Malaysia’s Barisan Nasional banks on popular cash handouts

(Jakarta Post) - Bank of America-Merrill Lynch economist Chua Hak Bin said in a research note this week that fiscal discipline is still a main concern. He noted that the supplementary budget was largely populist, with little going to investment or improving productive capacity. “Winning the elections remains the priority, rather than fiscal consolidation,” he said.

Pensioner Mary Dass was happy to receive the RM500 (US$156.7) the government gave out to lower-income households in Malaysia earlier this year.

It was a one-off payment, enough to cover a month's worth of groceries, but Dass, 67, is looking forward to more of the same.

“I can't say if the government is good, but in a way, it has been helping us a lot,” she said, adding that she has always supported the ruling Barisan Nasional (BN) coalition.

About RM2 billion was distributed earlier this year to almost four million households whose income level was below RM3,000. The BN is banking on support from these voters in the general election expected to be called this year.

Dass may just get her wish for a second round of cash handouts from the government now that the election looks increasingly likely to be held only in the second half of the year.

Time is running out for Prime Minister Najib Razak to call an election before the Muslim fasting month begins next month.

However, he voiced on Friday the possibility of an election during the Haj pilgrimage season in October, as this had been done before in 1986.

Deputy Prime Minister Muhyiddin Yassin has already hinted at a second round of handouts. This will be on top of the RM100 given to every student in Malaysia, and the RM15,000 for each of the 112,000 settlers of state-run plantation scheme Felda.

The government last week asked for a supplementary budget of RM13.8 billion, of which RM7.5 billion will be for “liquefied petroleum gas, diesel and petrol subsidies, and cash aid”.

The opposition swiftly turned the government's spending into an election issue in its nightly rallies, slamming it as irresponsible and profligate.

Opposition leader Anwar Ibrahim said the additional spending on subsidies would merely go to politically linked companies that control subsidized goods such as sugar and tolls.

“They say it is for the public. Show us the profits of these companies,” he said.

Some economists have sounded a note of caution, saying there has to be better fiscal discipline, even if the government can afford to increase its spending.

Bank of America-Merrill Lynch economist Chua Hak Bin said in a research note this week that fiscal discipline is still a main concern.

He noted that the supplementary budget was largely populist, with little going to investment or improving productive capacity.

“Winning the elections remains the priority, rather than fiscal consolidation,” he said.

However, he said the fiscal deficit will likely remain in check partly because of higher revenue from improved tax efficiency and healthy income growth.

Malaysia has run a fiscal deficit since 1997, with a 22-year high of 7 percent in 2009. Najib has pledged to reduce it to 3percent by 2015.

Chua expects the deficit to be around 5 percent of the gross domestic product for this year.

The government's forecast is 4.7 percent.

Teh Chi-Chang, who runs the Research for Social Advancement think-tank, said the RM13.8 billion supplementary budget was extremely high as it was nearly 5 percent the original total budget tabled last October. He said the persistent deficit was worrying, as it has caused the national debt to double in the past seven years.

But the government's spending is not likely to slow before the next election.

A survey carried out by the independent Merdeka Centre in February, as the cash handouts were being distributed, showed Najib's approval rating climbing to 69 percent from 59 percent six months earlier.

Support was highest – 78 percent – among households with a monthly income of under RM1,500.

His approval rating has fallen slightly to 65 percent since an electoral reforms rally turned violent in April.