Fiscal consolidation can remedy govt’s debt woes, says IDEAS

 

High debt levels will impede the government’s ability to respond in the event of an economic downturn, says IDEAS’ Tricia Yeoh.

PETALING JAYA: The government should prioritise implementing fiscal consolidation to prevent a further rise in the national debt, says the Institute for Democracy and Economic Affairs (IDEAS).

“With the increase of the national debt to RM1.5 trillion, the government needs to implement a form of fiscal consolidation to avoid excessive deficits in the long term and to obtain a sustainable budgetary position,” said its CEO, Tricia Yeoh.

Higher debt levels may impede the government’s ability to respond in the event of an economic downturn, which could disproportionately impact vulnerable groups, she said in a statement.

Fiscal consolidation is defined as concrete policies and plans aimed at reducing government deficits and debt accumulation.

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Strengthening financial discipline

IDEAS CEO Tricia Yeoh.

The research institute also urged the government to commit to the Fiscal Responsibility Act (FRA) as it will play an important role in strengthening its long-term financial discipline.

The Act was first mooted during the tabling of Budget 2022 in 2021, but is yet to be passed into law.

Similarly, IDEAS said, the Government Procurement Act should be prioritised, noting it would complement the FRA in strengthening governance and compliance.

“If introduced, it would also reduce discretionary power to combat corruption,” it said.

Its significance was highlighted by Prime Minister Anwar Ibrahim’s recent comments that an estimated RM10 billion could be saved from leakages in the government procurement process.

The subsidies conundrum

IDEAS said efforts towards fiscal consolidation are imperative, considering the extent to which the pandemic inflicted a heavy burden on vulnerable populations.

It said consolidation can start with additional measures to ensure that subsidies are well-spent via rationalisation.

A public consultation paper by the finance ministry on targeted subsidies in 2022 estimated that the population in high-income brackets receive three times the number of benefits compared to the lower-income bracket.

It noted that one of the main objectives of Anwar’s Madani Nation theme was to achieve inclusive growth. “However, the government cannot narrow inequality among different groups in societies if those of higher income are the ones reaping the most benefit, rather than those who need it most,” it said.

Data consolidation should be leveraged to ensure the undeserved and vulnerable are those who benefit most from the subsidies, Yeoh said.

“We look forward to the new Budget 2023, and seeing how the Malaysia Madani theme will be reflected in the new government’s first major policy document for the year,”  she said. - FMT