Budget 2018 sending 'mixed and wrong signals', says economist

Budget 2018 appears to have a "sprinkling of mixed and wrong signals", although it is not completely devoid of economic sense, said political economist Shankaran Nambiar.

As an example, he pointed out how the government had partially reversed its previous cuts to public university funding in Najib’s budget announcement last Friday.

"If the signal of that policy (on university funding cuts) was meant to convey the message that universities need to be innovative in raising their own funds, this has been backtracked to some extent in this budget by awarding additional grants," Shankaran told Malaysiakini.

"It is, however, reasonable that Universiti Malaya receives a special allocation in view of their improved performance since they have demonstrated productivity based on some metrics," added the senior fellow at the Malaysian Institute of Economic Research.

Shankaran also highlighted the "huge dole-outs" for civil servants in the new federal budget.

He said this is "politically comprehensible, but not sensible" at a time when the debate is on reducing the size of the civil service, increasing civil servants’ productivity, and, more generally, reducing operating expenditure.

He also noted that some of the areas that have received ad-hoc and short-term treatment are housing and healthcare.

"It is way overdue to introduce a health financing scheme, rather than selective relief for, say, dialysis," said the author of the book "Malaysia in Troubled Times", which was published by Gerak Budaya earlier this year.

"Civil servants and the police are not the only groups that need affordable housing; a comprehensive plan has to be laid out for the middle- and lower-income population, as a whole," he added.

"We really need to be concerned about access to healthcare and greatly improved services for the average Malaysian rather than to focus on medical tourism or creating a medical speciality hub," he stressed.

Shankaran said the budget misplaces its priorities and seems pre-occupied with appeasing as many groups as possible, on all bases - ethnic, sectoral, occupational, and regional.

This move, ahead of the elections, which must be called by mid-2018, seems to have "blunted the edge" of potential gains from better economic circumstances next year.

Income tax as major revenue source

Meanwhile, Shankaran pointed out that two major factors helped explain the expansiveness of Budget 2018: better predicted growth in 2018 and the upcoming general election, which will probably be held next year.

On the back of an expected increase in GDP, Najib can count on incomes to rise, and income tax will be the major source of government revenue, he said.

"This gives the budget the freedom to be generous, forsaking some amount of economic sense for short-term political gain."

Some of the positive aspects about the budget as observed by Shankaran include the emphasis on building infrastructure, targeted fiscal expenditure to support the disadvantaged, and the income tax cut.

"The support for entrepreneurship is also commendable.

"The infrastructure development projects and those directed at Sabah and Sarawak are noteworthy.

"They make both political (given the timing) and economic sense," he quipped.

But Shankaran noted that what is less comprehensible is the lack of support for companies as compared to households.

"It has been tough path for manufacturers over the last year, and they could have been rewarded with tax cuts to shoulder the burden of higher production costs," he said.

"Incentives for the manufacturing and services sector may have made more sense than for the adoption of Industry 4.0 since Malaysia is valiantly negotiating the transition from 2.0 to 3.0".

Industry 4.0 refers to the fourth industrial revolution, which focuses on automation and data exchange in manufacturing technologies. Industry 3.0 and 2.0 refer to previous industrial revolutions that focused on computers and automation, and mass production respectively.- Mkini