Expansionary budget to mitigate Covid-19 fallout expected

Higher development expenditure would be the key catalyst for promoting public investment next year


FOLLOWING the political compromise forged with the Opposition coalition, the government is expected to table a budget that will contain proposed key measures to alleviate hardship faced by households and small businesses and industries as a result of Covid-19.

Sunway University Business School professor of economics Dr Yeah Kim Leng said besides increased allocation to the health sector to curb the pandemic that is expected to transition to an endemic, there will be proposed higher spending on welfare, education, reskilling and job creation programmes needed to sustain the economic recovery.

“The government also needs to address the higher incidence of poverty and adverse impacts on health, education and livelihood caused by the pandemic. In short, another expansionary and people-friendly budget for 2022 is expected,” he told The Malaysian Reserve (TMR).

Budget 2022 Expected to be Expansionary

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said Budget 2022 will continue with expansionary fiscal policies.

He projected fiscal deficits could reach 6% of GDP in 2022, from an estimated level of -6.5% this year.

He said higher development expenditure would be the key catalyst for promoting public investment next year, while measures such as cash transfers, business grants and micro financing will continue to take hold especially for tourism, logistics, food and beverage industries.

“All this should translate into better growth next year, which we at the moment are pencilling in GDP growth of 5.3% in 2022 from an estimated growth of 4.2% this year.

“Accommodative monetary policies alongside improving global trade could also help to stimulate private investment next year and businesses would need to play catch up in respect to their productive capacity, especially in anticipation of better demand going forward,” he told TMR.

Beware of Inflation Pitfalls

The Centre for Market Education (CME) urges the government to seriously take into account the issues of inflation and stagflation when preparing Budget 2022.

“Lockdowns have generated supply-side shocks, which are now pushing up prices of transports and commodities.

“However, the additional money supply created by expansive fiscal and monetary policies is exacerbating the risks of inflation and potentially undermining the future recovery,” CME CEO Dr Carmelo Ferlito said in a statement.

Strengthening Overall Tax Admin System

While there have been many discussions on the introduction of new taxes in Budget 2022, focus should also be directed on improving and simplifying the tax administration function, according to EY tax leaders.

The tax leaders said policies and approaches geared towards enhancing revenue should also focus on simplifying and strengthening the overall tax administration system, so that it is transparent and easy to adopt, and promotes good governance, equity and inclusiveness.

“To be effective, tax administrators will need to be able to collect, analyse and use data effectively. They will also need to collaborate more closely with taxpayers to better understand the evolving business landscape and requirements to enforce better compliance,” it said in a statement.

5% of GDP in Healthcare Spending

In healthcare, Malaysian Medical Association (MMA) president Dr Koh Kar Chai has called for the government to allocate a minimum 5% of GDP in healthcare spending. Currently, the healthcare budget stands between 3.9% and 4.1% of GDP whereby 50% comes from the private sector.

He said the government only spends approximately 2.2% of GDP, therefore we are way below the healthcare budget recommended for a robust healthcare system.

“Digitalisation in healthcare should also be a focal point for the government in the national budget as it would increase efficiency at public healthcare facilities especially in the non-healthcare areas of work such as administrative duties which are time consuming,” he said in MMA’s budget 2022 wish list recently.

With increasing healthcare needs, the association suggested an increment in the encounter fee at public healthcare facilities by at least RM5.

Boost for Domestic Tourism

Meanwhile, industry players in the tourism sector urged the government to focus on reviving the industry in Budget 2022 by providing travel stimulus packages and loan moratorium extensions to stimulate domestic travel.

Among the seven items in the Malaysian Association of Tour and Travel Agents’ (Matta) wish list include urging the Ministry of Finance to set up a “Tourism Recovery and Growth Fund” to provide financial support to all stakeholders and private sector companies in the industry to resuscitate the sector.

Matta president Datuk Tan Kok Liang said the fund should provide at least RM5 billion as a soft loan facility with a 1% interest and a repayment period of seven years.