KUALA LUMPUR: Solving Malaysia's pension crisis and raising wages are the most urgent social protection reforms, and both could be addressed through a reverse income tax model of universal basic income, said economist Dr Geoffrey Williams.
"It's good that the need for structural reforms in social protection and the labour market has finally been highlighted by policymakers, although this is not normally the domain of a central bank," he said.
Dr Williams was responding to a recent news report quoting Bank Negara Malaysia governor Datuk Seri Abdul Rasheed Ghaffour, who said Malaysia is making steady progress with strategic and structural reforms to achieve its aspiration of becoming a high-income, developed nation.
Abdul Rasheed emphasised that beyond fiscal and investment measures, advancing social protection and labour market reforms is essential to strengthening long-term economic resilience.
He noted that given current socio-economic and socio-political realities, a gradual and cautious approach may be necessary, emphasising the importance of avoiding policy flip-flops.
Dr Williams said step-by-step approaches are not the best way to deal with social protection and labour market reforms.
"The best approach is intervention first and measured deregulation. By taking a step-by-step approach, you inevitably delay helping those most in need. You also allow the process to be stopped as new governments are elected. This means you might never reach the aim of policy reform," he told Business Times.
Dr Williams also noted that the government has made progress in fiscal reform, subsidy rationalisation, reducing wastage and leakages, and anti-corruption efforts, saving RM15.5 billion per year in subsidies and another RM15.5 billion in the last two years in anti-corruption efforts.
"The problem is that people are not seeing the benefits of this. "STR-SARA payments are frozen for example," he noted.
Looking ahead, Dr Williams said as Malaysia moves towards a digital economy, the introduction of an e-payments tax (EPT) is feasible.
A small one per cent levy on QR code, e-wallet, or card transactions could raise RM28.8 billion, he said.
"If you adopt a step-by-step approach for example, you have BR1M introduced in 2012 but still, 13 years later, the problem of low income has not been stopped."
Meanwhile, Dr Oh Ei Sun, Senior Fellow at the Singapore Institute of International Affairs, said policy reforms must be paired with tangible, visible rewards to secure public support.
"Reforms should also be tied with specific and tangible "rewards" that are low-hanging fruits. For example, new taxes are to be used for building or improving more schools and hospitals, something that people can touch and feel and thus think is "worth" the sacrifice," he told Business Times.
He added that as taxes rise and subsidies are rationalised, Malaysians must experience improved government efficiency, including reduced red tape and better service delivery. He cited how the United States used tariff revenues to compensate farmers affected by China's boycott of American soybeans.
Dr Oh said enhancing the ease of doing business, such as improving licensing processes and tackling corruption and monopolistic practices, requires sustained political will.
He also noted that easing restrictions on online expression could encourage creativity, pointing out that Malaysia has tightened regulations on content deemed undesirable in recent years.
Source: https://www.nst.com.my/business/corporate/2025/12/1327424/economist-calls-reverse-income-tax-fix-pension-crisis-boost
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