KUALA LUMPUR: Center for Market Education (CME) expects the government to announce the pillars of a holistic tax reform in the upcoming 2025 Budget that could consolidate fiscal position while limit the impact of arising inflationary tendencies due to the new monetary policy trend in the United States (US) and China.
CME chief executive officer Dr Carmelo Ferlito said in recent years, some efforts at fiscal consolidation have focused mainly on introducing new and targeted taxes, while little has been done on restructuring the spending in a radical way.
He said, now is the moment to start a reform inspired by consolidation, simplification and easy enforcement.
Ferlito said the pillars of such a reform include slight reduction of income tax, and introduction of a multi-tier goods and services tax.
He also suggested an introduction of a special and simplified fiscal scheme for microbusinesses while also revising government-linked companies profitability with a plan of gradual rationalisation, which implies closures, consolidation and opening to the market.
"Such a reform could consolidate government fiscal position while at the same time limit the impact of arising inflationary tendencies due to the new monetary policy trend in the US and China," he said in a statement.
According to Ferlito, the recovery experienced by ringgit over the past weeks once again demonstrates that financial markets often react on expectations rather than real economic fact.
He said the ringgit appreciation started before the US Federal Reserve announced a higher-than expected rate cut as market operators acted on the expectation that the cut would come, and then continued to strengthen the currency on the expectation that the new monetary trend would continue.
"The higher degree of political stability experienced by Malaysia when compared to regional peers added steam to a positive trend guided by expectations. "In fact, we can say that nothing in the Malaysian economic fundamentals, politics or economic policy really changed between the big depreciation in February 2024, and the current recovery," he added.
Meanwhile, China's central bank pursued another policy rate cut, immediately after the announcement of further monetary easing measures and yet-to-be specified fiscal stimuli, in the attempt to aid the economy amid concerns that Beijing's annual growth target is increasingly out of reach.
With US and China moving into an expansive monetary trend, Ferlito said the resurgent risks of inflation must be monitored given that the economy is once again facing a situation where an excess of money can lead to increased consumer spending, along with investments that are driven by available cash than by actual demand.
"We find ourselves again in the situation that an excess of money supply may not only trigger excessive consumer spending, but also direct investments in directions justified only by the abundance of capital, rather than by the existing structure of supply and demand."
"Let us not forget that the past year quantitative easing already ignited a speculative bubble in the technology sector," he added.