budget2022_0

Budget 2022: On the right track in the short-run, but long-run considerations must not be neglected

REFSA’s Response to the Malaysia National Federal Budget 2022
by Frederik Paulus and Jaideep Singh, Research for Social Advancement (REFSA)

Budget 2022 recognises that the pandemic is unfortunately not behind us, with a significant allocation to support the vaccination effort, including booster shots for all recipients. Providing funding for other measures beyond vaccines is also sensible from a risk management perspective, considering the potential for new, disruptive variants of the virus. In addition, the provision of additional incentives for SMEs to engage in pandemic proofing their premises is in line with REFSA’s call for science-based SOPs in the new normal.

From a wider health and wellbeing perspective, the intention to hire additional personnel and lengthen the term for contract doctors is very welcome, but these should be maintained indefinitely to cope with an ageing society, and more generally to stimulate the care economy, which is a future growth sector. The extension of measures to mitigate and prevent non-communicable diseases such as obesity and diabetes is also commendable, although care should be taken that the financial burden does not become too heavy for lower income households. Lastly, the inclusion of an allocation specifically for mental health is an overdue acknowledgment of its importance, especially when many have suffered from emotional strain during the pandemic. 

The budget’s focus on measures for women of all ages and situations is aligned with calls, including from REFSA, for a gender-responsive budget. The proposed measures, from specific health issues to domestic violence over child nutrition, are comprehensive and should contribute to women’s wellbeing. This also applies to the measures announced for people with disabilities

We also note the allocation to education, although this falls short of what would be desirable, especially in light of the disrupted learning experience by most pupils during the pandemic. In particular, the lack of explicit mention for hiring a significant amount of additional teachers is disappointing. However, the continuation of the programme to provide tablets for all B40 students is very much required, and should now be implemented in a timely manner, along with other measures to support remote or hybrid learning in the future. 

Economically, the 2022 budget is aligned with the right themes, namely an expansionary budget to support the economy that also aims to provide targeted support for vulnerable groups. This is exemplified by another increase to direct cash support, now renamed Bantuan Keluarga Malaysia, complemented with a series of measures targeted specifically to the most vulnerable groups that previously risked falling through the cracks, such as single mothers and families with senior citizens. In this respect, the extension of SOCSO to informal workers, while overdue, is also very welcome. 

Further, the introduction of hiring incentives worth RM4.8 billion under JaminKerja, covering the unemployed, women returning to work and vulnerable groups (e.g. the disabled, Orang Asli and others) could theoretically help promote much needed job creation, but there should be mechanisms in place to ensure employers retain these employees even after the incentives run out. Moreover, the measure does not in itself constitute a magic bullet to address inequality of opportunity in terms of access to education, training and employment opportunities in the first place, so the need for a structural approach to tackling inequality remains of paramount importance.

Also worth mentioning is the continuation of support for businesses including SMEs in the form of loans, guarantees and equity injections. We expect this will ensure the productive fabric of the economy remains relatively intact, and will help position the economy for a faster recovery. 

From a fiscal perspective, we do not expect the deficit, which is expected to come in below estimates at 6% of GDP, to be burdensome in the short-run. In fact, we believe there is room to maintain the deficit at 6.5%, the same level as this year. Assuming economic recovery and a rebound in revenue, the increase in development expenditure in particular for 2022 could theoretically bode well for future growth. But it is important to ensure that the money is spent strategically, such as on growth generators where Malaysia could gain a competitive advantage.

We also take note of the acknowledgement that fiscal consolidation will be necessary in the medium-term. As highlighted in our pre-budget statement and budget soundbite, we believe that a capital gains tax would be a more efficient, equitable and sustainable revenue-raising measure than the one-off windfall ‘cukai makmur’ proposed in this budget. Although the proposed tax avoids the worst drawbacks of a windfall tax on specific sectors, we are still concerned that it could increase uncertainty and hence be a disincentive to investment. 

Regrettably, in terms of institutional reforms, there is little evidence of progress. The budgetary allocation to the Prime Minister’s Department is 80 times higher than that of Parliament, and there is no mention of strengthening the parliamentary committee system, which could be a major asset in ensuring there is no leakage in the implementation of the budget measures. There are also some sizable line items in the accounts with questionable descriptions, which could do with more transparency. Lastly, the allocation to states, although it has increased slightly, still pales in comparison to the overall federal budget, even though the pandemic has demonstrated that responses finely tuned to the local situation are required. 

While Budget 2022 puts Malaysia on the right track in terms of providing short-term assistance for households and businesses, we believe that it could go further in setting the stage for long-term policymaking. Given that the budget is the first under the tenure of the 12th Malaysia Plan, there should be clarification as to how the budget helps promote the development of emerging sectors, such as the care economy and the green economy, beyond the limited measures that have been included.

Since the pandemic, there is very little debate about economic policy across the political spectrum, with nearly everyone agreeing that fiscal spending through an expansionary budget and generous targeted support for lower income and vulnerable households is indispensable. The main points of contention are on the magnitude of the proposed measures and how to pay for them, in particular on the sustainability of budget deficits and rising debt. Budget 2022 squarely fits in this framework, and has clearly benefited from the engagement with the opposition parties and wider civil society in terms of the measures proposed. While the magnitude and therefore impact of some of the allocations can be questioned and the lack of longer-term vision is regrettable, overall the measures go in the right direction and should contribute to putting Malaysia back on the path to robust growth. 

 

Click here for Press Statement in Malay and Mandarin

-Published in The Edge Markets on 30 September 2021.