Prime Minister Datuk Seri Anwar Ibrahim is scheduled to unveil Budget 2025 on October 18, marking his final budget before the conclusion of the 12th Malaysia Plan.
While economic indicators, including growth rates and a strengthening ringgit, suggest a positive turnaround, many Malaysians have yet to feel the impact of these improvements in their daily lives.
It is hoped that the upcoming budget will see a more aggressive initiation of reforms to ensure that economic benefits are effectively passed down.
It is important that the long-delayed implementation of the goods and services tax (GST) be re-introduced, as this would invariably fill the coffers with sufficient buffers to fund the various initiatives without any constraints.
The need to do so has been extensively discussed by economists and political commentators who have suggested that the present tax structure would not be tenable due to the small population of taxpayers supporting a large segment of the economy, while also cushioning against headwinds that would inevitably lead to declining export revenues.
In addition, GST is a transparent system that can address the problems of the "shadow economy," which has an estimated turnover of RM300 billion and has escaped taxes in the past.
The general price of goods and services is still on an upward trajectory, and the appreciation of the ringgit is certainly not likely to assist in the easing of consumer prices of goods, as producers and retailers are not incentivised to reduce them. Direct intervention in the supply chain is necessary to address the issue and ensure a meaningful reduction in prices.
It is hoped that a committee will be formed soon to reduce supply chain costs, enhance port infrastructure and efficiency, and lower fuel prices.
Towards this, the removal of diesel subsidies should be reconsidered, as it would likely drive up the cost of goods and services. A holistic approach should be taken by the government in the rationalising of subsidies.
Agriculture and local agricultural production must receive significant attention in the current budget, as strengthening the sector is a key to reducing the price of essential goods, which could, in turn, stimulate broader consumer spending.
To achieve this, greater investment in technology within agriculture should be encouraged. This will boost productivity, modernise the sector, and alleviate challenges posed by labour-intensive practices.
Another critical issue Malaysia must address in the upcoming budget is enhancing its attractiveness as an investment destination compared to neighbouring countries that benefit from lower labour costs, favourable trade agreements, and investor-friendly policies. Malaysia has been slow in implementing economic reforms, and its bureaucratic processes, regulatory hurdles, and lengthy approval procedures further discourage potential investors.
To overcome these challenges, Malaysia must prioritise streamlining its bureaucratic processes, reducing regulatory hurdles, and accelerating economic reforms to create a more business-friendly environment.
It needs to introduce faster approval systems, simplify regulations, and offer competitive incentives that will help attract foreign investors. Additionally, focusing on sectors like technology, renewable energy, and innovation, while improving workforce skills, can position Malaysia as a more attractive investment hub in the region, and the appropriate incentives towards achieving this should be accorded in the upcoming budget.
Malaysia should further develop the local semiconductor industry by encouraging domestic chip design and production capabilities, as well as attracting foreign direct investment in the sector, which can reduce dependency on external resources.
Malaysia should also focus on strengthening ties with semiconductor players in Asia, particularly Taiwan, South Korea, and Japan, to build a more resilient supply chain for components.
Another reform that is needed is in subsidy rationalisation, where a holistic approach is essential when considering subsidy rationalization. The government's recent decision to remove subsidies on diesel has and can lead to higher prices for goods and services.
While the government may seek to ease its own financial burden, it must ensure that the removal of subsidies does not adversely impact the poorer segments of the population.
The eventual removal of RON95 subsidies will likely impact the lower-income segment of the population. Therefore, it is essential to implement a mechanism that ensures continued support and benefits for those most vulnerable.
The current approach to subsidy removal may result in minimal revenue gains while inflicting significant hardship on the general public. Instead, the government should implement a more balanced strategy that targets subsidies more effectively across different sectors, ensuring that the burden is shared more equitably and that the intended revenue gains are realised without disproportionately affecting lower-income groups.
The upcoming budget should adjust key initiatives to ensure the government stays on the right path. High growth rates and GDP figures mean little to the rakyat if they continue to face low wages, rising prices, and a declining standard of living. True progress should be reflected in the improved well-being of ordinary citizens, not just in economic statistics.
"The writer has an MBA from the University of Strathclyde in the UK, has worked in the financial markets, and has lectured extensively on management. He was also formerly attached to a leading think tank. The views expressed in this article are his own and do not necessarily reflect those of the Business Times.