Budget 2022 to be expansionary with higher debt ceiling move


BUDGET 2022 is expected to remain expansionary as the government plans to increase the statutory debt ceiling which will provide more space for borrowings if needed.

Economist Dr Nungsari Ahmad Radhi said a deficit budget needs to address the concerns faced by individuals and families who have been affected by the Covid-19 pandemic due to the slowdown in the economy.

“The problem is that for the past 22 years, the government has been expansionary; most of the time the fiscal stance is pro-cyclical deficit budgets even when growth is positive.

“Now, you really need counter cyclical budgets. Deficit budget to whatever that is necessary to provide a firm safety net underneath the millions of individuals and families affected by this pandemic.

The only question is how large is the deficit? And that answer defines how much the government needs to borrow,” he told The Malaysian Reserve (TMR) yesterday.

He opined the government may not push for activities to increase revenue in the next 12 months because there were several instances where the government could tap into during the pandemic to raise revenue but it did not.

The government could have imposed windfall profits on companies that benefit from the pandemic or selectively impose capital gains taxes but they refused to do so, he said.

“It should however embark on a serious fiscal review of both spending and revenues. Government is spending way too much for less than optimal outcomes and the revenue base is too narrow,” he said.

Putra Business School Assoc Prof Dr Ahmed Razman Abdul Latiff said the government may be tempted to raise its revenue via the reintroduction of Goods and Services Tax or other forms of taxes but the timing is not suitable due to the low level of public consumption.

“I would prefer the government make an effort to manage its expenditure efficiently so that wastage can be reduced and eliminate corruption via the unfair award of development and management projects to cartels.

“A decision to review the Fiscal Responsibility Act is a good move to improve on governance, transparency and accountability. If there is minimum wastage from the expenditures, there is no need to try to get higher revenue,” he told TMR.

Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz (picture) had previously said the government would seek Cabinet’s approval this week to raise the statutory debt ceiling to 65% of GDP from the current 60%.

According to the ministry’s recent pre-budget statement, the government’s debt level had risen to 61.2% to GDP with the statutory debt level at 56.8% as at end-June.

The statement also highlighted that Direct Tax collection stood at RM67.4 billion while Indirect Tax recorded a collection of RM24.8 billion, lower than the government’s estimated target of tax revenue collection of RM162.1 billion.

The lower tax revenue collection was due to the pandemic and the implementation of the Movement Control Order which led to many losing their income.

Ahmed Razman said the government can still manage the increase in debt limit but it should also be aware that almost 15% of its annual revenue is allocated to pay the annual debt commitment while almost all development expenditures are financed through new debt.

“So we can still take on new debt to get out from the current crisis but the government needs to come up with a new solution and start to reduce the debt gradually to make it more sustainable in the long run,” he said.

Universiti Kuala Lumpur Business School economic analyst Assoc Prof Dr Aimi Zulhazmi Abdul Rashid said the government needs to be more creative in finding avenues to raise funds and avoid the implementation of consumption taxes like GST.

He said it could opt for equity financings like crowdfunding, public and private partnerships as well as debt financings like sukuk, bond and hybrid products.

He added the rise of the debt ceiling will also impact the country positively as it will allow the government to raise debt funding conditional, which is necessary at the moment.

“This is similar to other countries that are raising their debt respectively, thus we should not be alarmed.

“Similarly, when Malaysia faced the economic crisis in 1986, 1997, 2002 onwards, the government debt level had increased to an even bigger percentage to GDP.

“Thereafter the economy recovered, the government was responsible enough to reduce the debt level to a manageable level and even became better positioned than the time of pre-crisis,” he said.