Govt aid a stop-gap fix, may cause deeper hole later, says think tank
PETALING JAYA: The fiscal policies implemented during the pandemic to minimise the effects on the economy is helpful in the short term but may have unintended consequences that will slow Malaysia’s growth, says a think tank. In a policy paper, the Center for Market Education (CME) said it will only…
PETALING JAYA: The fiscal policies implemented during the pandemic to minimise the effects on the economy is helpful in the short term but may have unintended consequences that will slow Malaysia’s growth, says a think tank.
In a policy paper, the Center for Market Education (CME) said it will only be felt once the pandemic subsides.
The report argued that the country’s reliance on lockdowns has spurred the need for increased government spending to mitigate the financial impact on Malaysians.
“This creates a system whereby government policies are developed to react to the consequences of earlier policies,” it said in the paper, titled “Inflation, Unemployment and Covid-19 Policies: Where is the Malaysian Economy Heading?”
The report said introducing additional measures, rather than reversing the lockdown reliance that necessitated them in the first place, could lead to debt burdens being passed to future generations and worsened unemployment when fiscal stimulus ends.
In a statement released on the policy paper, CME CEO Carmelo Ferlito said the policies implemented so far may become the very root of an economic crisis once the Covid-19 emergency ends and the economy is on the path to recovery.
“Their effects on inflation and unemployment will become more evident when the deflationary pressures currently in play will no longer be in place,” he said.
He said the increased government borrowing and drop in revenue during the pandemic will slow down economic expansion going forward and create rising national debt that will need to be addressed by future governments and will continue to affect the people.
“Additionally, as interest rates begin to return to normal and companies stop receiving government aid, they may be unable to maintain the staff they have currently, leading to layoffs even at medium and large firms.”
Ferlito said in view of this, the government should shift its focus towards investing in healthcare improvements so that lockdowns can be abandoned, thus spurring greater consumption and more organic recovery for the economy.
“This should also come through lowering income and corporate taxes to ease the burden on the public, with the government’s resulting shortfall covered by a reintroduced but modified GST, whereby the tax rate is higher for more expensive goods but lower for cheaper ones.
“It’s worth keeping in mind that the consequences of the strategy adopted so far cannot simply be wiped out by a simple change in policy. We can reduce the harm, however, and reverse the country’s negative trajectory,” he said. — Free Malaysia Today