Protect jobs and think outside the box, Daim tells gov't amid economic downturn

The government must ensure jobs are protected during this economic downturn due to the Covid-19 pandemic, said Daim Zainuddin.

Noting that the unemployment rate had escalated since March, the former finance minister predicted that the situation would become worse.

“I am very worried about unemployment,” Daim (photo) said in an interview sent to several media organisations.

“The number of unemployed is already up by 17 percent in March and it will get worse.

“We will soon have about 51,000 graduates coming out of universities and they will have a harder time finding jobs,” he added.

Daim warned the government that high unemployment could threaten stability as well as increase the poverty rate.

“The policy must be to ensure that firms survive and jobs are protected,” he added.

According to Daim, Malaysia cannot escape an economic recession this year as it is a trading nation that relies on major economies to do well.

He pointed out that the United States, the biggest economy in the world, has already entered into a recession with its economy contracting at an annualised rate of 4.8 percent in the first quarter, which is the highest since 2008.

The US has also seen 33.5 million people filing for unemployment benefits in the last seven weeks up to May 7, which is an unemployment rate of 15.5 percent.

Daim described this as a “depression-era level”.

China is also in recession, he said, with its economy shrinking by almost seven percent in the first quarter, which is their first contraction since 1992.

“Malaysia will not be spared.

“The government expects the economy to fall into recession this year, with the GDP expected to contract by at least two percent, although my own assessment is that it will be much higher.

“We must remember that the movement control order (MCO) only started in the last two weeks of March, yet most of the economic sectors are not doing well,” he added.

Daim pointed out that many companies and businesses are struggling to stay afloat, with 68 percent of firms reporting zero income during the MCO.

He said the loss of income, especially for SMEs, would translate to higher unemployment which means there would be less demand in the market.

“So if exports are not doing well, the consumers' pool is shrinking and firms are not investing. Where will growth come from?

“How then can we collect tax to finance expenditure and development?” he added.

'We must do whatever it takes for the rakyat'

On May 4, the government announced that most economic sectors would be allowed to reopen under a conditional MCO since the nation was losing RM2.4 billion a day under the MCO.

Daim said the government’s fiscal space must be strong enough to deal with the crisis, adding that the government should be spending more.

Despite announcing a stimulus package of RM260 billion, he said the actual direct fiscal injection by the government is only RM35 billion or about two percent of the GDP.

“This is too small to make a meaningful impact.

“I am firmly of the view that the government can afford a higher deficit in order to save jobs and firms. When the economy recovers, we can and must pare the deficit down,” he added.

Daim, who served as finance minister from 1984 to 1991, said the government had done this numerous times before such as during the financial crises in the 1980s, 1998 and 2008.

“When the economy recovered, we managed to reduce the deficit. Let's not be too dogmatic, our focus is to save the rakyat. We must do whatever it takes,” he added.

Daim said the government had 23 consecutive years of fiscal deficit since the 1997/1998 Asian financial crisis.

This implies there are not much reserves accumulated by the government, though he said there are some trust funds that can be mobilised.

He said among the options available to the government is for Petronas to contribute either through a higher petroleum income tax (Pita) and dividend payment but noted that with the low oil prices, this would be challenging.

The government, he added, could also reprioritise and reorder their expenditure.

The government could also explore revenue enhancement through the listing of GLCs' assets, the disposal of some assets and privatisation, among others.

Daim also suggested a tax policy revamp, advocating for a return to GST but at a more reasonable rate with better implementation.

“The problem with GST is that it was introduced at a high rate and the rakyat didn't see the benefit.

“I advocated GST a long time ago, but the rate that was introduced was too high and the monies collected were not spent on the rakyat and not refunded to the companies and cost of living went up.

“We need to revamp our tax policy so that it is fair, efficient and progressive,” he added.

Apart from this, Daim said there is also the option of borrowings through the issuance of domestic securities since investors' appetite for Malaysian bonds is still strong.

He said the government could also review its self-imposed administrative limit of 55 percent of the GDP since the last time the government raised the ratio from 45 percent in July 2009.

Lastly, Daim said, the government can borrow from Bank Negara Malaysia.

“These are extraordinary times and require extraordinary policy measures.

“We cannot be confined to orthodox and 'business as usual' thinking. Those in charge must think outside the box,” he added. - Mkini