The few ringgit paid for tolls in Malaysia might not seem like much to some, but for a country facing steeply rising living costs in combination with stagnating wages, such fees can quickly add up. With pressure mounting to reduce living costs, the government will meet to consider how much tolls should be raised.
The government has already scrapped rate hikes for this year, but hikes in 2015 or later still loom. With public pressure quickly becoming a major issue, however, the government will meet with road toll companies to discuss on future rate hikes can be modified to ease the burden on the people.
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In order to postpone the rate hike in 2014, the government had to pay some RM400 million dollars to express owners. Since 2008 the government has paid some RM1.5 billion dollars to forestall rate hikes. With government deficits remaining high and the national debt level slowly rising, however, the government cannot stall rate hikes forever.
The last major rate hike came in 2007. While tolls have not been raised, however, other living costs have been rapidly rising.
Living costs rapidly rising in Malaysia
Malaysia’s living costs have been rising in recent years. Property in major cities, such as Kuala Lumpur, is now unaffordable for many middle class families. In fact, property prices in the capital of Kuala Lumpur have almost doubled since the turn of the millennium, while wages have failed to keep pace.
The government has also begun to raise the amount charged for utilities such as electricity and water. At the same time the government has cut subsides for gasoline, while maintaining high tariffs on imported automobiles. Combined, these conditions are making Malaysia a very expensive place to live.
In 2015 the government plans to launch a 6 percent goods and services tax. This tax will raise the cost of buying various goods and could curtail consumer spending. Personal income taxes will be cut by 1 to 3 percent, while the corporate business tax will be cut by 1 to 2 percent.
Rising living costs will have dramatic economic repercussion
Malaysia has been trying to wean itself off of its dependence on exports and to reorient its economy towards consumer spending. While some progress has been made on said issue, rising living costs are beginning to cramp spending. Malaysia’s Alliance Financial Group estimates that rising living costs will cause the growth in consumer spending to be reduced by nearly 1 percent.
As consumer spending slows, the importance of exports will take center stage. Yet with demand from global markets, such as the United States and Europe, remaining stagnant, a reliance on exports comes with its own risks. At the same time, Chinese companies are competing aggressively in the high-end manufacturing that Malaysia relies on.
Government coming under pressure
During the past election cycle Barisan Nasional promised to address the issue of rising living costs. With the victory in hand, however, the government has thus far failed to make meaningful headway on making Malaysia a more affordable country. In fact, recent government actions, such as the gasoline subsidy cuts, have caused many costs to rapidly rise.
If costs continue to rise and/or wages continue to remain stagnant, the ruling government could quickly find itself under mounting pressure. The opposition claims that Barisan Nasionial has squandered huge sums of money and its economic polices benefit cronies, not the people.
While elections are still year away, rising living costs are quickly becoming a major political issue. Yet the government may have no choice but to cut subsidies and raise taxes, or else risk taking on too much debt. With Malaysia’s debt ceiling constitutionally mandated, however, the government has little room to breathe even in regards to its debt ceiling.