Kuala Lumpur, 11 March 2018: IDEAS has released a detailed analysis of the recently launched manifesto of Pakatan Harapan (PH), Malaysia’s opposition alliance. In this paper, IDEAS has divided the manifesto into three broad areas: economic policy, governance challenges, and social policies. The response is authored by the IDEAS research team. The paper argues that the think tank is not convinced of the economic policy direction of PH, whereas it welcomes the proposals under the governance reforms while questioning the social policy direction. The Acting CEO of IDEAS, Ali Salman, who is an economist by training, says while commenting on the PH manifesto, “the economic policy should encourage responsible choices by the citizens and any false promises on the pretext of apparent welfare are self-defeating.”

On Economic Policy

Commenting on Pakatan Harapan’s economic policy, Adli Amirullah, Coordinator of the Economics and Business Unit of IDEAS says “Malaysia has been growing statistically well with a relatively high 2017 GDP growth rate of 5.9%, relatively low core inflation at 2.2%, and relatively low unemployment at 3.4%. However, this macro-economic progress may take time to trickle down while we confront the challenges of managing cost of living and stagnated wages. Pakatan Harapan’s declaration of abolishing GST, increase of minimum wage and controlling import of rice are populist to say the least. Adli Amirullah concluded “Most of Pakatan Harapan’s economic policy ideas come with good intentions but are short on sound principles. Solving the Rakyat’s suffering is a priority, but a populist economic policy might not solve the Rakyat’s problem.”

GST

Economist Adli Amirullah explains that in 2017 the government collected approximately RM42bil in Goods and Services Tax (GST). If PH abolishes the GST, they stand to lose a huge source of government revenue that can be used for the welfare of the people. The GST is a tax imposed on goods and services, including imported goods and services, at every production and distribution stage in the supply chain. Going back to the Sales and Services Tax (SST) may not guarantee that the price of goods and services in the market will go down. In fact, there is a possibility for the prices to go even higher because of double taxation phenomenon in the SST. The GST is an efficient collection of revenue. Besides, government deficit has to be financed through an alternative source that will not increase our government debt burden in the long run.

Minimum Wage

Adli Amirullah adds that although the minimum wage policy is to address labour market imperfections and wage inequalities, the policy itself can have backlash on the overall economy if pushed too far. A higher minimum wage can lead to job losses in the economy as small and medium enterprises (SMEs) cut back on employment to manage their cost of production. This negative impact of the higher minimum wage may not be worth it for Malaysian economy in the long run. Besides, minimum wage policy will not affect the low-income earners in the informal sector. According to official statistics, approximately 1.4 million workers, or about 10% of total employment in the country is in the informal sector. Given that the most of low income earners are in the informal sector, they will not benefit from the policy to increase minimum wages. Thus, the policy will not achieve its objective in raising income level of the B40, argues Adli Amirullah.

Controlling Imports of Rice

Economist Adli Amirullah argues that restricting imports of rice, that PH promises, can be considered as quotas in international trade. Quotas are usually employed to protect infant industries, keep market entry costs low for domestic producers, or to protect strategic industries such as agriculture. Given that Malaysia is not self-sufficient in rice, and our relatively low productivity in this sector, restricting imports will lead to a higher price of rice in the long run. According to the Food and Agriculture Organization of the United Nations, Italian farmers who are growing 234,133 ha manage to produce 1.587 million tons of rice in 2016, whereas farmers in Malaysia only manage to produce 2.252 million tonnes from 708,148 ha in the same year. Instead of restricting imports of rice, it would be advisable to focus on improving productivity of local farmers and encourage healthy competition by liberalizing imports.

On Governance

Aira Azhari, Coordinator of the Democracy and Governance Unit applauds the promises of reform and returning civil liberties to the Malaysian people. “Thorough reforms have been suggested, from limiting the Prime Minister’s term in office, separating the PM’s role from that of the Minister of Finance, empowering Parliament, making the Election Commission more independent, introducing a law on political financing, to establishing the long proposed Independent Police Complaints and Misconduct Commission (IPCMC). Other reforms such as making the Malaysian Anti-Corruption Commission (MACC) and Attorney General’s Chambers (AGC) more independent, improving procurement processes and the governance of Government-Linked Companies (GLCs) are issues that IDEAS has worked on for several years, and we are very glad that our policy proposals have been taken seriously by the PH coalition.”

Aira also adds that PH is moving in the right direction by vowing to abolish the whole slew of repressive laws in the country, including the Sedition Act 1948 and the Printing Presses and Publications Act 1984. “These laws have restricted the freedoms of Malaysians for too long, and I am glad that PH has taken the bold step of restoring the civil liberties and political freedoms of the Rakyat. With these laws gone, Malaysians can finally participate fully in the democratic process without fearing for their freedom.”

Another interesting proposal in their manifesto was to present and debate the performance of Bumiputera policies in Parliament. “This is an important measure to ensure that whatever flaws in the policies are identified and rectified by the policymakers themselves. Only when these policies are debated openly and maturely, can we ensure that Bumiputera policies remain a sustainable measure to uplift the economic status of the Malays.”

On Social Policy

IDEAS analyst Wan Ya Shin believes that the Pakatan Harapan Manifesto promises to dole out many welfare aids to the people. However, the main concern would be the financial feasibility of the manifesto. Welfare state in developed countries generate resources from a high percentage of tax on income in order to fund the welfare aid. The level of welfare aid that Pakatan Harapan promises would need to have enormous resources to fund it.

The Pakatan Harapan manifesto seeks to give autonomy to local public universities where the Board of Directors would be given the autonomy and power to appoint the Vice Chancellor and Deputies based on merit and competence. The Board of Directors would also have the authority to decide on the academic performance, evaluate performance and determine the salary structure and other benefits for the staff and manage their financial allocation. Autonomy of local public universities would be crucial for our local public universities to be able to compete globally, something which IDEAS extensively advocated for in 2016-17. As for free tuition for local public universities, the financial feasibility of this policy should be reviewed as that requires a huge investment from the government.

The manifesto does take into consideration the welfare of the Orang Asal (Indigenous people). The indigenous people have been facing challenges in claiming their rights on customary land. The measure to identify the borders and customary land that belong to them would ensure that their rights be respected and protected. Most of the indigenous communities live in interior areas and it is important that resources be channelled to improving the roads, electricity, water, sanitation and communication so that they would be included in the development of the nation. A more inclusive education system that takes into consideration the culture of the indigenous people would support the indigenous children to have an enabling environment to perform better in schools and reduce the dropout rates of these children, concludes Ya Shin.