Spotlight on new unity government

Taking charge: Anwar receiving calls from world leaders on his first day in office in Putrajaya. The first major policy document to be tabled by the unity government will be a new budget for 2023. — PMO

THE 15th General Election (GE15) has ushered in a new dawn for Malaysian politics.

The new unity government that has been formed comes at a time when the country needs stable leadership that can rejuvenate long-term economic growth and appeal to global investors.

The first major policy document to be tabled by the unity government will be a new budget for 2023, which new Prime Minister Datuk Seri Anwar Ibrahim said would be tabled in “one month or so” after the Parliament convenes on Dec 19.

All eyes will be on what Budget 2023 entails and how it plans to address the economic slowdown projected next year.

With many major economies teetering on the brink of recession, the impact will surely be felt across the world, including in a trade-reliant economy like Malaysia.

Budget 2023 will need to boost consumer sentiment at a time when households are burdened with elevated cost of living even as price pressures are easing (see sidebar).

The cost of borrowing has also gone up, after Bank Negara raised its benchmark interest rate by a cumulative 100 basis points in six months this year to tame soaring inflation.

The unavoidable monetary tightening has added pressure on the rakyat’s wallets.

Businesses are significantly affected by the higher borrowing costs. Business owners increasingly lament about the drop in customer volume as the economy continues to slow down.

Small and medium enterprises (SMEs) expect a helping hand from the government to weather the rising challenges.

Budget 2023 hopes

Hence, expectations will be high on Budget 2023 to be tabled by the new government.

It will be tough to manage all these expectations amid the government’s limited fiscal space.

Unavoidably, comparisons will be drawn against the earlier Budget 2023, which was tabled by the previous government led by Datuk Seri Ismail Sabri Yaakob.

The pre-election Budget 2023 was the biggest budget in Malaysian history.

The Ismail Sabri administration had allocated RM372.3bil for total expenditure, out of which RM100bil would go towards development expenditure and the Covid-19 trust fund.

In contrast, Budget 2022 had allocated only RM332.1bil. It is, however, worth noting that the government’s expenditure for 2022 is expected to touch RM385.3bil.

Anwar and his Cabinet do not have the luxury of time to formulate a budget.

As the year 2022 is nearing a close, the unity government will need to deal with several questions as it strives to introduce a better Budget 2023.

How will the taxation system be revamped to ensure more fairness and generate revenue for the government?

Should subsidies be reduced and how will the government deal with the rising cost of living instead?

What measures should be introduced to make Malaysia appealing again to global investors?

Speaking with StarBizWeek, Socio-Economic Research Centre (SERC) executive director Lee Heng Guie says the government ought to “fix” the budget via targeted subsidy rationalisation and the reprioritisation of non-critical expenditures.

“The budget is likely to be reviewed to ensure sustainable spending relative to the narrow revenue base.

“It will be targeted spending on projects that can be implemented fast. Cash handouts will be continued for targeted households,” he says.

Lee also adds that subsidies can be targeted by social category through targeted cash or near-cash transfers such as limiting benefits to the poor, children or pensioners, or to households in certain geographical regions.

“Coupons can be allocated to allow targeted households to consume a certain ‘lifeline’ amount of subsidised food or fuel products.

“Social safety nets are more cost-effective and have a much more profound impact than generalised price subsidies,” he says.

For 2022, the country’s subsidy bill is forecast to hit RM80bil, with the bulk of subsidies going towards fuel such as RON95 and diesel.

Economist Geoffrey Williams of the Malaysia University of Science and Technology (MUST) welcomes the fact that a new budget will be tabled.

He notes that the pre-election budget comes with higher spending and a list of projects aimed at voters.

“Now that it is over, there is an option to pivot the budget toward keeping growth stable and helping to keep inflation low so that we do not need higher interest rates.

“Fiscal and monetary policy should not work against each other, they should be coordinated.

“These are the basic changes to rebalance spending and revenue,” says Williams.

Beyond these short-term measures, it is also necessary for the government to begin working on longer-term policy reforms as soon as possible.

Together with these reforms, the parties involved in the unity government would need to reach mutual agreement on how their manifestos would be delivered.

Admittedly, it may be an impossible feat to achieve all the pledges mentioned in the manifestos within the next five years.

Common ground

An analyst says that the respective political parties should start by identifying the common ground or similar pledges.

For example, pledges related to National Higher Education Fund Corp or PTPTN, upskilling and re-skilling Malaysians, financial assistance for tertiary education, affordable homes and general welfare for women, disabled Malaysians, elder citizens and children.

In addition, measures to uplift the economies of Sabah and Sarawak, as well as the east coast of Peninsular Malaysia should be addressed.

“It is quite impossible to deliver all the pledges, but the rakyat would understand that it is difficult to do so in a unity government.

“The government should focus on measures that would deliver the highest outcome or multiplier effect to the rakyat.

“The faster the reforms are implemented, the better it would be for the Malaysian capital markets. We have been stagnating for quite some time, so we badly need some fresh catalysts,” according to the analyst.

The bigger challenge would be to decide on controversial policies such as the goods and services tax (GST).

After all, it was the Barisan Nasional government that had introduced the GST back in April 2015, only to be abolished by the Pakatan Harapan administration after it rose to power in 2018.

For now, it is unclear how Anwar and his upcoming Cabinet plan to address such conflicting policy stances.

Nevertheless, economists say the ruling government has a lot on its plate with regard to policy reforms.

Universiti Kuala Lumpur Business School economic analyst Associate Professor Aimi Zulhazmi Abdul Rashid points out that the new government should prepare the nation for the expected global recession.

He also says that the government must address the weak ringgit position against the US dollar and Singapore dollar.

“The government must look into how the ringgit will be returned to at least RM3.80 to RM4 per US dollar like the old times and control prices of imported goods, especially food.

“(Another area is) the country’s food security and dependence on food imports which continue to increase in numbers,” he tells StarBizWeek.

Aimi Zulhazmi also highlights the importance of policy reforms related to inflation control, especially the subsidy policy and its implementation.

“(The government must also look into) how to reduce the national debt in a state of low national income and whether the GST should be reintroduced.

“Also, what about the 10% online tax on low-value goods as agreed in the Organisation for Economic Cooperation and Development or OECD meeting?” he says.

Meanwhile, MUST’s Williams calls for the formation of several policy review councils.

These include reforms on pensions and social protection, higher education funding, economic development, health reform, SME and business development, investment competitiveness, tax reform as well the Parliamentary Budget Office.

With regard to pensions, Williams says that a Universal Basic Income model should be at the core of the reform.

“Pension reform is another area where there was very little detail from either side, so a consensus can be reached.

“Healthcare reforms were also under the radar and a Health White Paper review could be common ground too,” he says.

Williams also mentions that investors look for a clear investment-friendly strategy with opportunities for new business, growth and investment returns.

“So the long-term economic strategy must be clear, market-based and open to the private sector.

“It must also be competitive and attractive against regional peers where opportunities are growing,” he adds.

Meanwhile, SERC’s Lee says the unity government will have to work on the principles of good governance and inclusiveness to rebuild a sustainable and better Malaysia.

“While their manifestos have shared common objectives and initiatives to address institutional, economic and social as well as business development and issues, they have to make compromises in prioritising the measures,” according to him.

Echoing a similar stance as Williams, Lee says it is crucial for the new government to revive and sustain both domestic and foreign investment to drive high level of private investment to boost economic growth and create better-paying jobs.

Domestic SMEs have to be facilitated and be given sufficient financial assistance to transform into competitive business enterprises in domestic and international markets.

“The government must continue to enhance the country’s investment climate through ensuring political stability, macroeconomic resilience, policy certainty and clarity as well as enhance an effective and productive business-federal government-local authorities’ relations.

“These will send positive signals to win over both domestic and foreign investors’ confidence,” says Lee.

In addition, he urges the government to enhance public delivery services and efficiency, reduce regulatory and compliance costs as well as enhance a competitive tax regime and cost of doing business.

With the geopolitical fragmentation and the strained US-China relations in trade and technology, Lee says

Favourable policies

Malaysia has to enhance its investment climate backed by favourable incentives and policies to attract the reshoring of production bases.

On top of these changes, Malaysia also requires immediate action to address the shortage of workers and skillset mismatch.

“The recruitment process and arrival of foreign workers must be expedited to ease the shortage woes faced by the industries.

“The quality of reskilling and upskilling as well as training programmes should be prioritised to narrow the skills mismatch,” he says.

According to Lee, the development programme must focus on job creation and skills for youth and promote an entrepreneurial culture.

He also highlights the need to focus on productivity-linked wages for employees, enhance technical and vocational education training for future work and investments into skills, among others.

Undeniably, there are huge expectations for the new unity government, which is only a few days’ old. With more regional countries emerging as stronger economic rivals, Malaysia will need the support of good policies to overcome the competition.

The rakyat will get the first glimpse of the government’s policy direction with the tabling of Budget 2023.