Pakatan Harapan – the difficult part lies ahead

DESPITE several obstacles instituted to stymie the electoral campaign of Pakatan Harapan (Pakatan) in the 14th General Election (GE14), the tidal wave of anger against Barisan Nasional (BN) lifted the then opposition coalition to an easy victory at federal level and in five states on May 9.

Cliffhanger results in Sabah, Perak and Kedah have now been resolved in Pakatan's favour, leaving only Perlis, Pahang and Sarawak within BN's domain while PAS retained Kelantan and regained control of Terengganu.

For Pakatan, the difficult part lies ahead. Arguably, possibly the most intractable challenge it faces is implementing the populist promises in its manifesto, Buku Harapan, without weakening significantly federal government's finances.

In implementing Buku Harapan promises, the newly-minted Pakatan administration should consider three salient points.

First, Pakatan must temper unrealistic expectations about its ability to lower the cost of living. Although the much-disliked goods and services tax (GST) will be reduced to zero tomorrow (Friday), consumers shouldn't expect prices of all goods and services to tumble overnight nor should they expect prices to slide downwards and remain permanently lower than last year.

One reason is the sales and services tax (SST) will be re-imposed after Parliament convenes on June 25, although the quantum hasn't been announced.

Another reason is oil prices have surged above last year's levels. While the Najib administration removed fuel subsidies and pegged pump prices to a managed float system, the federal government's high debt level suggests Putrajaya cannot continue to subsidise the gap between global oil prices and at Malaysian pumps.

Furthermore, past history suggests prices in this country tend to be sticky downwards. For these reasons, ensuring widespread profiteering won't take place after GST is zero-rated tomorrow could be a monumental challenge for Pakatan.

Second, although Pakatan's commitment to fulfilling 10 promises listed in its manifesto titled Buku Harapan within 100 days is admirable, speed shouldn't be the over-riding priority.

Credit agencies, as well as stakeholders in Malaysia's bond and stock markets, must be reassured the newly-minted Pakatan administration is committed to ensuring the federal government budget deficit and its debt level remain within prudent limits.

Including lease payments and contingent liabilities, federal government debt totals RM1.09 trillion; federal government debt alone totals RM686.6 billion. While the newly-released debt figure is significantly higher, it is noteworthy that Putrajaya has met all financial commitments.

Credit rating agency Moody's warns the proposed GST zero-rating could be credit negative. A broad-based tax that reduces this country's reliance on oil revenue, GST could generate RM43.8 billion this year, a shade higher than RM42 million last year.

On a pro-rated basis, GST's effective abolition tomorrow means surrendering seven months of GST revenue estimated at RM25.6 billion.

Admittedly, the shortfall could be partially covered by the re-introduction of the sales and services tax (SST). Council of Eminent Persons (CEP) chairman Tun Daim Zainuddin estimates SST could generate RM30 billion. Although he didn't say so, RM30 billion is presumably an annual – rather than a seven-month – figure.

Assuming SST is re-enacted on July 1, the levy could yield RM15 billion for the remaining half of this year. Abolishing GST and re-introducing SST could result in a theoretical fiscal gap of RM10.6 billion.

To minimise the shortfall, wasn't it possible to zero-rate GST and re-introduce SST one day apart?

To bridge the RM10.6 billion fiscal gap, the Pakatan administration has already announced measures to stamp out corruption, reduce unnecessary operating expenditure and cancel mega infrastructure projects.

Although higher oil prices provide some comfort – Budget 2018 assumes Brent crude could average US$52 /barrel this year against the US$75 level last Monday – this buffer may not persist beyond this year.

Oil prices could drop on expectations major producers like Saudi Arabia and Russia will ramp up output.

Worries about the widening federal government deficit could be exacerbated by the proposed abolition of tolls. Although this isn't listed in Buku Harapan as one of 10 promises to be fulfilled within 100 days, improperly implemented, this could exacerbate the federal government deficit.

Third, terminating mega-projects like the High-Speed Rail (HSR) link and the East Coast Railway Line (ECRL) involving foreign partners should be effected without damaging bilateral relations.

Last Monday, Prime Minister Tun Dr Mahathir Mohamad announced plans to scrap the HSR. Estimated to cost RM60 billion previously, Mahathir suggested the price tag is now RM110 billion while compensation for cancelling the HSR could total RM500 million.

Scheduled to be completed by 2026, the 350-km HSR line traverses 15km in Singapore – less than 4.5% of the entire length.

Having served as Malaysia's longest-serving prime minister previously, Mahathir presumably has a strategy to minimise compensation payable to Singapore and to Malaysian stakeholders in the HSR.

Opinions expressed in this article are the personal views of the writer and should not be attributed to any organisation she is connected with. She can be contacted at siokchoo@thesundaily.com