BUDGET 2018: Striking a delicate balance

BUDGET 2018 to be unveiled by the Prime Minister this morning would be one where the Malaysian Prime Minister would have to ensure there are bounties for all while keeping the promise of fiscal discipline.

While the external factors impacting Malaysia have somewhat recovered, Najib Razak needs to drive domestic consumption and demand without straining the balance of payments and the country’s financial resources.

The Malaysian economy has chalked up a growth rate of 5.8% for the first six months of the year – which was unexpected – and it is said to be on track to meet the revised growth rate of 4.8%-5% for the whole year, this on the back of robust domestic demand and exports.

While the external economy is looking more optimistic now, the budget would also have to find ways to increase domestic demand and consumption amidst rising prices.

The budget deficit is expected to improve to 2.8% of gross domestic product (GDP) from 3% this year, with the government continuing to stay on the path of fiscal consolidation to ensure optimal deployment of resources.

Government debt stood at RM685.1 billion, or 52.3% of the GDP, as at end-June, and the rise in contingent liabilities to RM195.7 billion, or 15% of GDP, as at the end of March is something that must be watched.

Petronas’ rising dividend contribution, increasing to RM16 billion, together with the broad-based Goods and Services Tax (GST), meant the government is expecting to rake in about RM58 billion in revenue. However, it will need to plug leakages and be prudent in its spending.

The budget would also have to focus on ushering Malaysia into the digital age and reposition the country as a competitive nation. It is about re-engineering our strategies and reshaping the state of the nation’s competitiveness in the era of digitalisation and the quickening pace of technology disruption.

The government should also provide more incentives to companies, especially small and medium scale industries and manufacturers, to automate and embrace technology, especially industrial internet.

The world has already seen the Fourth Industrial Revolution sweeping the world through Industry 4.0, and there is the only evidence of a small number of manufacturers investing and leveraging on modern technology.

Recent evidence suggests that Malaysia is still grappling with ways of trying to move up the value chain, caught in the middle-income trap, with three years for it to reach high-income status.

Many industries in Malaysia are still trying to keep production costs low by hiring foreign workers, which then adds pressure to balance of payments when these workers repatriate income to their respective home countries.

The budget is also likely to focus on three key areas of education and training, affordable housing, and the upgrading of healthcare services.

Higher sums may be doled out including expenditure and education subsidies in the form of expenditure for the Permata programme, as well as increasing scholarships for the MyBrain programme to support professional education in the nation.

Another area of emphasis in the upcoming budget would be on the issue of affordable housing, which is likely to get attention in the wake of rising home prices and the increasing number of loan applications rejected by banks.

Remedies are likely to take the form of reduced GST imposed on housing materials, reduction in stamp duties, and provision of special end-financing schemes.

Healthcare subsidies are also likely to be introduced to defray rising medical costs and improve the quality of healthcare.

Another issue that the Prime Minister is expected to address in the budget is the rising cost of living, on account of inflationary pressures that have been looming on the horizon due to a depreciating ringgit.

Food and transportation prices are the main fuel for inflationary pressures, and the Prime Minister is expected to find ways of lowering prices of these goods.

Budget 2018 is likely to be the last before the impending general election, and goodies are bound to be thrown to increase the “feel good factor”.

Sathish was previously the Senior Analyst at the Institute of strategic and International Studies and most recently as the Assistant Business Editor in a local newspaper.

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