Lean Budget 2019 expected as govt deals with challenges

Lower allocations likely for operating and developmental expenditures as new administration copes with hefty debt

By ALIFAH ZAINUDDIN / Graphic By TMR

THE government is expected to announce deep cuts to the federal budget, promising to maintain the fiscal deficit at 2.8% of GDP, amid expectations of a slower economic growth.

The tabling of the annual budget in Parliament on Nov 2 — a first for the Pakatan Harapan government — will likely reveal lower allocations for both operating and developmental expenditures as the new government copes with hefty debts left by the previous administration.

Earlier this year, Finance Minister Lim Guan Eng projected fiscal deficit would tilt slightly higher at RM40.1 billion in 2018 from RM39.8 billion in 2017, which would keep the budget deficit at 2.8%.

However, rising trade tensions between the US and China and a lower 2018 growth forecast of 5% by the central bank have added to the downside risks of meeting the target.

Institute for Democracy and Economic Affairs CEO Ali Salman said the only way for the government to meet its fiscal deficit target is by cutting on wasteful spending.

“The government should be prepared to close down programmes with no or limited social benefits.

“It should also divest government linked companies which are keeping the private sector out of market.

“Meanwhile, non-tax sources and the liquidation of dead assets can be considered to raise revenue,” Ali told The Malaysian Reserve recently.

In October 2017, ousted Prime Minister (PM) Datuk Seri Mohd Najib Razak presented a populist budget with the hope that it would boost support ahead of a tough election in May this year.

The former PM upped the overall allocation by 7.5% to RM280.25 billion — calling it the “mother of all budgets” — in which he included billions of ringgit in cash handouts and aid packages to villagers who form a large portion of voters for Barisan Nasional.

Following a historic election win in May, PM Tun Dr Mahathir Mohamad said cash handouts to lower-income groups should be reduced and gradually phased out.

Under the 1Malaysia People’s Aid (BR1M), an estimated 7.2 million people received between RM450 and RM1,200 in 2017 alone.

Despite the pressure on federal income, MIDF Amanah Investment Bank Bhd chief economist Dr Kamaruddin Mohd Nor expects Dr Mahathir’s government to continue to honour programmes that will enhance the wellbeing of the people in general.

“The priority will still be on targeted groups such as the bottom 40% (B40) income group with measures to help improve their lives. Social aspects such as affordable housing, education and healthcare are expected to still be the main focus.

“We do not foresee major cuts in spending, but more toward efficient resources allocations through new measures for expenditure optimisation,” Kamaruddin said.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid agreed and predicts that expenditure on subsidies to remain fairly stable to help alleviate living costs.

He noted that expenditure on subsidies have seen significantly declining over the last five years from RM44.1 billion in 2012 to RM22.4 billion in 2017.

Meanwhile, Mohd Afzanizam said expenditure cuts observed under past budgets should be rigorously monitored and implemented in the upcoming budget.

“It was mentioned in the previous report that ministries and agencies will continue to curb discretionary spending and optimise spending on items such as travelling, organising events and rentals of new office spaces.

“Therefore, we can expect the new government to implement strict monitoring to ensure expenditure on supplies and services — which is expected to reach RM33.6 billion in 2018 (2017: RM31.3 billion) — will not grow in 2019,” he said.

The government’s cost rationalisation exercise has so far included slashing Cabinet ministers’ salaries by 10%, terminating contracts of political appointees and reviewing the East Coast Rail Link and other procurement projects.

Total savings through reviews of high-priced projects alone are estimated to be at RM10 billion.

The government is also expected to benefit from rising oil-related revenues, increased dividends from government linked entities and the new Sales and Services Tax.