A growing economy drives cost of living

The Goods and Service Tax (GST) is perhaps the headline policy of note when it comes to talk of Malaysia’s fiscal reforms and cost of living, says writer Idris Jala.
Facebook/Idris Jala

By any standards the national economy is performing well.

Internationally, it is spoken of as the best growth story among Southeast Asia’s energised group of emerging economies, celebrated for both its opportunity and its stability.

Objectively it has demonstrated impressive above average GDP growth in recent years, with recovery from the 2008 international financial crisis driven by the New Economic Model (NEM) which has seen Malaysia’s GDP grow more than 2% higher than the global average since 2010.

This New Economic Model was the catalyst for Malaysia’s recent success, providing an ambitious transformation programme designed to offer an inclusive and sustainable framework for growth.

NEM policies were particularly targeted at avoiding the middle-income trap while forging ahead towards achieving a high-income nation status.

The transformation progress has widely been praised as a success, with a push to a more diversified economy and major fiscal reforms credited for avoiding the worst of the 2014 global oil price shocks.

The Goods and Service Tax (GST) is perhaps the headline policy of note when it comes to talk of fiscal reforms and cost of living.

This 6% value added tax was brought in to offer the foundation for a more progressive fiscal environment.

Malaysia has arguably the lowest rate of GST in the world, and has strived to ensure many essential consumer goods have been exempted from the tax, but the measure remains controversial to some.

Yet a 2016 OECD report clearly praises the introduction of GST as a crucial off-set against the oil price slump for the Malaysian economy.

Perhaps a more reliable assessment of the changing cost of living is available through a measure of consumer price inflation.

World Bank indicators show annual percentage consumer price inflation in Malaysia holding steady between a high of 3.2% and a low of 0.583% since 2009.

Compare that to consumer price inflation of 5.441% in 2008, or the inflation high of 23.116% that neighbour Vietnam experienced in the same year.

Taking that comparison further, a contrast of Vietnam’s consumer price index(CPI) against that of Malaysia over the decade since 2006 shows an increase from 64.4 points to 149.6 points, more than double, compared to steady change from 90.1 to 115.2 in Malaysia over the same period.

When you take these figures in context you begin to see the true benefits of stability.

The focus on inclusive growth ensures that tackling challenges around cost of living remain central to government policy.

Intervention programmes to address living costs for the poorest Malaysians form a mainstay of the Barisian Nasional (BN) manifesto.

The fourteen point manifesto is built on pillars of social inclusion and social support, with job creation and affordable homes a key pledge, alongside a reimagining and strengthening of support offered through 1Malaysia People’s Aid (BR1M).

More direct efforts to address rising living costs are spearheaded by innovative new initiatives with the objective of making the ‘People’s Wallet’ thicker, with policies including a gradual increase of the minimum wage and a better protection of Federal Land Development Authority (FELDA) smallholders from seasonal crop damage.

The key goal of these widespread initiatives is to see Malaysia achieve high-income nation status while maintaining inclusive growth.

That status as currently defined by the World Bank would require Malaysia to achieve a gross national income (GNI) per capita of USD12,236.

According to World Bank estimates, Malaysia is on the right track, with projections that under favourable conditions it will reach that threshold as early as 2020.

The title of the World Bank report exploring this growth offers an insight into how remarkable that achievement has been – Turmoil to Transformation.

That transformation has seen Malaysia’s GNI per capita increase from just USD3,460 in the year 2000 to USD9,860 as of 2016, with almost a 70% increase in the decade from 2006 to 2016 alone.

As we reflect on Malaysia’s gradual rise in the cost of living, it is important to recognise the realities against a backdrop of substantial national economic growth.

During what the World Bank calls the country’s transformation from turmoil, as part of the on-going journey to high-income status, Malaysia continues to offer transformative policies that ensure the benefits of growth remain inclusive.  

In our rapidly evolving global marketplace, stability is a powerful economic tool for Malaysia to possess. That should not mean we become complacent.

There is still more we must do to tackle the growing challenges around cost of living, but our ability to do so rests on the back of a strong, stable economy that continues to grow.

*Idris Jala is a former Malaysian Cabinet Minister and CEO of the Performance Management and Delivery Unit (PEMANDU) in the Prime Minister’s Department – the organisation tasked with spearheading Malaysia’s transition towards high income status by 2020.  

This article does not reflect the views of Business Insider Singapore and is sponsored.