Malaysian Budget 2021

Malaysia’s 2021 budget was eagerly awaited as it was meant to be extraordinary given the circumstances of Covid-19. What was announced was rather ordinary, not what many expected. Whilst much analysis has been done on the details, I wanted to give a strategic perspective instead.

1.     Directionally, the budget lacked a strategy on how the country intends to reopen the economy amidst the pandemic. What Malaysia is facing is not a unique. What will separate Malaysia from other countries is how quickly they manage the pandemic and re-open the economy & their borders to have some semblance of the past within the new norm. What I would have liked to see is the budget being broken down to short term, medium term & longer term initiatives. 

2.     As expected there were many initiatives for social support such as one off cash handouts, wage subsidies and others. The key here is how effective the government’s data is to ensure the right beneficiaries are enjoying this. Many in the B40 (bottom 40%) are small business owners who rely on daily income to survive. They are most affected by the lockdown that was imposed. The B40 require monthly cash assistance, not one-offs. This also opens up the debate about the need for a comprehensive social netting programme.

3.     Government’s projection on future revenue is too optimistic given that many businesses are suffering or closing down, people are losing their jobs and overall income to government coffers will be down. Most governments globally are guilty of relying too much on discovery of vaccine to be the golden pill to solve this problem. Reality is even if a vaccine is found, it will take years before it is approved, manufactured, purchased in vast quantities, distributed and administered to everybody. Even with all this, its effectiveness is not proven. We have to operate with assumption that C-19 will linger forever, but economy and lives must go on. Locking down a country is not a viable solution.

4.     This pandemic is an opportunity for Malaysia to reset its priorities. One thing missing was mass digitalisation efforts for the country. For example, 2020 has seen children attend only 4 months of school. This has made Malaysia’s already wide income equality inequality even more prevalent. Although the government committed to give each family one laptop to facilitate online learning, this wont be enough as every child would require one. Secondly schools need to be digitally wired and infrastructure available to facilitate online classes & learning. None of this exist currently. This is again an example why lockdowns are not just bad economically, it’s also bad socially as children miss out on education. Life must go on.

5.     There were some initiatives for job creation by way of giving construction contracts as way of pump priming. Though intention is noble, the beneficiaries of these projects would be foreign workers, not locals. Similarly efforts to reskill displaced Malaysians must be matched by creation of sufficient jobs that can take these reskilled workers back into the workforce.

6.     There needs to be revamp of Malaysia’s tax system. The income tax system is outdated and does not capture the true wealth of the country. There are about 12m Malaysians in the working system in Malaysia, with about 1.5m of them registered as taxpayers. Of this, only 100k are paying the top tier tax. This does not correspond to the spending, purchasing of luxury cars & houses that happen every year. The now abolished GST was a good system, that failed not because of the system, but the way the refund mechanism was badly administered. This is a terrible time to introduce any form of taxes, but it’s worth the government to start thinking of how to revamp the system now. When economy recovers, all the money spent must be recouped some way.

7.     Tourism & business travel is a very important component of the Malaysian economy. It is also the sector with the widest multiplier effect because from the time a traveller lands to the time they depart, many aspects of the economy benefits from the spending. With borders remaining closed, the industry is in serious risk of collapsing as many small time businesses struggle to survive. Thailand were creative to establish travel bubbles to focus on long term tourism (-6 months) with the cost of mandatory quarantine borne. Malaysia should be thinking along the same lines especially this time of the year where European travellers escape winter. Beyond this, travel bubbles need to be established. There is only so much business we can do online.

8.     Now would also be a good time time to rethink the role of government linked companies (GLC) in business. GLCs crowd businesses out which makes it difficult for entrepreneurs to flourish. This leads to monopolistic ownership of businesses which stifles creativity due to lack of competition. I would like to see a systematic plan of how GLCs can slowly start exiting businesses over a 10 year period. Whilst I understand there are social obligations from GLCs to develop the economy, there are specific vehicles for this. However this social argument has been used rather loosely to justify investments with not much economic return. The obsession of ownership must end, because there are many ways to achieve social and national objectives by using the existing companies & agencies available, and allowing listed GLCs to run commercially & professionally.

9.     Over the years, and especially this year’s Budget, there are many incentives & cash given out to develop industries and create employment. I would like a proper tracking mechanism to be put in place to mentor is the intended objectives are being met. This will serve as discussion point for the government to review annually what has worked and what has not. It must also be made clear to the people that the aids government is handing out if not free. Every assistance given should be tied to a national objective. For example, if the government is giving wage subsidies, they must insist that the recipients reduce foreign workers, hire more locals and increase minimum wage within a stipulated timeframe. Currently there is no objective tied which puts the government in a slippery position of giving away free money.

10.  Finally, all this above will be naught if Malaysia does not get its politics right. Good stable functioning government is necessary to take ownership & leadership in fighting this pandemic. When this is contained, only then can the economy start to show signs of recovery. Everything needs to work in sync. It is a good time for the government to start thinking about decentralising administration so aid can reach recipients faster, decisions are made quicker and most importantly allow agencies to institutionalise to ring fence itself from future political change & turmoil.