Balancing expectations and the budget

The new budget, at its core, will need to have policies that can make quick and sustainable differences to the lives of many Malaysians

pic by TMR FILE

BUDGET 2020, which will be tabled in the Parliament today, is the Pakatan Harapan (PH) government’s second budget announcement.

As Finance Minister Lim Guan Eng reads the anticipated long budget speech, many will be glued in front of the television today, or connected to devices, hoping he will announce measures that will help ease their financial burden and create jobs with a higher wage.

Many will also want to see measures introduced that will enable them to afford to own a house and improve access and quality of service at government’s healthcare and educational institutions.

It hasn’t been a good year for those who have some spare cash to invest either. The local stock exchange benchmark has fallen by some 160 points since Budget 2019 and had a negative wealth effect on many.

The new budget, at its core, will need to have policies that can make quick and sustainable differences to the lives of many Malaysians, who are increasingly frustrated with a lack of employment opportunities at decent wage levels, rising prices and housing concerns, despite the economy growing year-on-year.

From a political perspective, Budget 2020 is tabled at a point when goodwill of the PH government with the public has witnessed a significant drop, according to recent surveys.

The budget also comes almost a week after Prime Minister Tun Dr Mahathir Mohamad launched the Shared Prosperity Vision 2030 (SPV 2030) blueprint which seeks to steer Malaysia on a path of sustainable development and prosperity.

Hence, this budget’s policies will give the public a first sign of how subsequent budgets and the 12th and 13th Malaysia Plans will align with the SPV’s vision of making the Malaysian economy more prosperous and equal.

The government will need to have a better balance between operational expenditure and development expenditure requirements.

Malaysia remains a developing economy and it still requires substantial amount of development expenditure to build roads and railways, schools, hospitals and other infrastructures needed to achieve the status of a high-income nation.

Unfortunately, development expenditure as a portion of total expenditure has been falling in the past few years and is something the present government needs to address if it wants to achieve the SPV 2030 goals.

Budget 2020’s immediate aim must be to sustain the growth trajectory as the domestic economy has felt the impact of weaker external demand for our exports.

The ambition to provide stimulus through a more expansionary fiscal policy is, however, constrained by the country’s high debt levels and the need to maintain a prudent level of fiscal discipline.

In Budget 2019, the PH government put forth a RM314.5 billion spending bill, with RM54.7 billion of the amount spent on development expenditure and RM259.8 billion on operational expenditure.

The total budget figure was above market expectations with budget deficit forecast of 3.4%. The government also replaced the Goods and Services Tax with the Sales and Service Tax, which helped bring down prices and saw a pick-up in consumption, but at the expense of some RM20 billion in tax collection.

The key to raising government expenditure is by raising revenue. That will be something many will be watching in Lim’s speech today.

The option to tap the debt market to finance spending remains, and allowing the budget deficit to inch up a little from its target of 3% for 2020 might not go down badly with the financial markets and analysts who want governments to open up their purse strings and spend more to keep the economy on growth path.

The main challenge today for Lim could be balancing all the expectations with the need to present a slightly more balanced budget.

Bhupinder Singh is the corporate desk editor of The Malaysian Reserve