Wednesday, 17 March 2020: The Center for Market Education (CME) positively judges some of the contents from the Prime Minister’s speech announcing the PEMERKASA Package.

“First and foremost” – declared Dr Carmelo Ferlito, CME CEO –  “it is more than welcome the fact that Prime Minister Muhyiddin Yassin has announced that the government will no longer resort to “blanket MCOs”. Instead, he said that lockdown restrictions will be implemented on a targeted basis and within restricted localities. This is a huge step in the right direction: whether or not the immunisation campaign will be effective, we need to learn to live with the virus for the time being, until a full treatment is developed. Being stubborn on questionable lockdowns would only produce drastic economic consequences”.

CME also welcome the attempt to move in the direction of more targeted aids rather than generalized subsidies; in particular, CME looks positively at the announcement of tax cuts in order to revive the economy. Tax cuts can be the most effective way to counteract the downturn if they will be effective in re-awakening positive profit expectations. And they need to be accompanied by a better strategy on international borders, in particular in a more effective strategy for attracting business travellers.  

At the same time, CME invites the government to closely monitor the long-term effect of the several fiscal packages that have been implemented over the past year. In fact, as also announced recently by the Ministry of Finance, there is the serious risk that the present or future governments may recur to tax increases once the economy recovers; this may become necessary to restore damaged public finances but at the same time tax increases could curb the recovery once on the way.

Finally, the Center for Market Education observes that too aggressive fiscal initiatives (taken by many governments during the last year) may also generate dangerous inflationary tendencies, which worldwide can already be seen in the dynamics of raw material prices.

“Fiscal stimuli” – added Dr Ferlito – “come at a cost and they may produce bad unintended consequences in the medium and long-run, consequences which will fall on the shoulder of future generations. Presently, then, fiscal stimuli need to be closely monitored with a look at the long-term effects if we do not want them to be deleterious for the future development of the Malaysian economy (in terms of new taxes, increased debt burden and inflation)”.