Govt's relief package lays groundwork for broader reforms

New Straits Times

3 days ago

KUALA LUMPUR: The government's latest cost-of-living relief package addresses immediate economic pressures while laying the groundwork for broader structural reforms, said economist.
The measures reflect a more decisive and strategic approach to strengthening domestic demand while maintaining fiscal discipline, they added.
Prime Minister Datuk Seri Anwar Ibrahim on Wednesday unveiled several key measures, including a one-off RM100 cash aid for all Malaysians aged 18 and above, a fuel price cut for RON95 to RM1.99 per litre and a freeze on scheduled toll rate hikes.
Bank Muamalat chief economist Dr Mohd Afzanizam Abdul Rashid said the additional RM2 billion allocation for Sumbangan Asas Rahmah (Sara) is a well-timed fiscal move that will help stimulate domestic consumption and support Malaysia's economic growth in the second half of the year.
Calling it a "form of fiscal stimulus but in a smaller scale", Afzanizam said the direct transfers would encourage household spending, particularly among lower and middle-income groups.
"Considering that consumer spending accounts about 60 per cent of our economy, this RM2 billion would actually provide a booster to our economic growth as the external factor has become more challenging, especially in the context of the US tariff and also the ongoing geopolitical uncertainties," he told Business Times.
Afzanizam added that the cash aid complements recent monetary policy moves, including the central bank's earlier decision to reduce the overnight policy rate.
"Essentially, it's a form of fiscal stimulus, but in a smaller scale. We are seeing monetary policy and fiscal policy working hand-in-hand to promote economic growth in the second half of the year," he said.
Afzanizam added that the government's commitment to fiscal discipline remains clear, especially through its push for subsidy rationalisation.
"With this announcement, it clearly shows that the resolve to ensure that the transition from blanket subsidies to targeted subsidies will continue to happen.
"Perhaps it will instil fiscal disciplines, it also will create more fiscal buffer, which can be redirected towards a more productive spending, such as education, healthcare and infrastructure," he said.
Long-Term Trajectory
Afzanizam said while the immediate focus is on easing the burden on the people, the long-term trajectory is clearly aimed at stabilising the nation's fiscal position.
"While the main theme for this announcement is to help the rakyat, the fiscal discipline elements are very much ingrained in that announcement.
"On that note, I think the journey towards reducing the fiscal deficit and stabilising the level of government debt is very much telegraphed in this announcement," he added.
A Pilot Reform
Economist Dr Geoffrey Williams described the one-off cash aid as a positive step, viewing it as a pilot reform of the STR/SARA programme that could pave the way for a universal basic income.
This, he said, potentially making Malaysia the first country to implement such a model and positioning it as a global leader in welfare reform.
"It has all of the features of a universal basic income because it is a cash transfer to individuals not households, without any conditions and available universally to all Malaysians without the need to apply.
"For the moment it is a one-off payment but it will provide useful lessons to become a regular monthly payment so that Malaysia would be the first country to have a full universal basic income which would be part of Anwar's legacy," he told Business Times.
No Harm To Government Spending
Williams said the cash aid is affordable under the subsidy rationalisation savings and will add extra consumption to the economy in the second half of the year to support economic growth.
He said it is a meaningful amount of money for low-income groups that will be spent in local shops and communities.
"RM100 does not sound a lot but it is a 6.0 per cent boost to someone on minimum wage of RM1,700 per month. For a family of four adults in the B40 group it is about 6.0-7.0 per cent boost to monthly income," he added.
Williams said the additional RM2 billion allocation to the cash aid programme is expected to generate a RM6 billion boost to consumption through the multiplier effect.
This will provide a modest stimulus to economic growth in the second half of the year while supporting SMEs in local communities.
"It will not harm government spending or the fiscal deficit because it is a transfer of subsidy rationalisation savings.
"If it is able to hold up growth, it will help the government keep on target for the deficit ratio," he said.
Putra Business School economic analyst Associate Prof Dr Ahmed Razman Abdul Latiff said the increased allocation for STR and Sara from RM13 billion to RM15 billion will be made possible through the savings made from RON95 subsidy rationalisation which will start this September.
Therefore, he said there will be no additional revenue needed for this increased allocation and no trade off is required.
He added that the affected group tend to spend most of the assistance received to cover their basic cost of living such as the food.
"Therefore, this RM15 billion most likely will enter the market and increase the liquidity overall, which in turn will encourage higher transactions of products and services.
"Consumption will increase and inflation too, but since inflation rate is currently very low at 1.2 per cent, any increase will still be within the acceptable range," said Razman.
Fixing RON95 Price
Razman said the RON95 fixed price of RM1.99 can only be made sustainable if the global oil price become stable at certain low level range.
However, he said the savings from subsidy rationalisation would help fund the targeted subsidy, as 35 per cent of the current fuel subsidy is presently benefiting the T20 income group.
Meanwhile, economist specialising in Southeast Asian development Doris Liew warned that fixing RON95 at RM1.99 per litre poses serious sustainability concerns.
While the intention is to ease the cost burden for everyday Malaysians, she said pegging fuel to an artificially low rate exposes public finances to the unpredictability of global oil markets.
"Locking in a low price not only undermines efforts to encourage energy transition but also reopens a fiscal gap that the government has spent years trying to close," she said.
Toll Hike Pause
On the additional RM500 million cost from the freeze on scheduled toll rate hikes, Razman said it is still considered manageable for the government, given that annual savings from RON95 subsidy rationalisation are estimated at around RM8 billion.
Liew, however, said that while the decision may bring short-term relief to road users, it translates into foregone revenue or increased compensation payments to concessionaires, both of which strain public coffers.
She added that at a time when Malaysia is prioritising deficit reduction, absorbing such costs can derail fiscal targets or delay other critical expenditures.
"To offset the fiscal impact of freezing toll hikes, the government could explore several alternatives such as enhancing compliance and broadening the tax base for both personal and corporate income taxes, as well as expanding the coverage and enforcement of SST or considering a more progressive tax system.
"The government should also consider monetising state assets or increasing returns from government-linked companies and improving efficiency in public spending to reallocate savings.