Govt should review mega projects as it’s not the right time to implement them as it requires huge loans and imports
FORMER Second Finance Minister Datuk Seri Johari Abdul Ghani has emphasised the need for the country to impress the investors by showing that Malaysia is politically stable for the next five years.
He said the country’s leaders must be competent and experienced as this is necessary for the ministries to always issue statements that give confidence to investors that “we have an experienced, efficient and reliable government”, especially regarding the policies made for the people.
He also said the government should review the implementation of mega projects as it’s not the right time to implement them.
“The government needs to review the mega projects which are really necessary but it’s just not the right time now.
“In today’s situation, mega projects will require huge loans and this needs to be seen in terms of the overall economic context because sometimes mega projects look good on paper, but the country has to import a lot of technology and expertise from abroad. This will cause an increase in excessive imports and will affect the country.”
The Titiwangsa MP also spoke on various related topics such as the implementation of the Employees Provident Fund’s (EPF) Account 2 Support Facility (FSA2), which he feels would be more detrimental on the depositors due to the interests charged by banks, and the national debt ceiling, which he said the government needs to consider its ability to pay the interest.
Below are the excerpts of Johari’s interview with the Malay weekly, Mingguan Malaysia.
Q: What is your view on the current situation of the country’s economy, especially this year?
Globally, the economy is expected to slow down but Malaysia was even more affected by the Covid-19 pandemic.
However, when the economy reopened, there was an improvement in growth. In the first quarter of 2022 (1Q22), our economy grew by 3.8% but in 2Q it dropped a little to over 3.5% and it fell further to 1.9% during 3Q and after that, it was -2.6%.
Therefore, I see that it has been quite a challenging past few years with the open economic system. What is happening around the world has also affected us.
Q: What measures can be taken to face this challenge?
We need to give an impression to investors that we are politically stable for the next five years. Secondly, we must ensure that our leaders are competent and experienced. It is necessary for the ministries to always issue statements that give confidence to investors that we have an experienced, efficient and reliable government, especially regarding the policies they make for the people.
Q: What do you think about the country’s economic policies so far?
We already have a concrete policy which was developed during the Barisan Nasional (BN) era, a policy that is clear and inclusive without depending on one race or industry. We also practised a trading concept that is open to all countries in the open economy world.
Q: Did the change of government in 2018 (after the 14th General Election) affect the existing policy?
Yes, it did. We were used to BN’s 61-year rule. The policies were consistent including those related to multi-racial communities and ones more specific for the Bumiputera community. But when the government changed, of course, it took time to make adjustments.
I saw that many parties at the time were not comfortable yet. During the transition period, we have changed governments three times. After 22 months of Pakatan Harapan (PH) governance, we changed again for 17 months and then again for 14 months until the 15th General Election. And now, the government composition has mixed into a Unity Government.
Of course, it would take some time to adapt and adjust because this is a country, not a company. And then we were faced with global economic problems and the Covid-19 pandemic.
After that, we had issues with some Cabinet ministers in which some of them became ministers for the first time so they need time to understand government administrative issues.
A Mega Project Requires Bigger Loans
Q: What measures should the government introduce after there are concerns for the first three months, especially involving people’s spending?
I think we should let the government figure out how to solve this problem. Give them time. All I know is that government debt will continue to rise. Now our debt has reached more than RM1.2 trillion.
The government needs to review the mega projects which are really necessary but it’s just not the right time now. This also needs to be reconsidered. In today’s situation, mega projects will require huge loans and this needs to be seen in terms of the overall economic context because sometimes mega projects look good on paper, but the country has to import a lot of technology and expertise from abroad. This will cause an increase in excessive imports and will affect the country.
Q: Malaysia’s existing taxation model with average tax revenue to GDP is only around 11.5%. In your view, what is the best model to use?
If we look at neighbouring countries like Singapore, the Philippines and Thailand, their tax percentage reaches 14% of their GDP while ours is only 11.5%. The difference of approximately 3% involves a total of RM45 to RM60 billion in government revenue.
We need a sustainable taxation system. When our country used to have the Goods and Services Tax (GST), we were able to block or reduce the black economy or shadow economy. This definitely contributed to the total percentage of government income.
We need to re-evaluate how we handle tax incentives to attract investors. For example, we can give a 10-year exemption but we need to put conditions that allow investors and the government to get commensurate benefits.
Investors need to meet the conditions we set such as employing local management staff with a minimum monthly salary of perhaps RM10,000 and above.
Then set to employ local workers and not solely rely on foreigners. The wage rates for foreign workers must be different from that of locals. Local workers are not attracted by low wages. Foreign workers are fine with it because they can live in a house of up to 10 people. Their cost of living is lower.
This is the condition that we can give to foreign companies through tax incentives and although we do not impose tax, we want the profits of these companies to be given back to the country in the form of jobs for local people as well as the experience and the technology brought to this country.
Q: What is your view on the implementation of luxury goods tax?
What exactly are luxury goods? If a person has a salary of RM50,000, his definition of luxury goods may be different. Will tax still be implemented? The term luxury goods is very subjective as it depends on the individual. There are people with RM50,000 monthly salaries who do not think that RM20,000 is a luxury.
In my opinion, it is best to identify the item through the GST collector. Any goods that are considered a luxury can be charged a high GST rate compared to goods that are not considered a luxury.
If it’s not a luxury item, maybe the tax is only 3% to 4%. Buying a Proton or Perodua car may not be considered a luxury item but a necessity. It’s different if we buy a BMW car. These will need to be discussed in detail before we implement the mechanism.
Q: What do you think about the implementation of personal financing of the EPF FSA2?
This is very important and we need to understand. Let’s look at the EPF and bank aspects. If you go to the bank to apply for loans and there is RM100,000 in Account 2, how much do you want to borrow?
You want to borrow RM100,000 but the bank perhaps can only lend RM70,000.
However, you still have to pay interest and it also takes time to be processed by the bank.
Let’s say you want to make loans at the age of 50 and you will retire at 60. Within the 10 years of the loan, you still have to pay interest. If you borrow RM70,000 and pay interest at 5% per year, that is RM3,500.
For 10 years, the interest alone is RM35,000. Meaning, you take a loan of RM70,000 and interest for 10 years is RM35,000. The net amount you received from the loan is RM35,000. If that’s the amount, it’s better to just use the EPF money and no need to pay interest.
EPF has released RM145 billion over the two years of Covid-19. This was also the government’s mistake, because why was the EPF money also given to those who were unaffected by job loss such as government employees, statutory bodies and government-related companies (GLCs)?
When everyone was allowed to withdraw EPF money for no reason, it forced EPF to sell their long-term investments to cover the withdrawal. Not only that, the government at that time also gave a moratorium on debt payments to individuals who were not affected. It was an inappropriate policy.
Q: National debt has reached over RM1 trillion. Is this a concern?
It is fine if the debt benefits us long-term and we also need to consider our ability to pay the interest. Our debt interest payments have reached over RM43 billion a year. Interest can only be paid through government revenue. Our law does not allow paying interest through debt and debt can only be made for development.
So, if the taxable income is less and the debt interest payment is high, I am afraid that at one point, we will have to go into more debt to pay the interest.
There must be a reason to take EPF money before retirement. For example, education, healthcare payments, or avoiding bankruptcy may be considered. But careful consideration is needed whether the EPF is able to implement it or not.
Source : THE MALAYSIAN RESERVE