Pre-Budget Statement a step forward but govt must walk the walk

 

On Aug 31, 2021, the Ministry of Finance (MOF) released a Pre-Budget Statement (PBS) for the first time in the country’s history. Refsa welcomes the publication of the statement as a step forward in promoting transparency and reducing uncertainty in the fiscal policy sphere.

We hope that the PBS reflects the MOF's concerted effort to continue engaging with civil society to promote inclusiveness in policymaking.

Here is Refsa's take on the PBS by section:

Economic outlook and fiscal position

The MOF has rightly adopted a cautiously optimistic approach in its macroeconomic outlook for 2021/22 in line with Bank Negara Malaysia’s downward revision of its GDP forecast to 3-4 percent for 2021.

Nevertheless, at this juncture, it is important to reiterate that the country’s economic recovery for 2021 and beyond is strongly predicated on an improvement in the management of the domestic pandemic situation.

As Refsa recently highlighted, Malaysia’s solid export performance alone cannot guarantee a comprehensive recovery as long as consumption remains subdued due to the country’s long lockdowns and the lack of a robust pandemic exit strategy beyond vaccinations alone.

In terms of the government’s fiscal targets, we echo the MOF's receptiveness to increasing the statutory debt to GDP ratio from 60 percent.

Refsa has previously mentioned that the debt to GDP ratio is a moving target that can be raised temporarily given the circumstances, and now is the right time to do so.

With expansionary fiscal policy supported through deficit-financed spending, there should also be greater tolerance for a higher fiscal deficit ratio for 2022 to accommodate economic recovery and growth.

This should be part of a fiscal plan for the early 2020s that takes longer-term fiscal consolidation into account once growth is back to pre-crisis levels.

According to the IMF, Malaysia’s projected deficit of 6-7.5 percent of GDP for 2021 is still well below the average fiscal deficit of 9.8 percent among emerging economies as of 2020, so there is room for targeted government spending to continue.

Ultimately, it is important that the government does not withdraw fiscal support for affected businesses and households too soon as the road to recovery remains unpredictable and challenging.

Tax revenue strategy

We acknowledge the MOF's proposed strategies to increase tax revenue through compliance and management of leakages, which are important structural issues within public financial management.

We are particularly supportive of the government’s recommendation to implement a Tax Identification Number (TIN) system, which we hope will provide an opportunity to formalise gig workers in Malaysia’s labour market.

Apart from promoting compliance, TIN would help ensure that informal workers do not fall off the radar and enjoy greater financial inclusion through adequate social protection.

Focus of Budget 2022

Refsa agrees with the three-pronged approach underlying the proposed Budget 2022, namely promoting short-term recovery, medium-term resilience, and long-term reforms.

In line with the MOF's recognition that Budget 2022 should focus on strengthening the public healthcare system, we stress the importance of ensuring adequate health allocation for effective FTTIS+V (Find, Test, Trace, Isolate and Support plus Vaccine) infrastructure.

A comprehensive strategy covering essential hotspot detection, testing, and contact tracing will enable us to better handle any future outbreaks.

An expansion of the healthcare system's capacity will reduce the justification for economically punitive lockdowns, which have been demonstrated to create uncertainty and dampen domestic demand among others.

As the global narrative around the pandemic shifts towards an endemic Covid-19, it is important for Budget 2022 to provide adequate scope for the pandemic-proofing of businesses.

Malaysia’s SMEs (small and medium enterprises) should be given requisite support in this regard through grants, soft loans, and/or tax incentives where appropriate.

Meanwhile, vulnerable sectors, such as tourism, hospitality, and entertainment would benefit from further support in the form of loan guarantees and credit extensions because tax exemptions alone will not address their insolvency issues.

We appreciate the special consideration highlighted in the PBS for human capital development through digital transformation and upskilling programmes.

In Budget 2022, and the 12th Malaysia Plan (12MP) more broadly, emphasis should be on producing industry-ready graduates as well as addressing graduate unemployment to boost labour productivity and competitiveness.

Finally, it is heartening to note that the PBS does not neglect to mention the sustainability agenda in Budget 2022. Though the MOF's acknowledgement of the environmental, social, and governance concept is crucial, we believe it can be accelerated through mainstreaming the green economy.

Covering programmes such as retrofitting and energy audits, a short-term green economy framework in Budget 2022 can help create jobs and generate a strong multiplier effect to build momentum for a potential long-term Green New Deal in the 12MP.

All in all, the PBS is a positive development on the path towards higher budget transparency.

Refsa hopes that the substantive policy recommendations mentioned in the PBS, including the MOF's declaration of its commitment towards strengthened civil society engagement, will translate into implementable and actionable measures within Budget 2022 to spearhead Malaysia’s economic recovery and put us on the right trajectory to build back better.

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RESEARCH FOR SOCIAL ADVANCEMENT (Refsa) is a progressive, not-for-profit think tank that promotes social advancement in Malaysia.

The views expressed here are those of the author/contributor and do not necessarily represent the views of MMKtT.