An ordinary budget for extraordinary times — Dr Geoffrey Williams
(MMO) – Finance Minister Datuk Seri Tengku Zafrul Abdul Aziz got it right when he said that we face an unprecedented crisis due to the COVID-19 pandemic, “described as the worst economic crisis since the 1930s’ Great Depression that has upended the economies in over 150 countries,” as he put it in his Budget 2021 speech.
It is surprising then, that in such extraordinary times he should have delivered such an ordinary budget.
Although the total allocation for 2021 of RM322.5 billion is the largest in history it actually represents only RM7.8 billion more than the RM314.7 billion the government allocated in 2020. This is equivalent to around RM240 for every Malaysian for the full year or RM20 per month, RM5 per week or less than a cup of teh tarik per day.
Of course as normal the money was not distributed evenly through the population. Instead we have the usual wish-list of projects for specific interest groups, GLCs, agencies and ministries. This form of distribution means that the money does not trickle-down quickly to the rakyat and there are multiple opportunities for leakages between the allocation and the intended recipients.
Even the reduction in income tax rates, the higher tax exemption limits for medical costs and the very welcome increase in rates of assistance and income categories in the renamed Bantuan Prihatin Rakyat (BPR) will not feed quickly into the pockets of the needy.
What has been interesting is the lukewarm reaction from a wide range of interest groups including doctors, small-businesses, employers, chambers of commerce, trade unions, environmental groups, consumer groups, social NGOs and economists across the board. This shrug of disappointment must signal a warning that people are not as impressed by these hand-outs as the government might have hoped.
Some sectors were ignored completely and for example, there was nothing in these allocations for private higher education which is in full structural crisis nor anything to address the growing repayment problems in the PTPTN debt portfolio which was described last year as being unsustainable by PTPTN itself.
A budget for jobs?
Many people will be glad to see the focus on unemployment and underemployment and the announcement of a new National Employment Council which will be chaired by Prime Minister. This is urgently needed but does it mean that this is a budget for jobs?
The extension of the wage subsidy scheme to 900,000 workers in the retail and tourism sectors will be well-received by the recipients and their 70 thousand employers but it is a scaled-down scheme for a specific targeted group and will only last for three months.
The MySTEP or Short-term Employment Programme aims to create 35 thousand casual contract jobs in the public sector jobs and 15 thousand jobs in GLCs. The allocation of more than 700 million ringgit is only RM1,667 per month which is below both the living wage calculated by Bank Negara and the poverty line set by the Department of Statistics.
The PenjanaKerjaya initiatives, with an allocation of RM2 billion offer similar employment opportunities for 200 thousand job-seekers but again the allocation is only RM1,667 for the six months of the programme. In both cases extra money will be needed to avoid creating artificial, poverty-wage jobs.
Multiple schemes were announced for reskilling, upskilling, TVET and training, which again will be welcomed by many. Billions of ringgit have been allocated for training of specific groups, in specific fields, run by specific agencies but there is little rationale to explain why these programmes or target groups have been chosen.
It is also clear that very little of this money goes to the trainees themselves. Instead it is filtered through the agencies and their trainers. Training does not create jobs and that if job opportunities are not available then very little will be achieved from these schemes.
More reliance on government debt
As such the unemployment and underemployment problem will take some time to solve and this will hold back economic growth and government revenues placing more reliance on government debt which will finance 26.5% of the 2021 budget compared to 17.7% in 2020.
The Government has raised the target debt-to-GDP ratio from 55% to 60% but has immediately breached its own limit with a projected Federal Debt ratio of 60.7% for 2020. The Fiscal Outlook Report 2021 from the Ministry of Finance does not have the projections for debt for next year.
Total public sector debt up to June 2020 increased to RM1.2 trillion or 85.5% of gross domestic product (GDP) compared to RM1.136 trillion or 75.2% of the GDP last year. Eventually this is an issue that will have to be addressed.
Although the Government’s projection of 6-7% growth for 2021 may be achievable, the rebound will largely depend on growth in export markets and domestic consumer demand. This in turn will depend on how long the MCO-lockdowns continue to restrict movement, incomes and spending. Much of this is outside of the control of the Government and is very difficult to forecast with any certainty.
Overall Tengku Zafrul delivered a very well-structured budget with great aplomb. It could properly be described as a steady-hand on the tiller during the maelstrom of the COVID-19 crisis. Whether it will prove enough to push us through those headwinds remains to be seen.
* Dr Geoffrey Williams and Nur Muhammad Tajrid Bin Zahalan are directors of Williams Business Consultancy Sdn Bhd based in Kuala Lumpur.