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Malaysia’s Unity Government grapples with policy challenges in the wake of Six-State Elections

The Unity Government in Malaysia, composed of diverse political parties, faces hurdles in implementing reforms after recent state elections.

While social stability remains stable, political diversity may lead to policy gridlock and a shift towards race-based policies, potentially impacting the country’s reform agenda, as indicated by BMI, a unit of Fitch Solutions.

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12 months ago

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MALAYSIA: BMI, a unit of Fitch Solutions, has expressed concerns about the challenges to policymaking even after the conclusion of state elections.

The reason for this apprehension is that the unity government is made up of multiple political parties with diverse ideologies.

This diversity within the government could potentially hinder the speed and effectiveness of implementing reforms.

Despite the election results showing no change in state governments, the opposition party Perikatan Nasional (PN) has gained additional seats in State Assemblies.

“However, we expect Malaysia’s improved inflationary backdrop and resilient labour market to help keep social stability risks low,” it said in a statement on Thursday (21 Sep).

The research house maintains Malaysia’s Short-Term Political Risk Index (STPRI) score at 71.7 out of 100, which is lower than the regional average (GDP-weighted) of 77.3.

Malaysia’s six-state elections concluded with the status quo being preserved

Malaysia’s Prime Minister Anwar Ibrahim’s Pakatan Harapan (PH) coalition retained control of Penang, Selangor, and Negeri Sembilan, while Kedah, Kelantan and Terengganu remained under PN’s leadership.

“The election results clearly highlight that PN had secured a higher number of seats across all six states.

“The opposition party won more than 95% of seats in the three states it currently governs, and made gains in the remaining three states held by PH,” it said.

State Elections serve as a barometer for national politics

Although the composition of state legislatures does not directly affect the national legislature, the state elections were a bellwether of the electorate’s political mood.

“We expect PN’s increased influence to pose challenges to policymaking at the central government level.

In light of the weaker-than-expected performance by PH, we believe that the unity government will be inclined to roll out race-based policies that favour the Bumiputras (ethnic Malays) to shore up support among this core group,” it said.

However, there are two main implications of this, it said, first, doing so would cause the coalition government to backtrack from its commitment of implementing needs-based policies as opposed to race-based policies.

Second, while such policies could prove popular with the support base of the once-dominant Barisan Nasional party, which is part of the unity government, it could stoke tensions with other members of the coalition government including the Gabungun Parti Sarawak and Gabungun Rakyat Sabah, leading to a slowdown in reforms and policy gridlock.

“The government has announced a targeted fuel subsidy system and is considering a voluntary progressive wage policy to propel the labour market.

“There are nascent signs that the unity government, which comprises multiple parties, could face gridlocks over policy in future,” it said.

In September 2023, Syed Saddiq, Member of Parliament (MP) for Muar announced his withdrawal of support for the unity government in response to the public prosecutor’s decision to drop all 47 corruption charges against Deputy Prime Minister Ahmad Zahid Hamidi.

Saddiq is the president of the Malaysian United Democratic Alliance (MUDA), a very small party.

While Saddiq’s withdrawal does not pose a serious threat to Anwar’s position as prime minister, we believe that the reprieving of the Deputy Prime Minister, who is also the leader of the United Malays National Organisation (UMNO) – the sole Malay nationalist and a crucial component party in the unity government – could raise doubts about Anwar’s commitment to fighting corruption.

Component parties of the unity government and opposition parties alike have cast doubts on Anwar’s anti-corruption drive.

“Anthony Loke, secretary general of Democratic Action Party (DAP) – a component party of the PH coalition – has since demanded an explanation in order to uphold the public’s confidence in Malaysia’s legal system.

“Additionally, hundreds of opposition protesters have taken to the streets and threatened further protests should no action be taken to reverse the public prosecutor’s decision.

“If the case is perceived to be handled lightly, we believe PH would risk losing its current support base, while deepening divisions within the already-fragmented government and ultimately slowing the pace of Anwar’s reform agenda,” it said.

Easing inflation and a tight labour market will help suppress risks to social instability

Malaysia’s consumer price inflation backdrop has been improving since peaking at 4.7% y-o-y in August 2022 and has most recently fallen to a 23-month low of 2% in July 2023 (see left-hand-side chart above).

The decline in inflation suggests that the central bank’s real policy rate is now in positive territory (see right-hand-side chart above), a development which since 2006 has typically coincided with the end of the monetary tightening cycle.

Additionally, the labour market has remained relatively robust, with the participation rate sitting at an all-time high of 70.1% as of July 2023 (see chart below).

“Against this backdrop, we are maintaining Malaysia’s STPRI score at 71.7 out of 100. The policymaking process component (53.3) has previously been lowered to account for the challenges the unity government is likely to face and its reduced ability to push through with reforms while holding the multi-party coalition together.

“We caution that social instability could rise should protests persist, but we remain comfortable with Malaysia’s social stability component (67.5) for now,” it said.

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Economy

IRAS reports S$80.3 billion in tax revenue for FY2023/24, a 17% increase from the previous year

The Inland Revenue Authority of Singapore (IRAS) collected S$80.3 billion in tax revenue for FY2023/24, a 17% increase from the previous year. The rise reflects strong corporate earnings, higher wages, and increased consumer spending, contributing to essential services and economic development.

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2 weeks ago

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4 September 2024

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The Inland Revenue Authority of Singapore (IRAS) reported a total tax revenue collection of S$80.3 billion for the Financial Year (FY) 2023/24, marking a 17% increase from FY2022/23.

The rise is attributed to the country’s strong economic growth and nominal wage increases in 2022.

This revenue constitutes approximately 77.6% of the Singapore Government’s Operating Revenue and 11.9% of the nation’s Gross Domestic Product (GDP). The taxes collected will be used to fund essential services, support social development programmes, grow the economy, and enhance Singapore’s living environment.

In addition to tax collection, IRAS processed close to S$2.3 billion in enterprise grants, benefiting over 131,000 businesses and workers. The arrears rate for Income Tax, Goods and Services Tax (GST), and Property Tax remained low at 0.64%.

Breakdown of Tax Revenue

Corporate Income Tax (CIT) showed the largest increase, rising by 25.6% from S$23.1 billion in FY2022 to S$29.0 billion in FY2023, due to strong corporate earnings. CIT accounted for 36.1% of total revenue collection.

Individual Income Tax (IIT) accounted for 21.8% of the total, with revenue increasing by S$2 billion to S$17.5 billion, driven by higher wages and an increase in the number of taxpayers.

GST contributed 20.7% of the total revenue, with collections rising by S$2.6 billion to S$16.6 billion, a result of higher consumer spending and the increase in the GST rate.

Property Tax contributed 7.4% (S$5.9 billion), and Stamp Duty accounted for 7.2% (S$5.8 billion), though Stamp Duty saw a decline of S$0.1 billion due to lower property transaction volumes.

S$2.3 Billion in Enterprise Grants Processed

IRAS also disbursed S$2.3 billion in grants to support businesses and workers under several schemes, including the Progressive Wage Credit Scheme (PWCS), Senior Employment Credit (SEC), and Jobs Growth Incentive (JGI). These grants were designed to assist businesses in maintaining operations and supporting workers’ employment.

Digital Solutions for Businesses

IRAS continues to enhance digital solutions to facilitate tax compliance for businesses.

Initiatives include:

  • InvoiceNow: This e-invoicing system, set to become mandatory for GST-registered businesses starting in November 2025 for new GST registrants, allows for seamless transmission of invoice data to IRAS for tax administration.
  • One-Stop Payroll (OSP): Developed in collaboration with the Central Provident Fund Board, Ministry of Manpower, and GovTech, this system allows businesses to submit wage-related information to various agencies through a single platform. These initiatives build on IRAS’ existing digital services, such as the Submission of Employment Income API.

To date, over 120 software providers have partnered with IRAS, offering 46 software products designed to simplify tax filing and payments for businesses.

In FY2023/24, it audited and investigated 9,590 cases, recovering approximately S$857 million in taxes and penalties from non-compliant taxpayers.

IRAS aims to ensure timely tax filing and payment while addressing tax avoidance and evasion.

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Economy

Singapore faces 25% increase in bankruptcy filings during first half of 2024

Bankruptcy cases in Singapore surged in the first half of 2024, with 2,334 filings—a 25% increase from 2023. The number of undischarged bankrupts reached 9,903, reflecting ongoing financial challenges and highlighting a rise in bankruptcy orders and applications.

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2 weeks ago

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2 September 2024

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Singapore faces 25% increase in bankruptcy filings during first half of 2024
(photo for illustration purposes only/Unsplash)

SINGAPORE: Bankruptcy cases in Singapore surged in the first half of 2024, with 2,334 individuals filing for bankruptcy—a 25% increase compared to the same period in 2023, according to data from the Ministry of Law (MinLaw).

The rise in filings highlights the ongoing financial challenges faced by many in the country.

The total number of undischarged bankrupts reached 9,903 as of 30 June, marking a 2.4% increase since January.

Additionally, 594 individuals were declared bankrupt between January and June 2024, an 11% rise from the previous year.

May recorded the highest number of bankruptcy applications, with 430 cases, followed by January with 409.

In comparison, May 2023 saw 314 applications, while the highest figure for the first half of 2023 was 356 in March.

Bankruptcy orders also increased, with 595 orders issued in the first half of 2024, compared to 537 during the same period in 2023.

Under Singapore law, individuals with at least S$15,000 (US$11,480) in unpaid debts can file for bankruptcy in the High Court.

The process requires a deposit of S$1,850 (US$1,415) to the Official Assignee for the administration of the bankrupt’s estate.

However, this deposit is non-refundable for those filing for their own bankruptcy. Creditors may recover the deposit if sufficient funds are available in the bankrupt’s estate.

Some cases may qualify for the Debt Repayment Scheme (DRS), an alternative to bankruptcy designed to help debtors repay their debts without filing for insolvency.

The DRS is accessible only through creditors and is available to employed individuals with debts of up to S$150,000 (US$114,807).

Those who qualify must repay their debts in monthly installments over up to five years.

Credit Counselling Singapore (CCS) general manager Tan Huey Min noted that borrowers under the DRS typically repay less than the full amount owed, but once they fulfill their obligations, they can start afresh.

MinLaw cautioned, however, that there is no guarantee of significant debt reduction, and any reduction above 70% would be considered substantial.

Despite the lighter debt burden under the DRS, some individuals still fail to complete their repayment plans.

In such cases, creditors can pursue the remaining debt, which may include filing another bankruptcy application.

Additionally, not all debtors qualify for the DRS, and those deemed unsuitable are declared bankrupt.

Recent reforms in Singapore’s bankruptcy system aim to rehabilitate debtors with clearer discharge timelines

In an interview with Straits Times, Yuen Law associate director Tris Xavier highlighted that prior to 2016, the system lacked clear timelines for discharge from bankruptcy, with some individuals remaining in this state for decades.

The reforms now offer clearer milestones for debtors based on their personal circumstances, making the system more debtor-centric.

First-time bankrupts can be discharged within three to seven years if they meet their target contributions, which typically require 52 monthly payments.

Repeat bankrupts can be discharged within five to nine years, contingent on 76 monthly payments.

Those who fully meet their target contributions will have their names removed from public records five years after discharge, while those who do not will remain on public records permanently.

Xavier emphasized that bankruptcy should not be seen as a way to reduce debt but rather as a financial rehabilitation tool.

He warned against hiding assets, explaining that bankruptcy laws cover both local and overseas assets, and the court can reverse transactions intended to shield assets from creditors.

While CPF savings are protected from creditors during bankruptcy, CPF funds inherited by a bankrupt after death are not.

Additionally, bankrupts face restrictions, including needing permission to travel overseas and being barred from managing a business or acting as a company director.

For those in financial distress, bankruptcy is not the only option.

Xavier advised debtors to communicate openly with creditors as soon as financial difficulties arise.

Credit Counselling Singapore (CCS) also offers a Debt Management Programme that negotiates more affordable repayment terms with creditors.

Unlike the DRS, the CCS program requires full repayment of debts, but it allows individuals to avoid bankruptcy, keeping their financial situation private.

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