM15bil to date, inclusive of the RM100 handout to all Malaysian adults above the age of 18.

For ordinary folks, cost-of-living issues remain paramount, and the subsidies and cash handouts are among the government’s tools to cushion the impact of rising consumer prices.

However, the cost of living is also shaped by broader factors such as the prices of goods, wage levels, overhead costs, and even taxes or tariffs.

This makes it a universal challenge – not just in Malaysia, but in most developed economies, where it consistently ranks among the top concerns for households and voters.

While the government has stepped up its efforts in increasing handouts to all Malaysians, there is a limit as to how much it can continue to do so to ensure its fiscal mandate is maintained.

Subsidies and taxes

Malaysians love subsidies and simply hate any form of new taxes or an increase in tax rates.

This can be seen from the public reaction whenever the government attempts to remove subsidies or to increase taxes.

By and large, we are addicted to subsidies and assume that it is our god given right to enjoy them.

Hence, the question is, how does the government carry out economic reforms if this issue is not addressed?

In fact, any government that comes to power will face similar constraints.

Without addressing them head-on, the government in office is simply kicking the can down the road.

The recent decision to reduce the RON95 market price to RM1.99 per litre for all Malaysians, a six-sen reduction, runs counter to the broader goal of fiscal reform.

It further increases the subsidy burden and arguably sends the wrong signal to the public about the sustainability of such policies.

This is especially problematic given that Malaysia is now a net importer of crude oil.

For context, Malaysia imported almost 22 million tonnes of crude petroleum worth RM63.2bil last year, while exporting just 8.5 million tonnes worth RM26.1bil.

Despite this, with the new RON95 pricing, Malaysia still offers the 10th cheapest petrol in the world – underscoring the disconnect between market realities and policy choices.

Wages

Wage reforms introduced by the government have also been rather lacking in terms of pace of increase as far as minimum wage is concerned.

While the government wants to see higher compensation of employees as a percentage of gross domestic product (GDP), we remain stuck in relatively low wages, as 54% of employed workers in the formal sector earned less than RM3,000 per month, and 30% earned below RM2,000.

Any move to raise wages is met with furious fightback from businesses as they claim it will increase their costs and may even result in them going under.

Never mind that wages as a percentage of cost barely make up 10% to 15% of total business cost.

For many employers, this opposition serves as a way to preserve a low-wage environment and maximise profitability.

That is why Malaysia has one of the highest gross operating surplus to GDP ratios at 63.7% in 2024, while the compensation to employees to GDP ratio has been rather flat at 33.6%.

In conclusion, economic reforms are tough decisions to make for any government.

Every move will be met with opposition whether it involves removing subsidies, increasing tax revenue via new taxes, higher tax rates, or even raising wages to lift the livelihood of the people.

Only a determined and committed government can carry out these reforms in a substantial way, without having to worry about the consequences of doing so at the next general election.

Hence, while there are voices out there calling for the government to expedite reforms, it is easier said than done.

There is a price to pay for economic reforms.

The question is whether we – both the government and the rakyat – are truly prepared to pay it.