Cash handouts, income tax reduction just short-term salves, say experts
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BUDGET 2018 will only ease the people’s burden from rising inflation in the short term and does not truly address the cost of living issue, said an independent economist.
Dr Suresh Kumar said although the budget will give extra money to the people by putting more money in the hands of the people through cash handouts and a 2% reduction in income tax, cost of living in the country still remains high, mainly due to the weak exchange rate.
“It begs the question whether it’s good enough. The income tax reduction helps ease the burden and cushions the impact of cost of living but in the long term, it will only escalate the cost of economy.
“The budget doesn’t address the cost of living issue itself. We are living in a high-cost economy, so the question we should address is the high cost of economy first,” he told The Malaysian Insight after the Post-Budget 2018 Dialogue organised by University of Malaya in Petaling Jaya today.
Yesterday, Prime Minister Najib Razak announced that farmers will get RM2.5 billion for planting incentives and a 2% tax reduction for those earning between RM20,000 to RM70,000 a year.
The Barisan Nasional government will also pay out RM1,500 to 1.6 million civil servants next year, at a cost of RM2.4 billion. The government will also give a one-off payment of RM1,500 to village chiefs, tok batin, Imams, Bilals, Kafa Teachers, and Guru Takmirs, including Tok Siak.
The biggest beneficiaries of Budget 2018 are farmers, fishermen, civil servants and the middle class.
“I’m not saying it’s a bad budget; it’s a good budget as it provides a lot of revenue for an inflated economy, as well as allocation for a large segment of the population.
“But it’s actually a very costly economy, a high-cost economy in ringgit terms and limited growth in dollar terms. It’s being inflated through the inflation tax rate as well as weaker exchange rate,” he said in the dialogue.
He added that Malaysia’s fiscal deficit, which is expected to shrink to 3% this year and 2.8% in 2018, would be done through seigniorage, or inflation tax revenue.
“The key thing here is that the budget has helped the government achieve the 2.8% target deficit, but it’s coming at the cost of inflation tax revenue, which is actually helping them,” he said.
Senior lecturer from Sunway University Business School Dr Nur Ain Shahrier meanwhile said the budget did not highlight fiscal consolidation, which would outline measures that the government must take to reduce budget deficit.
“When it involves the long term, it has to go back to the structure of the economy, which is stagnant wages. How can we make Malaysians earn more every year, how can we make our increase real purchasing power? The wages are stagnant, even for professionals, the marginal increment per year is very small at 1%,” she said.
“How are we going to spend when our wages are stagnant, when we don’t earn much as expected? We will borrow, take credit cards, bank loans and, as a result, our household debts has become one of the highest in the region.” – October 28, 2017.