SEVERAL current factors point to a potentially expansionary election year budget.
FIRST, the government will use the budget to showcase its commitment to people's welfare as it cozies up to voters.
SECOND, as the economy emerges out of the shadow of the pandemic, the government will continue to nurture its early recovery with increased spending. More so, as a global recession has been predicted.
China's growth has slowed down due to its zero-tolerance Covid policy. It would only take a European recession to create a spark that can ignite the kindling into a global recession.
THIRD, we are a trading nation. Trade constitutes 130 per cent of our gross domestic product (GDP). When a global recession washes onto our shores, the economy should have adequate buffers to weather it. These buffers must be bolstered with increased spending.
War is a curse, but also a blessing in disguise, as it has spiked the oil price to US$100 per barrel. Compared with the price on which this year's budget was crafted, that is a hefty US$33 increase.
As the government earns oil-export revenue of RM300 million for every dollar increase, the rising oil price will enlarge the government coffers by close to RM10 billion, which is a handy sum for an expansionary budget.
True, government largesse will be constrained by the continued fiscal deficit of around six per cent. In financing fiscal deficits since the Asian financial crisis of 1996-1997, the government's debt has ballooned to over a trillion ringgit, or 63 per cent of GDP.
Notwithstanding, the debt-to-GDP ratio is well within the limits of the World Bank.
In its 2013 study, the World Bank found that economic growth slows down only if the debt-to-GDP ratio exceeds 77 per cent for an extended period.
Some back-of-the-envelope fiscal mathematics suggest that if a six per cent deficit can stabilise a 63 per cent debt-to-GDP ratio, then it would require only a further one per cent in fiscal deficit to support a 70 per cent debt ratio.
This would mean that the government can borrow an additional RM100 billion to finance its election year budget.
With this enlarged borrowing capacity, the government doesn't need to raise taxes, as doing so would only stifle business and consumer exuberance.
Further, a goods and services tax (GST), even if it is an efficient tax regime, can cause a government's downfall.
The collapse of Malaysia and Japan's governments following its introduction is a case in point.
Where should the government allocate its expenditure next year? Besides elevating public welfare through targeted subsidies and suppressing the ever-rising cost of living, here are three priorities.
FIRST is enhancing the nation's competitiveness. Competitiveness is about producing better quality goods and services at lower costs. Increased productivity, the foundation of competitiveness, will allow the nation to produce more with lesser or the same amount of resources.
Raising national competitiveness will aid in greater employment and economic growth. It will promote greater foreign direct investments (FDIs). FDIs create jobs and bring in productivity-boosting technologies that can further catalyse growth.
Competitiveness depends on the business ecosystem — talent and infrastructure development and advancing innovation capacity.
Therefore, more spending should be allocated to human capital development and the growth of our communications and physical infrastructure networks.
This year, the development budget comprises 20 per cent of the total budget — a proportion that has remained roughly the same in the annals of budgeting.
Increasing this percentage in 2023 will help promote competitiveness.
SECOND, to improve our innovation capacity and productivity, research and development (R&D) expenditure must be increased from the current 1.4 per cent of GDP.
Rich nations spend double that amount, pointing to a correlation between innovation and a nation's prosperity.
Expanding our R&D expenditure will contribute to us reaching the targeted R&D allocation of 3.5 per cent of GDP by 2030.
THIRD, the budget should reflect the commitment of the nation to carbon neutrality by 2050.
We have some distance to go in boosting our competitiveness and greening the economy.
The 2023 Budget should make a substantial contribution to these ventures.
The writer is the AIMST University's vice-chancellor