Insight - Budget 2022: Revive and recharge the economy


SERC's Lee Heng Guie: The immediate priority is to craft a swift economic recovery plan for generating growth, enhancing economic resilience, revitalising private investment, creating jobs as well as reskilling and upskilling of manpower. There are fiscal revenue constraints in the face of high expenditure to support pro-growth and business recovery.

POLICYMAKERS must figure out how to fix a shattered economy, rebuild from the impact of Covid-19 to emerge more resilient and to safeguard the economy against the next catastrophe.

Budget 2022 marks the second year of the 12th Malaysia Plan (2021-2025). It will be a pro-growth and transformational budget with a more targeted approach to spending programmes.

The immediate priority is to craft a swift economic recovery plan for generating growth, enhancing economic resilience, revitalising private investment, creating jobs as well as reskilling and upskilling of manpower.

There are fiscal revenue constraints in the face of high expenditure to support pro-growth and business recovery.

The Budget 2022’s pre-statement has accorded priority on medium-term revenue strategies: Managing revenue leakages by plugging revenue loss from smuggling and counterfeiting; strategies to increase tax revenue through increased tax compliance; and tax incentives review.

In this regard, Budget 2022 could implement some initiatives and review tax treatment to curb elements of revenue leakages or harmful practices as well as to address cross-border tax evasion in digital economy.

These include the implementation of special voluntary disclosure programme (SVDP) for indirect taxes administered by the Customs Department; the introduction of a tax compliance certificate as a precondition for tenderers to participate in government procurement; and the implementation of tax identification number (TIN).

The Finance Minister has spoken on the tightness in fiscal space and that the country cannot afford a cut in corporate tax unless the tax base is broadened.

He also said that the time is not right to reintroduce the goods and services tax (GST).

Nevertheless, we think that the budget could make a policy statement on the GST, paving the way for its eventual implementation in 2023.

Any introduction of new taxes, including the much-talked-about capital gains tax and windfall tax, are untimely given the current uneven pace of economic recovery.

Would the costs of a capital gains tax outweigh its benefits? Capital gains tax reduces savings and investment incentives and greatly dampens the prospects for increased productivity and economic growth. This hinders entrepreneurship as well as erodes our competitiveness in attracting domestic and foreign investment.

Driving recovery

We are looking for tax and non-tax incentives, continuation of financial assistance and relief for households and businesses, sector-specific funds and grants to drive the economic recovery by stimulating consumerism, improving business investment prospects, electrifying green investment and infrastructure, plus support for the tourism sector.

The vulnerable households and informal sector must continue to be given the appropriate social safety protection in terms of income, jobs and skill support.

Backed by the lifting of movement restrictions and the reopening of economic and social sectors (in stages) in the fourth quarter of the year, Budget 2022 is expected to help boost discretionary consumption of households amid the still weak job growth. The jobless rate stood at 4.6% in August.

These could include a continuation of targeted cash handouts for the bottom 40% (B40) group; higher amount of e-wallet payment, which has to be spent within a stipulated period; higher special personal tax relief; higher tax relief limit for contributions to the Employees Provident Fund and insurance in order to relieve the financial burden of wage earners.

Greater allocation of resources to help employees develop new skills, reskill or upskill would also be a welcome move.

We also hope the budget would assist small business owners to get the training, skills and technology they need to compete with bigger firms and become high-growth companies of the future.

As for measures to support the property sector, we hope the Home Ownership Campaign, which ends on Dec 31 this year, would be extended until the end of 2022. We also hope for the real property gains tax exemption to be extended for another year. And for the auto sector, we hope the sales tax exemption, which will end on Dec 31, 2021, will be extended until end-2022.

Many businesses have suffered from the impact of a prolonged pandemic and are eager to see tax reliefs and incentives to support their revival and for investments in digital technology and automation.

Relief support

Besides the continued provision of concessionary interest rate facilities and soft loan as well as grants to support the restructuring and expansion of micro, small and medium enterprises (MSMEs), businesses would welcome the following relief support in the upcoming budget to ease pressure on operating costs.

These include not increasing the minimum wage and statutory payment such as the Employment Insurance Scheme; the 25%-50% discount to all companies with foreign worker permits; waive the levy contribution for HRD Corp until Dec 31, 2022; and extend the wage subsidy programme until June 2022 for the affected industries.

Other relief support that businesses welcome are the extension of special tax deduction to premise owners offering rental discount and continued targeted repayment assistance; to waive the tax installments for companies (Form CP204) and individuals (Form CP500) due in year 2021-2023; and payment of the balance of tax for 2021-2023 years of assessment in three monthly instalments for companies (Form C) and individuals (Form B).

We believe that Budget 2022 would add considerable green investment and infrastructure spending and would focus on public healthcare as the core of our economic recovery. It is also likely to incorporate the planned projects identified in the 12th Malaysia Plan.

It is also expected to focus on green infrastructure, which increases resilience to environmental challenges with the contribution of green technology coming from five sectors – energy, transport, building, waste and water.

The government should use this opportunity to introduce a landmark budget to ramp-up public healthcare facilities. Public healthcare spending, at 2% of gross domestic product now, must be increased progressively to at least 4%.

For sector-specific, the “Support, Recovery and Re-set” plan will provide support for the tourism sector nationwide – to enable it to be sustainable and resilient.

The MSMEs, startups, and e-hailing services will be supported by business digital training, advisory and facilitation programmes.

Special reinvestment allowance, accelerated capital allowance as well as the automation fund will be given to support business and industry transformation towards the 4th Industrial Revolution.

Lee Heng Guie is Socio Economic Research Centre executive director. The views expressed here are the writer’s own.

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Insight , Budget 2022 , Lee Heng Guie , SERC , revive , recharge , economy , 12thMP ,

   

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