Election budget
Shaping the future is the theme of the budget next week as the general election beckons.
EVERY year, the tabling of the Government’s budget in Parliament is scrutinised to see what sectors of the economy and segments of society are going to benefit from the incentives, tax breaks, spending or other measures that will be doled out.
This year the scrutiny will be more intense as Budget 2018 is the definitive budget before the general election is called. There are wags out there who believe that Prime Minister Datuk Seri Najib Tun Razak could even dissolve Parliament next Friday after tabling the budget. Most expect several segments of the population crucial to the Barisan Nasional’s electoral success to be showered with generosity.
But whether or not the Dewan Rakyat is dissolved, the issues that have dogged Malaysia in recent years continue to be a looming presence in politics, and these issues, together with the upcoming general election, will be reflected in Budget 2018, the theme of which is “Shaping the Future”.
Socio Economic Research Centre executive director Lee Heng Guie says the budget should contain short-and medium-term initiatives and action plans to re-position the country for the future. “It’s about continuing to re-engineer our strategies and re-shaping the state of the nation’s competitiveness in the era of digitalisation and the quicken pace of technology disruption. Tax certainty continues to play high on the wish list,” he says.
Lee, who expects the budget deficit to improve to 2.8% of gross domestic product (from 3% of GDP this year), says the Government should continue to stay on the path of fiscal consolidation to ensure optimal deployment of resources and preserving fiscal stability. He adds that government debt, which stood at RM685.1bil or 52.3% of GDP as at end-June and the rise in contingent liabilities (RM195.7bil or 15% of GDP as at end-March must be closely monitored).
Lee points out that Petroliam Nasional Bhd’s rising dividend contribution to the Government to RM16bil from RM13bil together with the broad-based goods and services tax (GST, expected to bring in more than RM42bil this year) will ensure a steady flow of revenue. “It’s important not to overspend and plug leakages,” he says.
Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias says there is no rush to balance the budget by 2020, as originally planned. He is comfortable with the budget deficit as long as the trend is pointing to a lower deficit trend.
“I personally think there is a need to balance the reduction of the budget deficit and at the same time support the economy,” Nor Zahidi says.
Bread-and-butter issues will dominate this budget just as it has in previous budgets going back to the period of the mid-2000s when steadily increasing oil prices pushed everyday prices up and government measures were needed to mitigate the rising costs. Now oil prices are rising again but the subsidies have either been abolished or reduced – this is good for government revenue but bad for ordinary wage earners and the economy.
Why bad? Wage earners continue to be under pressure from the rising cost of living despite the economy performing better in the first-half of this year. Many cannot feel that wages have risen, despite data recently published by the Statistics Department showing that they have. If wage earners feel they are under pressure, they will cut down on spending, and that is bad for an economy that is increasingly reliant on private consumption to fuel growth.
A related issue is medical and healthcare cost inflation. As Malaysians increasingly age, they will need to have reliable funds for medical emergencies but many do not, resorting only to their pen- sions and Employees Provident Fund. There is an urgent need to address this because the government healthcare system will be swamped should more people resort to government hospitals and clinics. There is a need to have some sort of national healthcare insurance plan.
Job security is another issue that economists are saying will be addressed and this will include the role of technology. Job security is a major worry today for many employees and not only are the unskilled or semi-skilled getting retrenched, there is a need to address the jobless rate among graduates.
Social policies
Because the general election is just around the corner, economists believe that a budget centring on social policies reflective of the concerns over rising cost of living will be given priority. OverseaChinese Banking Corp Ltd analyst Barnabas Gan says the budget will emphasise aid to the low and middle income groups. These income groups, known as the B40 and M40, make up four-fifths of all Malaysian households and have felt the brunt of the inflation.
Gan expects civil servants to be given assistance too as well as small-medium enterprises. “Statistically, the Government has already distributed RM5.9bil and RM6.8bil in 2016 and 2017, respectively, through its 1Malaysia People’s Aid or BR1M programme, which we think will recur into 2018 (potentially having an allocation above RM7.5bil),” he says.
Gan expects the budget to emphasise three key areas – education and training, affordable housing and the upgrading of healthcare services. “These could include higher expenditure on healthcare and education subsidies into the next year, similar to what was seen in the previous election Budget 2014,” he says, adding that a higher sum may be allocated for the Permata programme (early child education system for the intellectually disabled) as well as increasing the number of scholarships under the MyBrain15 programme to provide support for professional education in the nation.
Gan believes that affordable housing schemes may be rolled out in light of the rising property prices and first-time home owners’ struggle to obtain loans. “The aid could come in the form of reduced
GST payment on housing materials, while other targeted exemptions on stamp duty and the provision of special end-financing scheme could aid home-buyers,” he says. Gan also does not rule out an extension of healthcare subsidies to defray the rising medical costs, as well as providing a sizable allocation to improve healthcare quality.
Nor Zahidi believes whether it’s an election budget or not, the emphasis will be on sustaining economic growth. “There’ll be a trickle down effect if growth can be sustained and this will be positive for the rakyat, that’s the reason why the Government is intent on sustaining growth at 5%,” he says.
Also, Nor Zahidi says sustaining growth will ensure a buffer against global headwinds. “The priority is to ensure that the domestic economy is resilient and this is not just for an election year,” he says.
The future is digital
There is a lot of expectations that given Budget 2018’s theme, there could be a lot of emphasis on the digital economy. Technology has been a bane to many industries but others have risen to take their place, leveraging on technological innovations to operate their business models.
Industries in the manufacturing sector now use 3D printing to minimise cost and artifical intelligence (AI) to manage the production process more efficiently. That has caused many job cuts while in the retail space, e-commerce platforms are giving brick-and-mortar stores that need more headcount a run for their money.
Lee says the digital economy is about speed, accountability and transparency with no barriers to entry. “The Government should take proactive steps to build a vibrant national innovation system. Identify frontier areas such as AI and deep learning, 3D printing, biotechnology, and human-machine interaction that can significantly reshape the economy and business model, and offer tax breaks and incentives to private players committed to embracing as well as conducting research in these fields,” he says.
Lee adds that targeted incentives and grants, investment capital allowance and high-tech indus- trial adjustment fund to facilitate more manufacturers, especially small-medium enterprises, to automate and embrace industrial Internet are needed.
He notes that only 30% of manufacturers have started to invest and leverage on modern technology. “The Fourth Industrial revolution is essentially about ‘smart factories’, leveraging on robotics, digitalised data censoring, the Internet of Things to reap cost savings in real-time quality control and maintenance,” he says.
Meanwhile, AmBank Research chief economist Anthony Dass says funding should be allocated to getting more and precise data on the “informal economy” that technolo- gy has engendered. He feels that better policies can be crafted should there be more data on the changing dynamics of the workforce. “We’re not capturing it right now, I don’t believe we’ve any official statistics,” he says
Anthony suggests that whether it’s two years down the road or 20 years in the future, incentives for technology companies should be looked at to spur innovation. He says that policies should reflect the aspirations of the TN50 plan to transform the country between 2020 and 2050.