Malaysia unveils US$80 billion biggest ever budget in feel-good boost to post-Covid recovery

  • Finance Minister Tengku Zafrul unveils first budget under PM Ismail Sabri Yaakob with wide-ranging plan including cash for low-income workers; subsidies for food, fuel and firms hiring women; and aid for small businesses
  • Opposition criticism muted following peace pact, but some analysts warn benefits may be too widely spread to ‘jump-start’ the economy

Malaysia on Friday unveiled its biggest ever budget with Finance Minister Tengku Zafrul Abdul Aziz indicating the government was well aware that businesses and residents required continued state aid with the battle against Covid-19 “still raging”.

Analysts said the large spread of beneficiaries across social groups under the spending plan showed the government was seeking to boost a rising nationwide “feel good” factor as the economy – roiled for months – picks up following a phased reopening.

The wide-ranging plan includes cash aid for those on low incomes, subsidies for basic food and fuel items, aid for small and medium enterprises, and wage subsidies for companies hiring more women, the disabled and members of the indigenous Orang Asli community.

The new 332.1 billion ringgit (US$80.2 billion) budget is the first by the government of Prime Minister Ismail Sabri Yaakob, who in August became the country’s third prime minister in two years following a protracted tussle among the political elite.

Malaysian Finance Minister Tengku Zafrul Abdul Aziz holds a briefcase containing the 2022 Budget as he leaves the Finance Ministry to head to Parliament House in Putrajaya. Photo: EPA

With widespread dissatisfaction among the public and Malaysia’s influential royals over the pandemic-time politicking, Ismail Sabri signed an unprecedented peace pact with the opposition soon after taking power – with an aim of bringing about medium-term stability to see the country out of the crisis that has so far caused the deaths of 28,000 residents.

Malaysian Finance Minister Tengku Zafrul Abdul Aziz holds a briefcase containing the 2022 Budget as he heads to Parliament House in Putrajaya. Photo: EPA
Malaysian Finance Minister Tengku Zafrul Abdul Aziz holds a briefcase containing the 2022 Budget as he heads to Parliament House in Putrajaya. Photo: EPA

The benefit of the pact was apparent on Friday, with criticism of the budget largely muted among MPs from the opposition Pakatan Harapan pact.

Tony Pua, Pakatan Harapan’s economic committee chairman, said soon after Tengku Zafrul’s budget speech that the minister “must be commended for agreeing to adopt a series of critical measures” proposed by the opposition bloc.

Pua reserved special praise for the allocation of 40 billion ringgit for a “Semarak Niaga” programme that businesses can tap for direct loans, guarantees and equity injection.

Tengku Zafrul, a former top banking executive roped in as finance minister by Ismail Sabri’s predecessor, Muhyiddin Yassin, noted that the outsize spending plan came amid less-than-expected revenue of 221 billion ringgit, which was 6.7 per cent below initial estimates.

The forecast 2022 budget includes a 21.9 per cent year-on-year bump in development expenditure to 75.6 billion ringgit and a 6.3 per cent increase in operational expenditure to 233.5 billion ringgit.

Zafrul said the government forecast the pace of economic growth to rise to between 5.5-6.5 per cent next year from this year’s 3-4 per cent, due in part to the country moving towards the final phase of a four-step reopening plan and amid continued “strong fundamentals and diversity in the economy”.

Such performance, however, depended on factors such as the success of pandemic controls, the effectiveness of vaccinations, and the state of the global economy, Tengku Zafrul said.

The deficit is expected to reach six per cent in 2022, compared to 6.5 per cent in 2021.

The government had previously pledged its commitment to fiscal consolidation despite the Covid-era spending. Since the start of the pandemic, the governments of Ismail Sabri, Muhyiddin and Mahathir Mohamad – ousted in March 2020 after a 20-month tenure – have between them launched eight stimulus plans worth 530 billion ringgit.

To help with the continued stimulus, Tengku Zafrul said the government would impose a one-off “prosperity tax” for high-income companies.

Earnings of over 100 million ringgit will be subject to a 33 per cent tax rate instead of the current level of 24 per cent.

Malaysian Prime Minister Ismail Sabri Yaakob. Photo: DPA
Malaysian Prime Minister Ismail Sabri Yaakob. Photo: DPA

Yeah Kim Leng, an economics professor with Sunway University, said the expansionary spending plan was necessary as “normalising the budget too early could derail the recovery momentum that is gathering pace presently with the successful vaccine roll-out”.

“The stimulative budget will also reinforce the economic tailwinds and ‘feel good’ factor for an early general election that is expected to be called by the ruling coalition party next year,” Yeah said.

Oh Ei Sun, a senior fellow at Singapore’s Institute of International Affairs, said while it was laudable that a large number of groups would benefit from the budget, the downside was that the plan was “trying to please too many communities and too many sectors”.

“It might not have the intended impact … while everybody might get small pieces, you will not get the intended leveraging effect or stimulus effect to jump-start the economy,” said Oh, a long-time Malaysian politics observer.

Prime Minister Ismail Sabri, a member of the country’s powerful United Malays National Organisation (Umno), governs with the backing of Muhyiddin’s smaller Bersatu party and the hardline Islamist Parti Islam se-Malaysia.

Under the peace pact with Pakatan Harapan – led by veteran politician Anwar Ibrahim – the prime minister is obliged not to dissolve parliament before next August and consult the opposition over the budget plan. As a quid pro quo, Pakatan Harapan is obliged to back the current budget or abstain from voting against the budget.

By : Bhavan Jaipragas – SCMP

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