Setting the stage for recovery


The fact that Finance Minister Datuk Seri Tengku Zafrul (pic) revealed earlier that Budget 2021 will have a greater allocation compared to the previous year, is welcomed by households, businesses and experts. For context, a total of RM297bil was allocated under Budget 2020, which was tabled last year. Budget 2021 is the most crucial budget in recent years given the impact of the pandemic.

PETALING JAYA: All eyes are on the Parliament session today as the government sets to table one of the biggest, if not the biggest budget, to date.

With the Covid-19 pandemic and its containment measures being major headwinds for the economy, the market is banking on Budget 2021 for further stimulus to accelerate the still-fragile economic recovery and improve sentiment.

The budget will also likely provide an answer on whether the loan moratorium is extended until next year, considering that Pakatan Harapan and Barisan Nasional have called for an extension.

Despite concerns of revenue shortfall and rising fiscal deficit levels, Budget 2021 will be expansionary with greater government expenditure.

The fact that Finance Minister Datuk Seri Tengku Zafrul revealed earlier that Budget 2021 will have a greater allocation compared to the previous year, is welcomed by households, businesses and experts. For context, a total of RM297bil was allocated under Budget 2020, which was tabled last year.

Budget 2021 is the most crucial budget in recent years given the impact of the pandemic.

Economists have said that the focus of the budget would be on spurring consumption, job creation, pump-priming the economy via mega projects and government investments as well as strengthening the social safety net for the vulnerable sections of the population.

Maybank IB Research expects Budget 2021 to contain measures to spur consumer spending such as via the extension of the sales tax exemption for car purchases, another round of e-wallet credits and incentives for affordable housing.

The research house also anticipates measures to boost investments related to food security, technology adoption such as for automation and digitalisation as well as green investments.

“As for infrastructure projects, 2021 should see faster progress in existing major infrastructure projects plus scheduled rollout – and potential confirmation – of additional major infrastructure projects, ” it said.

Meanwhile, the Malaysian Rating Corp Bhd (MARC) said in a statement that Budget 2021 is expected to set the stage for recovery.

According to the rating agency, struggling small and medium enterprises could see wage subsidies extended, and digital adoption grants increased and extended. “There could also be allocations for rental subsidies, as well as tax waivers to help keep SMEs afloat.”

As for the household, MARC expects social assistance benefitting the bottom 40% (B40) and middle 40% (M40) households likely to be extended.

“To protect their jobs, wage subsidies could be extended again. Meanwhile, we do not expect sustainable development efforts to slow amid the pandemic.

“This is because the outcome of these efforts will put us in a better position to recover from the human and economic toll of the pandemic.

“To ensure that the rakyat can share the full benefits of the recovery and move to more innovative and productive livelihoods going forward, investment in human capital is essential. As such, we envisage incentives to the private sector to provide internships, training and upskilling, ” it said.

MARC believes that supportive budgetary measures, alongside the low base effect, will allow the growth pace of private consumption to improve to between 5.3% and 5.7% in 2021.

In comparison, private consumption declined by 6% in the first six months of this year.While there is a strong pressure from politicians and ordinary Malaysians for increased government spending, Asli Centre of Public Policy Studies chairman Tan Sri Ramon Navaratnam has a word of caution for the government.

The former deputy secretary-general of the Finance Ministry said Budget 2021 needed to be “mildly expansionary”, pointing out that the government needed to be mindful of the deficit levels and the country’s debt burden.

“We definitely need the government to introduce measures to stimulate activities in the most affected sectors.

“However, we are caught in a bind and hence, must only increase expenditure where necessary, ” he said.

Ramon said the country’s economic recovery could be accelerated even without much direct spending by the government.

“Instead of cash injections, the government can consider tax relaxation, for example.

“This is the time to loosen up the economy by relooking the regulations, making it more attractive for domestic and foreign investors, ” he said.

Ramon recommends the government to encourage a greater participation of the private sector in the economy via the public-private partnership model.

This model, according to him, allows both public and private sectors to share monetary obligations for investment purposes.

“We need more projects to be done via the PPP model. Not only can the government reduce taking on more financial burden in financing projects, we can also encourage more business activities at a time when sentiment remains weak.

“This is also the time for more structural reforms on the economy to be undertaken. The old way of doing business no longer works and we must get innovative, ” he said.

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