WHENEVER new governments come into power, there is always the risk of an immediate impact to the economy, as new policies get implemented and old ones are dismantled.

       Such was the case in 2018, when after 61 years of Barisan Nasional (BN) rule since the country’s independence in 1957, a new government was elected. The new Pakatan Harapan (PH)-led government implemented several populist economic policies that were drawn from its election manifesto.

       One of the first economic policy changes that PH brought in was to abolish the goods and services tax (GST), which was a major promise made by the coalition should it win the 14th General Election.

       The consumption-based tax was reduced from 6% to zero percent from June 1, 2018 and subsequently replaced with the sales and service tax (SST) regime.

       Observers note that there has been no systematic assessment of the impact of the GST’s removal on the cost of living in Malaysia. However, it had weakened the country’s fiscal capacity with the revenue gap between the SST and GST estimated at RM22bil in 2019, or about 9% of total fiscal revenue. Notably, this gap was filled by a one-off special dividend of RM30bil from the national oil company, Petronas. The GST is regarded as more superior to the SST because it is comprehensive and transparent, as well as reduces tax erosion and leakage. Besides this, the PH government also undertook a review of several mega projects, causing a drop in government investments in the 2018-2019 period, which in turn impacted growth.

       Elsewhere, Japan saw disruption to its economic policies 12 years ago when in August 2009, the Democratic Party of Japan (DPJ) won the election, ending more than half a century of dominance by the Liberal Democratic Party (LDP). The new prime minister, Yukio Hatoyama, took office and quickly pledged to shift Japan towards a stronger domestic economy, away from its heavy reliance on exports. The DPJ also promised significant changes to policy relating to the country’s fiscal position, transportation, foreign relations, education and social issues. However, the DPJ achieved little while in power.

       Commentators say the party was unwilling or unable to carry out its policy changes. It also had unstable leadership, with three prime ministers in just over three years in power.

       In the United States, following his 2016 presidential election win, Donald Trump’s policies were characterised by individual and corporate tax cuts, attempts to repeal the Affordable Care Act (Obamacare), trade protectionism, immigration restriction, and deregulation focused on the energy and financial sectors.

       In contrast, the economic policies of the Joe Biden administration are characterised by goals to increase the national minimum wage and expand worker training, narrow income inequality, invest in clean energy and infrastructure, expand access to affordable healthcare, and forgive student loan debt.

       Back to Malaysia. The question is, how will a new prime minister and government impact the economic landscape of Malaysia? What new policy changes would be brought about? More importantly, what policy changes will this new leadership bring about if any, to help the country out of its battle against the Covid-19 pandemic?

       AmBank group chief economist Anthony Dass says change is not necessarily bad if the right policies can be instituted. “Now is a good time to reset, but the immediate priority should be on tackling the Covid-19 situation to reach herd immunity for a safe reopening of the economy,” he tells StarBizWeek. Next is to strengthen the livelihood of the people by creating jobs at a fast pace so that people and businesses can reach their 2019 income levels by next year at least, he adds.

       He says unlike the 1997 Asian Financial Crisis, Malaysia is undergoing a health crisis which has impacted the economy and what is urgent is driving growth post-pandemic. Going forward from here, the pandemic also presents a “golden opportunity” for policy makers to reset the economy with medium- and long-term strategies in the new era of the fourth industrial revolution, he adds.

       The Centre for Market Education (CME) chief executive officer, Carmelo Ferlito, says “a fresh vision is very much needed” to fight the healthcare and economic crises the country is facing.

       Ferlito: A fresh vision is very much needed to fight the healthcare and economic crises the country is facing.

       “Currently, hundreds of thousands of jobs are at risk, while the purchasing power of the people is threatened by the inflation created by supply-side shocks and expansive fiscal and monetary policies,” he said in a statement mid-this week.

       On the economy, he says the the boutique think-tank agrees with Fitch Solutions forecast that the Malaysian economy will not grow in 2021. He says “an optimistic 2% growth is conceivable only if lockdowns are immediately abandoned and economic policies radically changed”.

       Fitch, had earlier this week, revised Malaysia’s 2021 gross domestic product (GDP) growth to 0% from its earlier estimate of 4.9%.

       This comes as the second-quarter 2021 GDP growth numbers were below its expectation, at 16.1% year-on-year, but a contraction of 2% quarter-on-quarter.

       It suggests several measures that the new government should implement, and to which its mandate should be linked. One is the need for a new, clearer and faster strategy to normalise business conditions, with the commitment to avoid future lockdowns. Second is tabling a programme for domestic and international mobility and opening a dialogue with the Asean partners.

       On fiscal reform, CME calls for simplification of the income tax system and the introduction of a multi-layered GST to specifically support expenditures in the healthcare system. Another is a special regime for micro and small businesses with the aim to introduce them into the national fiscal and welfare system without discouraging economic initiatives.

       To make Malaysia attractive again for foreign direct Investment, the think-tank urges cutting red tape and clarifying long-term strategy toward expatriates, which is compromised by an extremely restrictive new Malaysia My Second Home or MM2H plan.

       In conclusion, while strong leadership and political support are necessary, competence and vision are also important for driving the country back to the growth path, says Ferlito.