Govt may cut Budget 2021 spending on lower revenue

Any increase in spending should be targeted to help sectors that are badly affected, such as tourism, transportation, education and health


THE government will likely reduce spending in the upcoming federal budget as concerns over a new wave of Covid-19 cases are expected to put further pressure on revenues already hurt by low crude oil prices.

Putrajaya had rolled out stimulus packages worth RM305 billion since the start of the pandemic and had raised its debt-to-GDP ceiling to 60% for the first time in over a decade last August.

Last year’s budget set aside RM297 billion for both operating and development expenditures, a drop of 5.6% compared to Budget 2019, due to expectations of a revenue shortfall by about 7%.

Economists expect any increase in spending should be targeted to help sectors that are badly affected, such as tourism, transportation, education and health.

International Centre for Education in Islamic Finance’s research management centre director Assoc Prof Dr Baharom Abdul Hamid said the upcoming budget would need to focus on vulnerable groups such as micro- and nano-entrepreneurs, bottom 40% and middle 40% income groups, and senior citizens.

Baharom expects less allocation for Budget 2021 compared to the previous year due to lower tax collection and less dividend from Petroliam Nasional Bhd.

“The government needs financial resources to fund its expenditure. Unless there is an increase in tax, an introduction of a new tax or reintroduction of previously implemented taxes such as the Goods and Services Tax, I could not see how otherwise,” he told The Malaysian Reserve (TMR).

This will be Perikatan Nasional’s first federal budget since it came to power in March. Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz is scheduled to table the national budget in the upcoming Dewan Rakyat sitting on Nov 6.

Meanwhile, Institute for Democracy and Economic Affairs senior economist Adli Amirullah said Budget 2021 should include a longterm recovery plan to tackle structural problems involving small and medium enterprises (SMEs).

“SMEs are the key here. If we can help them recover from this crisis, our economy would stand a chance to recover faster.

“Hence, it is important that the government addresses structural problems that SMEs are facing so they can become more sustainable in the long run,” he told TMR.

Adli said the government and private sector should play an equal role during the crisis as it is impossible for the private sector to move alone due to constraints.

“This is where the government needs to come in and provide support via taxes and subsidies, but the assistance should be focused on vulnerable sectors that are highly affected by the pandemic.

“For the private sector, they need to start changing their business model to adapt to the new norm. They should not stick to the old ways of doing business and should open themselves up to new methods to remain resilient in the business sector,” he said.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the government should not be fixated with keeping the budget gap low in the immediate term.

He said the government’s focus should be to preserve jobs, minimise income loss and assist businesses to improve their cashflow.

“Since we are unsure when the pandemic would be resolved, setting the right priorities would be very crucial. We foresee the continuation of wage subsidies to incentivise businesses to keep their workers,” he told TMR.

Mohd Afzanizam said capacity building through training and upskilling is also crucial as workers who have been laid off would want to venture into business or find work in a new industry.

Centre for Public Policy Studies chairman Tan Sri Dr Ramon Navaratnam (picture) said he expects a mildly expansionary budget to counter the recession caused by Covid-19.

He suggested that the government postpone big development projects such as infrastructure and rail projects to protect the country’s fiscal deficit and debt.

“The New Economic Policy needs to be reformed to encourage more local and foreign investment. Have more meritocracies and stop the brain drain. The birds are coming back to roost,” he said, adding that the government must prioritise the poorest.