Will Najib bite bullet to boost economy?

Will Najib bite bullet to boost economy?
A customer (R) walks out of a fruit stall in Ampang, in the suburbs of Kuala Lumpur on October 25, 2013. Malaysia is expected to introduce an unpopular consumption tax in its 2014 budget on October 25 along with other measures to address soaring debt that has raised the spectre of a credit downgrade.

WHEN Prime Minister Najib Razak, wearing his Finance Minister's hat, presented the 2014 Budget on Thursday, the big question was whether he will lead Malaysia to finally bite the bullet to strengthen the economy.

He needs to show that Malaysia is willing to heed calls by anxious investors to take serious steps to reduce the budget deficit running for 15 years now.

He must also announce steps to cut public debt, now at 53 per cent of gross domestic product (GDP), just a touch below the government's self-imposed limit of 55 per cent.

And this comes at a time when economists are concerned about Malaysia's shrinking current account surplus due to slower exports.

"Stronger public-sector finance has strategic long-term significance. It will lead to stability in international sovereign ratings, even an upgrade, and this will instil global confidence in the economy," said Mr Zulkifli Hamzah, research head at MIDF Amanah Investment Bank.

Datuk Seri Najib really has no more reason to hem and haw. His ruling coalition won in the May general election and his allies notched victories in recent Umno elections.

"The government will do what is right for our economy. Some measures may not be popular now but over the medium term, what is good for the economy is also good for the people," Mr Najib said in a statement yesterday evening.

Last year, the budget deficit was RM42 billion (S$16.4 billion), with fuel subsidies alone totalling some RM24 billion a year.

To raise revenue, the government is widely expected to offer details on how it plans to introduce a broad-based goods and services tax (GST) in 2015.

A recent report by DBS said that by imposing 4 per cent GST - as speculated by some - the government would raise RM20.5 billion a year in extra revenue.

The GST will broaden the tax base from what it is today, where only 1.7 million Malaysians pay income tax out of its 29 million population.

The GST will also replace the 16 per cent sales and services tax now levied on certain goods and services such as food and beverages in restaurants and hotel services.

And the Najib administration must announce steps to rein in government spending such as deferring mega projects that do not add to its productive capacity, and continue to cut subsidies that have become political crutches such as those for fuel and cooking gas.

At the end of last year, government debt stood at nearly RM500 billion.

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