PETALING JAYA: Easing monetary policy and introducing fiscal stimuli to support consumption may not be the right way to prepare Malaysia for its first recession since 2009, said the Institute for Democracy and Economic Affairs (Ideas).
Ideas senior fellow Dr Carmelo Ferlito was responding to Bank Islam Malaysia chief economist Dr Mohd Afzanizam Abdul Rashid’s statement on the possibility of a recession by end of this year or next year.
Although he agreed with Mohd Afzanizam’s prediction of a recession, he disagreed with the latter’s suggestions for the government to loosen up on monetary policy and expand fiscal policies to fuel economic growth.
Ferlito said it is necessary to first understand the reason why a recession happens, before proposing adequate policy measures.
Ferlito said the best way to support sustainable growth and to face the recession is to recognise the crucial role of long term investment projects and the need for them to be financed with sound money rather than easy credit.
“The logical conclusion is to support the creation of saving, rather than artificial credit and consumption, to generate real funds available for long term investment projects,” he added.
Ferlito said another counter cyclical move may be to gradually reconsider indirect taxation, such as Goods and Services Tax or Sales and Services Tax.
“Therefore, rather than a simple tax cut, I suggest more comprehensive tax reform which favours indirect tax collection to prepare the economy for the upcoming recession,” he said.
Among his suggestions were reducing the Employees Provident Fund members’ contribution to promote consumer spending and tax cuts to ensure growth of the country’s gross domestic product.
In his policy paper “Affordable Housing and Cyclical Fluctuations: The Malaysian Property Market” published last month, Ferlito argued that there is a property bubble waiting to burst.