This article first appeared in Forum, The Edge Malaysia Weekly on November 9, 2026 - November 15, 2026

There is no such thing as a standard formula in economics. At the height of the neoliberal era, the “Washington Consensus” was presented as a standard and universal package for developing countries to prosper. It was about privatising as much as possible with the government playing a very minimal role in the economy, and opening up to foreign trade and foreign investment with as few restrictions as possible. It also included capital deregulation, removal of government assistance and wholesale abandonment of industrial policy.

The other hallmark of the neoliberal era is to assume that there is no such thing as society, as former British prime minister Margaret Thatcher famously said. Everyone is an individual atom in pursuit of their own interests. By this neoliberal logic, it is assumed that anything that is done to hold the society together is a waste of resources, a form of inefficiency.

In contrast, the Madani governance philosophy recognises that society is far more than the sum of its individual components. Fostering social cohesion and economic solidarity is not merely an ethical imperative; it is an essential foundation for stability, particularly amid the most profound geopolitical shifts and transitions witnessed since 1945.

The neoliberal ideas linger on in Malaysia’s economic discourse, especially when we discuss difficult policy trade-offs involving long-term challenges faced by the nation.

Fortunately, Malaysia has never been the poster boy of the neoliberal era, and I hope more Malaysians will share the idealism that we must come together to build a strong nation and a resilient society. We must do it through a gotong-royong spirit in economic governance, a sense of Malaysian nationalism, and a middle path away from the neoliberal era. Economic governance is fundamentally an exercise in managing policy sequencing and trade-offs.

I wish to focus on three central policy dilemmas shaping the national discourse: targeted fuel subsidies, the tax architecture (SST vs GST) and labour market reform.

Recently, a political leader suggested that fuel price be floated to market price, beginning at a point when Brent is at US$70. Actually, September 2025, when Budi95 was rolled out, was exactly the point. Had the government listened to a particular former minister to float the fuel price to market price, Malaysians would be paying RM4-RM5 per litre of RON95 from Feb 28 when US President Donald Trump launched his pointless war on Iran.

There are also many other economists, including those from the World Bank, who suggested the removal of subsidies and floating it to the market price right away.

Shock therapy in the handling of fuel price has a long and problematic history. On May 4, 1998, 10 months after the Asian financial crisis started in Thailand in July 1997, Indonesia’s President Suharto, pressured by the International Monetary Fund (IMF), raised fuel prices by 71%, immediately triggering riots in Medan and Jakarta. Suharto, a military strongman turned authoritarian ruler, was gone by May 21.

By choosing targeted rationalisation rather than abrupt shock therapy, the Madani government effectively plugged cross-border smuggling leaks and eliminated subsidised consumption by non-citizens, while safeguarding baseline affordability for domestic consumers. Moreover, subsidy reform must be sequenced with broader structural investments: expanding urban public transit, densifying cities to minimise private car dependency and accelerating vehicle electrification.

Admittedly, fuel subsidy is likely to be above RM40 billion in 2026. In the meantime, there is no coincidence that inflation is at 1.8% throughout the first nine months of 2026, headline inflation for 2026 is projected to be contained at between 1.5% and 2.5%, shielding the economy from demand-pull spikes.

The age-old debate regarding the reintroduction of the goods and services tax (GST) versus the expansion of the sales and service tax (SST) demands rigorous evaluation beyond corporate preferences.

While businesses understandably favour GST due to its clear input-tax credit mechanism and the direct pass-through to consumers, the wider macroeconomic reality must be taken into account:

Revenue equivalence: Through expansion, the SST currently generates revenue equivalent to approximately 3% of gross domestic product (projected to be at 3.07% in 2026 and 3.16% in 2027) matching the revenue intensity achieved during the peak GST implementation years of 2016 (3.3%) and 2017 (3.23%).

Impact on vulnerable consumers: Unlike SST, GST operates as a direct, inescapable pass-through tax fully absorbed by the end consumer. While both SST and GST are consumption taxes, and all consumption taxes are regressive in nature as the rich would have consumed a smaller portion of their incomes and wealth compared to the middle class and the poor, in an economy where 8.5 million Malaysians qualify for and receive targeted government cash assistance, SST is less regressive than GST, and thus less harmful to the middle class and the poor.

The income tax fallacy: The claim that a consumption tax is necessary and “fairer to other taxpayers” because “too few Malaysians pay income tax” misdiagnoses the root problem. The low proportion of income-tax payers is directly caused by structurally depressed wages. The national median wage hovers near RM3,000 (RM2,940 in 2025), while, if reliefs are taken into consideration, most taxpayers do not start paying taxes if their monthly income is below RM4,000. Imposing GST on a population whose wages remain suppressed exacerbates inequality. The collective Malaysian mission should be to raise income across the board so that more Malaysians become part of the middle class, and qualify to pay income tax eventually.

Administrative burden: Under the previous GST regime, 687,938 registered businesses collected GST on behalf of the government in 2018, and if extrapolated, the number would be 980,548 in 2026. Under the SST framework, compliance is concentrated among 132,838 businesses. Further, currently, 1,836 tariff lines are at 0% while 607 lines were at 0% in the GST framework of 2015-2018. Regarding the service tax, 286 services are currently taxable while 420 services were subject to GST during its implementation between 2015 and 2018.

There is another common view that says GST has been implemented in many countries around the world, and hence it should be done here. France was the first country in the world that introduced Value-Added Tax, in 1954. Today, with the e-invoice system, the transactions are transparently visible to the authorities, which diminishes the need for GST/VAT to curb tax avoidance. The only challenge we have is that e-invoice is managed by the Inland Revenue Board while Customs handles SST. There is an urgent need for Customs to fully utilise e-invoice data.

The government continues to actively mitigate cascading effects within the SST system which, admittedly, is a genuine concern of the businesses. At the same time, maintaining social cohesion remains the overarching priority.

We need to ensure our nation grows wealthy before it grows old. Malaysia’s median age is currently 31 years (with 50% of our populace younger than 31), compared to 42 in China and 49 in Japan. We still enjoy a demographic dividend but the window to elevate national income before entering an ageing society is closing rapidly. (Malaysia is expected to be an aged society by 2048 with more than 14% of its population above 65 years of age.)

Domestic wages have long been distorted by regional cross-currents. In the context of the Singapore brain/labour drain, an estimated 1.1 million Malaysians work in Singapore, with two-thirds of them earning between S$1,500 and S$3,599. Many express a clear willingness to return if domestic salaries reach half to two-thirds of Singapore’s levels.

Heavy reliance on low-skilled foreign labour has also artificially depressed domestic wage growth, dissuading industries from automating and incentivising young Malaysians to seek low-tier work abroad.

The government's phased increase of the minimum wage from RM1,700 to RM2,000 for companies above RM50 million turnover, incorporating transitional flexibility for micro and small enterprises, marks an essential step away from this trap. However, legislative mandates alone cannot solve wage stagnation.

I call upon the Malaysian private sector to champion voluntary living wage benchmarks of RM3,400 set for government-linked companies (GLCs) and government-linked investment companies (GLICs).

By treating equitable wages as a badge of excellence and operational pride, we can create a virtuous cycle of higher productivity, enhanced consumer purchasing power and dignified livelihoods.

Our ultimate economic ambition must be to transition Malaysia from being a mere consumer, bystander or utility provider into a creator and owner of advanced technologies. Amid shifting global supply chains and intensifying geopolitical competition between the US and China, Malaysia must not settle for simply supplying cheap land, water and power for multinational facilities.

We must foster indigenous technological capability, cultivate engineering expertise, and support domestic enterprises in retaining valuable intellectual property. By moving away from short-sighted neoliberal assumptions and reinvesting in our people, industries and social cohesion, Malaysia will emerge as a resilient nation equipped to thrive in an era of global realignment.

Liew Chin Tong is deputy finance minister. This message was delivered at Asia Strategy and Leadership Institute’s (ASLI) Post-Budget Dialogue.

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