PETALING JAYA: The Center for Market Education (CME) pointed out that there are unintended negative consequences generated by additional borrowing, following the proposal of Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz to increase the legal debt limit at 65% compared to the current 60% of gross domestic product (GDP).
“Economic history teaches us that – all over the world and over the millennia – governments have always found themselves in a situation of emergency that has caused them to constantly borrow more money, raise taxes or devalue the currency. Economic history also teaches us that governments have rarely spent these resources efficiently or for the common good and so we must be careful in giving them the favor of additional resources, ”said CME CEO Dr Carmelo Ferlito. , in a press release today.
CME said that the unintended negative consequences generated by the additional borrowing include first, the additional debt is transferred to future generations, not only in terms of money to be repaid, but also in terms of a weaker currency (a debt more creates inflation) and fewer employment opportunities (in a generally weaker economic environment).
Second, it further deteriorates Malaysia’s credibility and investor confidence, further limiting private investment and hence employment opportunities. Third, the additional demand for loanable funds can drive up interest rates, discouraging private investment and thus limiting growth and job creation.
“Moreover, it is not necessarily true that the government may be able to spend the additional resources precisely in the areas where spending is needed. This is because a central authority operates outside the market and therefore does not have the entrepreneurial knowledge necessary to meet the needs of the economic system, ”said Ferlito.
In order to increase government revenues without unintended negative long-term consequences, CME proposed, first of all, to accelerate the reopening of the economy, including domestic and international movements, in order to create growth driven by investment which, by increasing profits in the private sector, will also increase government revenues.
Second, reduce direct corporate taxes by 1%.
Third, introduce a special micro-enterprise tax program (like the one devised by Indonesia), whereby micro-enterprises can enter the formal economy circuit by paying a small flat-rate income tax, while the accounting and reporting obligations are lifted.
Fourth, implement a tax reform based on simplification on the one hand and on the introduction of a tax on goods and services at several levels (consumption tax) on the other hand, in order to promote the reconstitution of savings that are needed not only for long-term financial stability of households, but also as healthy resources for private investment.