A promising budget

The 2018 budget presentation will be Datuk Seri Mohd Najib Razak’s most important economic policy statement since he became prime minister in 2009. A long time removed from his maiden Budget 2010 announcement — today’s presentation will address challenges that are a world away in terms of form and magnitude.

In 2009, the world was reeling from a global financial crisis. Malaysia had fallen into recession, recording a -1.5% growth in 2009, the first time it was in negative territory since the previous East-Asia crisis of 1997-98.

Preventing another recession was the priority of Najib’s Budget 2010 speech. The government had committed to an expansionary balance sheet, and it may have been the catalyst to Malaysia’s recovery from the global crisis with an impressive 7.5% growth in 2010, faster than many countries.

But Budget 2018 resonates a greater significance. It will be the last budget presentation by the ruling government before the general election (GE), which must be called within the next 10 months.

Few can deny that Budget 2018 will be a populist budget, bundled with goodies and offerings.

With an important election just around the corner, the government will try to deliver what the people want.

Issues like high cost of living, affordable housing, disposable income, digital and sharing economy, inflation and equitable wealth distribution are expected to be high on the agenda. Resolution of these issues will shore up the support for the government before the 14th GE.

Compared to last year, the government is in a stronger economic position. It is hard to ignore the successes. Malaysia’s economy rose to an average of 5.7% in the first six months of 2017.

The full-year growth is estimated to rise above 5%.

Unemployment has been capped low. Despite inflation rising to an eight-year high in March this year, it has since moderated. Trades and exports are rising while the global economy, which is expected to rise 3.6%, will boost Malaysia’s trade surpluses.

Government spending for next year is expected to be higher than the RM260.8 billion allocated in last year’s budget.

Recovery in global crude prices from a low of around US$30 (RM126) a barrel last year, will give Najib the room to spend without derailing the fiscal deficit target. The government’s budget deficit is expected to drop to below 3% from 3% this year. While critics have been loud, Putrajaya has reduced the country’s budget deficit from 7.4% in 2009 to 3% in 2017.

Revenues are expected to improve from corporate and income taxes, petroleum-related taxes and the Goods and Services Tax. The consumption tax, which is expected to deliver RM41 billion to the government, will further boost Putrajaya’s income.

The finance minister is also expected to allocate more funding for affordable housing, healthcare, security, social safety nets and transportation. Helpful policies like the 1Malaysia People’s Aid and affordable housing programmes are likely see higher allocation.

Improvement in the government’s revenue will douse any worries that an expansionary budget will dent Malaysia deficit, narrowing ambition and push the government’s debt level to above 55%.

Najib will table the 2018 budget from a stronger financial position and less global volatility, allowing for effective interventions on everyday issues faced by the rakyat.

  • Mohamad Azlan Jaafar is the deputy editor-in-chief of The Malaysian Reserve.