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Malaysia's Ismail Sabri resists rush to election as inflation bites

PM wants to 'wait for right time' to call polls, eyes GST to ease fiscal strain

Malaysian Prime Minister Ismail Sabri Yaakob speaks with Nikkei about the election outlook. (Photo by Kosuke Imamura) 

TOKYO -- Malaysian Prime Minister Ismail Sabri Yaakob is under pressure to call for an early election. But in an exclusive interview with Nikkei, he argued that rising food prices and other living costs are reasons to put off the polls.

"We will have to wait for the right time [to call the election]," the prime minister said on the sidelines of Nikkei's Future of Asia conference in Tokyo last week. "We are now facing a period of increasing inflation with high prices... do you think this is the right time?"

The election is widely expected to be called by the end of the year, even though Ismail Sabri's term does not expire until August 2023. Many in his party, the United Malays National Organisation (UMNO), are itching for it. But the prime minister was adamant that a vote should not be held until the country can curb inflation, driven partly by the global impact of the war in Ukraine.

Malaysia's central bank expects headline inflation to average between 2.2% and 3.2% this year.

Ismail Sabri, who also spoke with Nikkei about the geopolitical implications of Russia's invasion of Ukraine, is the country's third prime minister since the 2018 general election. His rise marked UMNO's return to power after it lost that election to a coalition led by former Prime Minister Mahathir Mohamad. Now UMNO, the party that has led the country for all but a few years since independence in 1957, is keen to cement itself on top again.

Despite swirling corruption allegations against prominent figures -- former Prime Minister Najib Rajak is appealing a 2020 conviction and UMNO President Ahmad Zahid Hamidi is on trial for separate charges, which he also denies -- UMNO remains a political force. This was illustrated by its resounding victories in recent local elections, and many insiders are thought to want to capitalize on the momentum.

When asked about pressure to call early polls, Ismail Sabri replied: "The election cannot be delayed further than the timeline set in the constitution, but to make it earlier, we have to look at the current situation."

Urged to estimate the timeline, he would only say, "God willing, I'll make the move at the right time."

He also stressed that he is a "party person" and that he would have to adhere to the decision of UMNO as well as the cabinet. Under the constitution, the cabinet must approve a decision to advise the king to dissolve parliament.

Prime Minister Ismail Sabri says UMNO should "look at the current situation" regarding rising food prices and living costs before rushing to the polls.   © Reuters

Ismail Sabri faces a delicate political balancing act. He is the first leader in Malaysia's history who does not hold the top post in a political party. Until recently, one question heading toward the election was whether UMNO would even pick him as its prime ministerial candidate.

UMNO endorsed him in a recent statement. Yet political observers remain cautious, as the decision is nonbinding and could be changed after the general election.

Meanwhile, Ismail Sabri is considering an economic move that consumers might see as adding to their cost-of-living burden -- reintroducing a goods and services tax.

He said the government is keen to bring the tax back, as it attempts to expand its revenue base and carry the weight of public subsidies. Malaysia switched from a colonial-era sales and services tax to a much broader GST under UMNO in April 2015. But the blanket 6% levy was heavily criticized by opposition parties and consumer groups, contributing to the party's 2018 defeat.

Mahathir then scrapped the GST, fulfilling an election pledge.

Ismail Sabri told Nikkei that the government is aware of negative perceptions of the GST but has limited options for replenishing the federal coffers.

"We lost 20 billion ringgit (about $4.6 billion) in annual revenue when we abolished the GST" and replaced it with the old sales and services tax, he said. "No country in the world has reverted back from GST to SST, except for Malaysia."

This time, he said, the government would formulate ways to educate the public on the importance of the GST and transparent tax collection. "If we are going to reintroduce the GST, we have to educate the people to accept it," he said, adding that the government would aim for a rate that was not so high that it burdens the people, but not so low that it "defeats the purpose of expanding tax revenue."

The central bank recently backed the idea of reinstituting the GST, as doing so would relieve the heavy financial burden of the government.

"Bank Negara is supportive of the GST and of course, we have to think about the timing of the reintroduction which will be taken into account by the government," Deputy Gov. Marzunisham Omar recently told reporters.

As Russia's invasion of Ukraine continues to push up prices of fuel and essential imported food items, it is likely to take a toll on the government's finances as well -- raising the urgency for more income. The government's total fuel subsidy bill is expected to be 28 billion ringgit ($6.4 billion) for this year, a steep increase from the 11 billion ringgit spent in 2021.

Apart from gasoline and diesel, the government provides subsidies for cooking oil, sugar, flour and liquified natural gas.

Ismail Sabri said his government is working on a subsidy rationalization program aimed at providing targeted assistance to low- and middle-income households, A comprehensive plan would be submitted to the cabinet for deliberation soon, he said.

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