Malaysia’s drop in the rankings for global competitiveness, after a steady climb since 2012, indicates that stakeholders (ie Government, industry players and firms) need to focus on microeconomic reforms, pursue business transformation and improve growth foundations in a progressively competitive global economy.

Malaysia’s drop in the rankings for global competitiveness, after a steady climb since 2012, indicates that stakeholders (ie Government, industry players and firms) need to focus on microeconomic reforms, pursue business transformation and improve growth foundations in a progressively competitive global economy.

The country is currently facing issues such as high dependency on unskilled foreign labour, slow to adopt to new technologies and automation, inadequate local technological capabilities which are exacerbated by low innovation and skills development, and common organisational culture of resisting change and performance improvement. Apart from that, private investment level has also slowed. Microeconomic reforms should aim to overcome these issues to generate continuous growth and promote domestic stability.

Microeconomic measures should focus on investment-friendly measures to stimulate private investment and enhance productivity. There is some scope for a gradual reduction in corporate and individual income tax since the implementation of GST. Apart from that, targeted incentives such as the allowance for corporate equity scheme, accelerated deprecation scheme and investment tax credits should be considered as it directly reduces the cost of capital but does not erode the tax base like profit-based tax holidays.

As there is a dependency on unskilled foreign workers, targeted tax credits for employment and up-skilling of Malaysians in low-skilled jobs or subsidies to encourage employment of unemployed graduates could reduce this dependency.

The Budget 2017 should provide more targeted spending and incentives to improve the current business and investment environment, which in turn, promotes growth, employment creation and productivity improvement.

Source: New Straits Times, 6 October 2016