Anwar’s mettle as finance minister now put to the test

 

There’s a lot riding on the unity government’s budget for the coming year.

The rakyat is hoping for more of everything under Prime Minister Anwar Ibrahim’s Madani Economy and it is up to him, in his other role as finance minister, to deliver.

A well-articulated budget speech alone will do little to convince the people that the government has a plan that will work in their favour.

Anwar will have to show that he can put money in their pocket, relieve them of the hardship they are going through now while ensuring that the economy continues to grow.

A lot of data has been unveiled to give us a rosy picture of the country’s economic well-being but for the layman, the feel good factor is still missing.

And therein lies the problem.

Impact of Covid-19

Many have lost entire savings while others have seen their retirement fund shrink significantly.

Those who have lost jobs and incomes at the height of the global pandemic are still looking for a way out of their financial predicament.

Meanwhile, prices continue to rise. For instance, meals are costlier than they have ever been, making it even less affordable to eat out.

The Malaysian quick-fix is, of course, more subsidies, which already account for a huge chunk of the government’s operating expenditure.

For instance under Budget 2022, RM31 billion was set aside for subsidies but by the end of the year, nearly RM80 billion had been given away, the highest amount ever spent on subsidies in a single year.

Under Budget 2023, the government raised the portion for subsidies to RM55 billion but indications are that a lot more will have been spent before the year is out.

Without a doubt, the allocation for Budget 2024 will rise, as it has with every new budget. A total of RM332 billion was allocated for Budget 2022.

In the original iteration of Budget 2023, the government raised the allocation to RM372.3 billion, but this was revised upwards to RM388.1 billion by the unity government in February. With the revision, the allocation for Budget 2023 was 17% more than that for the previous year.

Most of the money — RM289.1 billion in all — went into underwriting operating cost, leaving just RM99 billion for development.

Revenue from taxes alone is expected to yield RM205.58 billion by the end of this year, up from RM198.23 billion in 2022.

Therein lies a conundrum. Expenditure is rising rapidly but revenue growth continues to trail.

Plugging the holes

More will be expecting additional handouts, civil servants are already asking for a raise and businesses have already begun to submit requests for tax breaks.

Mismanagement, leakages and wastage continue to leach the government coffers.

The cost of servicing the government’s debt will rise.

The federal government’s debt amounted to RM1.08 trillion at the end of 2022, according to the finance ministry. That accounted for 60.4% of the GDP.

If other liabilities had been taken into account, the sum would have risen to RM1.45 trillion, or 80.9% of the GDP.

These other liabilities are guaranteed commitments which come up to RM205.9 billion, 1MDB (RM18.2 billion) and others (RM142.2 billion).

Servicing the debt alone will account for a huge chunk of the government expenditure. The government spent RM46 billion on interests alone last year.

Where the money will come from

Many suggestions on how to raise revenue have been put forward or have already been given the green light.

For instance, the targeted fuel subsidy policy, which is expected to come into force in 2024, will see those in the M40 and T20 pay the full price to fill up. This will save the government a large sum of money given that they have benefited the most from the subsidy.

However, other proposals are not likely to see the light of day, mostly for political expediency.

For instance, calls to abandon the sales and service tax (SST) and revert to the goods and services tax (GST), which will bring the government more money, have met with resistance.

World economic growth is also expected to moderate in 2024, which is certainly bad news for Malaysia. Being an open economy, it is susceptible to challenges elsewhere.

The continued weakening of the ringgit against major currencies worldwide will make imports more expensive for local consumers.

Anwar will have these and more to contend with when he presents the budget for debate at the Dewan Rakyat today.

It may be Friday, the 13th today, but it may yet ring in a new and more auspicious tomorrow. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.