IT may be the biggest budget on record but what may be required is an all-out spending package to lift people’s lives from a situation of joblessness and reduced salaries.
In a time of severe job losses, there should be a big social safety net for the affected people who are vulnerable to poverty and destitution.There needs to be a massive step-up in spending for them, with, among other things, extensions in loan repayment moratorium and a freeze in tenant eviction.
In the United States, a temporary halt to evictions till the end of the year, has been issued by the Department of health and human services.
Under Budget 2021, there is no blanket extension of loan moratorium but borrowers having problems with their loan repayments can apply for postponement or reduced instalments, while micro enterprises get a three-month extension.
A social safety net is important, otherwise, we may see a surge in the number of homeless or destitute people especially in urban areas.
Priorities are important at this time of need; there is concern that a further financial aid of RM600 is given to civil servants of Grade 56 and below, who already have steady incomes and suffered no loss in earnings.
While Prihatin packages are extended to the B40 category, there are some middle-income people who have lost 100% of their salaries but are ineligible for aid, because they used to earn somewhat better incomes previously.
Government spending will be also required to push the economy to continue working.
“Since government spending is limited, government-linked companies (GLCs) with strong balance sheets can borrow and push for economic activities.
“Cash handouts can only be short-term solutions. We need businesses to create jobs, ’’ said MMC group managing director Datuk Seri Che Khalib Mohamed Noh.
A people-centric budget in the form of giving cash handouts directly and indirectly, may be the immediate solution to the pandemic-induced crisis, but reinvigorating the economy for long-term sustainability is vital.
Business confidence is at its lowest, and private sector spending is expected to be at an all-time low due to economic uncertainty.
GLCs, which control many monopolies and about 30% of the economy, should accelerate their spending and push for the national economic agenda; they should not be just profit-driven.
An endless string of unnecessarily large budget deficits in the past has saddled us with too big a debt to step up spending now.
We actually are in a dilemma, right in our hour of need.
In view of the high-debt situation, and the need for continued government spending, fiscal targets should be set to meet future demand for spending in case another deep economic shock erupts.“Malaysia should not wait until the market pressures us to undertake fiscal and economic reforms, ’’ said Socio Economic Research Centre executive director Lee Heng Guie, in a report.
A credible five-year fiscal consolidation plan should be drawn up that will help bolster investor confidence and safeguard sovereign ratings.
Of concern is the budget’s operating surplus, projected to shrink to RM550mil in 2020, and RM350mil in 2021; this compares with an average of RM2bil per year from 2015 to 2019.
With the spike in Covid-19 cases and further imposition of the conditional movement control order, consumer spending needed to spur the economy, is another concern.
Under the new normal, purchasing power can be affected by structural changes, for example, in the retail and hospitality sectors.
If the upskilling of labour is not effectively carried out, we could have a weaker labour market, and the underemployed portion may become larger, thus impacting consumer spending, said former Malaysian Rating Corp chief economist Nor Zahidi Alias.
Substantial increases in personal tax reliefs assist only 15% of the workforce and will be difficult to remove, once given.
With so many types of reliefs, too much may have been given out; in fact, it makes tax administration more difficult, said Tricor Malaysia chairman Dr Veerinderjit Singh.
Instead, lowering the tax rate for some categories of the M40 could have been easier, while the government should also consider a phased reduction of the corporate tax rate to eventually reach 20%.
An announcement on reviews of structural problems in, among other things, the reliance on foreign workers, and improving the education and tax systems to be more sustainable, would signal a mid to long term initiative to drive the nation.
“The best time to start reforms would be now, when the economy is not doing well but needs the stamina to carry it through, ’’ said Veerinderjit.
With measures to help small and medium scale enterprises (SMEs), the government should also give a reprieve on tax collection from SMEs in 2021, as many of them are in economic hardship, and have asked for rescheduling of their previous instalments, said Small and Medium Enterprises Association national secretary Yeoh Seng Hooi.
Against the pressure of strained financial resources, is also the stress of not knowing when this pandemic will end, all making the task of planning very difficult.
Yap Leng Kuen is the former business editor of StarBiz. The views expressed here are the writer’s own.