KUALA LUMPUR: THE 2020 Budget, the second annual financial plan under the Pakatan Harapan government, will be a bit more challenging.
This is due to the prolonged trade war between the United States and China, the US presidential election, Brexit, protectionist European Union, geopolitical tensions in the Middle East and volatility of commodity prices.
Malaysia’s trade with other countries accounts for 130 per cent of its gross domestic product (GDP). Being an open economy, the global uncertainties will affect the country’s revenue, foreign investments, capital flows and currency exchange rate.
Despite external pressures, the economy, which grew 4.9 per cent in the second quarter from 4.5 per cent in the preceding quarter, remains resilient with solid demand, a stable job market and low inflation.
Hence, Malaysians can expect a continuation of the expansionary policy and with it, goodies and incentives for some groups in next year’s budget, which will be tabled by Finance Minister Lim Guan Eng today.
“The budget is predicted to boost domestic economic activities, take advantage of the US-China trade war and offset an external trade slowdown,” MIDF Research said in its report.
“We can also expect a further increase in the minimum wage from RM1,100 to RM1,200, lower trade and investment barriers and provision of incentives and grants for small- and medium-scale enterprises (SMEs),” it added.
TA Research said the government might announce a bonus or special payment for firemen, besides raising their service allowance.
The government is expected to impose a higher tax on rich Malaysians, enhance the Sales and Services Tax, widen taxable income bands and provide more information on the targeted fuel subsidy programme, especially on diesel.
For the middle-income group, or the middle 40 per cent, there could be a concession on personal income tax.
Industry observers said continuing the expansionary policy means that the government will keep spending more than what it earns to boost economic activities. In doing so, Malaysia’s budget deficit is expected to remain slightly above three per cent next year.
Still, the deficit has been in gradual decline since 2009, from a high of 6.7 per cent to 3.8 per cent last year.
Malaysia is on track to achieve a balanced budget in 2021, and expects this year’s deficit to be at 3.4 per cent.
Overall, industry observers said the budget will provide a clearer direction of long-term development plans, as well as a fresh attempt to restore public confidence in the administration.
One pointed out that under the 2019 Budget, the focus was more on restoring people’s confidence in the government following the 2018 General Election, as well as strengthening Malaysia’s monetary and fiscal position as a result of abuse of power, mismanagement and corruption during the previous administration.
This time, policymakers will most likely emphasise bolstering the economy by creating more jobs, encouraging private investment, improving productivity and, more importantly, addressing the high cost of living and widening income gap.
Economists at Singaporean bank UOB expect policies and measures drafted in the budget to be aligned with the recently-launched Shared Prosperity Vision 2030.
The blueprint is targeting an average real GDP growth of 4.7 per cent from 2021 to 2030 and nominal GDP of RM3.4 trillion in 2030.
It also aims for compensation of employees at 48 per cent of GDP, SMEs and micro-businesses to contribute 50 per cent to the GDP, contribution of Bumiputera enterprises at 20 per cent to national income, and income of not less than RM5,800 a month for the bottom 40 per cent group.
The targets will be supported by 15 key economic activities across regions, including the digital economy, Islamic financial hub 2.0, Asean hub and green economy.
“The success of this new development narrative will depend on effective policies and programmes, as well as strong political will to ensure that Malaysia moves forward to achieve these goals,” UOB senior economist Julia Goh and economist Loke Siew Ting wrote.