By Murray Hunter

BANGKOK, Thailand--Amid speculation about when Prime Minister Ismail Sabri will call an election, floods, a falling Ringgit, and post-pandemic recovery, the 2023 budget was delivered by Finance Minister Tengku Zafrul Abdul Aziz to the Dewan Rakyat on Friday afternoon. This budget is crucial for Ismail Sabri’s electoral popularity, as it will be the last budget before the 15th general election due by September 2023.

The key area the budget must tackle is inflation. Food prices are increasing. Prices of food items rose 7 percent in August compared with the same time last year. The annual inflation rate is now 4.7 percent. With the falling Ringgit against the US dollar, prices of food are likely to continue rising. Rising interest rates could further fuel inflation as finance costs rise for SMEs.

Higher oil revenue will enable the government to spend more without increasing the deficit. This has also allowed some tax relief. As predicted the Government has increased spending RM40.2 billion from last year to RM372.3 billion, representing 20.5 percent of GDP, in what could be clearly described as an election priming budget.

The Ministry of Finance forecasts that federal government revenue will be RM 272.6 billion, or 15 percent of GDP, with a budget deficit of RM 99.7 billion. Non-tax revenue will be down 23 percent due to lower dividend income. The ministry forecasts a rise in tax revenue from economic recovery and more efficient tax collection will help make up for the short-fall. Petronas is expected to provide an RM 35 billion dividend due to the high price of crude oil.

The government is planning the introduction of a Tax Identity Number (TIN), and a crack-down on illicit cigarette trading, to clamp down upon the cash economy. This could potentially have undesirable effects on the informal economy many traders depend upon to survive.

Creating youth employment is a major part of the budget, with a number of initiatives announced. RM 305 million will be provided for youth enterprise start-up loans, along with RM 50 million for a youth trader scheme. The government will bear the costs of e-hailing, taxi, and motorcycle licenses for youths. A special internet package of RM 30 for 3 months will be introduced. Clearly the government is trying to woo the youth vote here.

RM 1 billion has been allocated to fight poverty, although there are few details about how this would be spent. RM 7.8 billion has been allocated to the Bantuan Keluarga Malaysia (BKM) which will reportedly assist 8.7 million people.

Payments to civil servants represent 33.3 percent of operating expenditure. Of this retirement commitments will be RM 29.1 billion, or 10.7 percent of total operating expenditure. This is a cost that will continue to grow over coming years. The Mystep program aims to create 50,000 new jobs, 15,000 within the public service and 35,000 in GLCs. This will expand an already bloated public service and make GLCs more inefficient as they absorb these new job places.

The budget will pay out RM 42 billion in fuel, and agriculture related subsidies, together with cash and welfare assistance. The government has opted to make parts of the economy inefficient, rather than solve these problems through restructuring and innovation.

RM 4.5 billion has been allocated to repair and replace dilapidated infrastructure within the school system across the country. This will put money into the hands of class F contractors.

The government has committed to provide RM 9 billion to SMEs. The success will be in the detail of how easy it will be for needy SMEs to access this scheme. The 45 billion allocation to the Semarak Niaga scheme, being a mix of loans and selected grants may not be easy to take up by SMEs.

Health has been allocated RM 30 billion, where most development allocations are targeted on construction, and payments to private health funds. The increase of expenditure over the year before doesn’t cover inflation.

The RM94 billion development expenditure will be a windfall to major contractors. Subang Jaya PKR MP Wong Chen was quick to criticize this spending, claiming much of these funds will find way back to the government parties as political donations, ahead of GE 15. None of this expenditure is aimed at creating any needed structural change within the economy.

The government has taken measures to stem the rise in food costs through subsidies and grants to the lower income groups. According to the Economic Outlook 2023 Report, the rising prices of food is the major contributor to inflation. However, with more than RM 1.2 billion subsidies for the logistic industry, and RM 1.8 billion subsidies for farmers and fishermen may be absorbed rather than passed on in lower prices to consumers.

Taxpayers have been given a modest 2 percent reduced taxation rate for income earners between RM 50,001 – RM 100,000 per annum. Income tax exemptions have also been provided to micro-SMEs and income tax exemptions provided for Tadika and day care. Funding allocated to e-wallets in e-Pemula, amounting to RM 8.30 per month for the M40. This has restricted use for specific products in specific outlets.

In summary, the 2023 budget has ignored economic reform and added to continued bloating of the public service. Most of the development expenditure will go to contractors, while assistance to the poor and needy is very modest. Employers are unlikely to take up subsidies to employ the youth, and disabled. The budget fails to go far enough to tackle the major issues in education and health.

On the whole the 2023 budget is disappointing. The beneficiaries will be politically connected contractors.

The opposition could block the budget on the grounds of;

1. The budget is against the philosophy of a multi-racial Malaysia favouring Bumiputeras, particularly cronies of the current government,

2.  Spending within the budget will not solve the real problems facing the economy, and

3. The government would be forced to negotiate some of the terms within the budget with the opposition.

Such action would show up the government’s weak position in the Dewan Rakyat. By highlighting some of the unjust aspects of the budget, the opposition could gain popularity for standing up as an opposition against the government. The opposition was met with criticism for passing last year’s racially unfair budget.

The budget has failed to tackle issues of inflation, the falling Ringgit, economic reform, and boost to fledging SMEs. It appears to be aimed at putting money in the pockets of connected businesses.