Budget 2023: What Should the Government Do?

AFTER three consecutive years of expansionary budgets (2020-2022) and eight economic and financial packages to help lift the economy, the government is scheduled to table Budget 2023 in Parliament on Oct 28.

The 2023 budget marks the last budget for a five-year administration term, which will automatically be dissolved in July 2023 if not earlier. (The 14th general election was held on May 9, 2018).

The government has rolled out eight stimulus packages (RM530bil or 35.8% of the average gross domestic product or GDP in 2020-2021) and three years of big fiscal spending (2020-2022 forecast) totalling RM979.6bil.

The 2020-2021 budget had already spent RM647.5bil or an average of 21.9% of GDP, and it has budgeted another record total spending of RM332.1bil or 21% of GDP in Budget 2022.

From January till April 2022, it has utilised 35.2% or RM116.9bil of the total allocation.

Budget deficits for 2020 till forecast 2022 average RM94.6bil per year compared to an average deficit of RM42.3bil per year in 2008-2019.

Will the government backtrack its fiscal reduction path as guided under the Mid-Term Fiscal Framework, and go for another record year of fiscal spending? Does the government have the capacity to borrow?

As at end-March 2022, the federal government debt stood at RM1.006 trillion or 61.4% of GDP, while statutory debt was at RM949bil or 57.9% of GDP, which was below the statutory limit of 65% of GDP.

Meanwhile, Malaysia has dropped to 32nd spot (from 25th) in 2022 IMD rankings on competitiveness of countries. Is it the lack of governance, competence, certainty, consistency and clarity? We are in confusion and chaos right now.

Then you have soaring prices – a lunch that used to cost RM12-15 has gone up by 20-30% before 1st July; higher cost of living; rising corruption – we have dropped to 62 (by 5 spots) according to TI-M global rankings; the weakening ringgit – because BNM believes in growth when there is none! Stabilise the currency first by hiking the OPR by 1%, will you? 

Malaysia’s shadow economy is 21% of GDP or RM300 billion in 2019. This is revenue loss to the Government. Why is there a shadow economy? Because when we ban something it goes “underground”. So the idea of banning alcohol, gaming, pubs etc. will not solve the problem but drive them underground!

What should we do? 

Mr PM and his FM have great people around as advisers but nothing seems to work! Could we just focus on short-term rather the usual noise about structural issues? 

• Strengthen revenue base by widening and increasing the tax for high net worth individuals and corporates with high income/profit:

            o Introduce windfall tax for sectors beyond palm oil?

            o Introduce new taxes on forex, inheritance

• Control expenditure with new mechanisms, otherwise “leakages” happen.

o Prioritise projects and big-ticket items or defer wasteful ones – good to have but not necessary for now

• Build strategic food stockpile – no need for a “chicken” Board or any other animal Board

• Examine exports and increase or diversify items including services

• “Wean-off” subsidies over time, so that it is not inflationary for the common man

If you can do all the above, then look at structural reforms to improve competitiveness. Can we do that?

Reference:

Insight- Can the government afford another ‘wow’ budget? Lee Heng Guie, The Star, 23 June 2022