Budget will be people-centric

One-on-one: Mustapa during the interview at his office in Putrajaya. — RAJA FAISAL HISHAN/The Star.

THIS coming Budget will be an unprecedented one as it grapples with a magnitude of issues arising from the Covid-19 pandemic. What are the more crucial areas of concern for emphasis?

We all know the pandemic has brought many challenges. The RM305bil we have spent on fighting Covid-19 is bigger than most budgets in recent years. You could say that the Finance Ministry had presented four mini-budgets with all the allocations rolled out this year.

Under the circumstances, the primary focus of the Budget is to protect lives and livelihoods.

For instance, cash support for those at the bottom rung of the income bracket is needed so they don’t fall off the deep end. Another group disproportionately hurt by Covid-19 are small and medium-sized enterprises (SMEs). We need to focus on SMEs and make sure they receive further support on top of those given in the economic stimulus packages.

On operating expenditure, a large chunk of it is committed to payments – such as salaries, pensions and interest payments.

For development expenditure, we have to complete projects which began in the last one or two years. These are committed payments. We also have to set aside money to help some government-related institutions.

What are the challenges in drawing up this Budget? From March until September, the government has provided over RM300bil in Covid-19-related financial assistance under various Prihatin and Penjana initiatives.The Covid-19 pandemic has wreaked havoc on our economy and on the government’s revenue.

The oil and gas sector is an important source of revenue for the Federal Government, where the contribution of petroleum revenue to the Federal Government’s coffers averaged at around 20% for the period of 2016 to 2019.

The global crude oil market has experienced an unprecedented crisis this year due to supply shocks and weak demand resulting from the Covid-19 pandemic.

For instance, Brent crude oil prices fell sharply from an average of US$64 per barrel in 2019 to an average of US$42 per barrel for the first 10 months of the year.

In addition, the revenue base has also been narrowed with the abolishment of GST (goods and services tax). Total sales and service tax collection in 2019 was about RM28bil, which is about 40% lower than the GST collection in 2017 of RM44bil.

Closed borders too, have caused many issues. People in Johor and those involved in the tourism sector, have been hugely affected. The private education industry, which was doing very well prior to the pandemic, has also been disrupted. Indeed, many have lost their jobs in tourism and private education industries.

With GST abolished, the government has lost a huge tax net. How can the government make up for this huge loss?That’s true. The loss of GST left a huge hole in the revenue base that we have yet to fill. We need to start thinking of how to broaden the base so that the government has more money to spend on public goods and facilities.

This extra RM300bil expenditure was on top of the RM241bil needed to cover regular expenses this year. When the government announced its Budget last year, the amount it estimated to spend for this year was RM297.02bil with RM241.02bil to be used for the country’s operating expenses alone. The government has already spent more than it can earn, how will this carry forward to Budget 2021?This is an unusual time and we should not be too fixated about balancing the budget today. It is certainly not the time to reduce spending. During the global financial crisis in 2009, the fiscal deficit was higher at 6.7% of gross domestic product (GDP) as the government then also implemented economic stimulus packages to ease the impact of the crisis. Large deficits are sometimes necessary.

What we need to be worried about is whether the average Malaysian can still provide for his family. We need to reduce job losses, and create new opportunities for businesses. Unfortunately, this means we must operate on a budget deficit.

Whether or not we can handle this is dependent on how much longer this Covid-19 crisis will persist. If it continues for another year or so, it will certainly be a big challenge.

Perhaps when Covid-19 is almost over, we can design a long-term strategy to balance our books.

When Malaysians are secure in a safe economic climate, maybe then the government can once again start saving for a rainy day.

The Finance Minister has also voiced optimism that the economy next year will expand by up to 8%, reversing the negative growth from 2020.

However, many economists have pointed out that the government may still have to reduce spending as it is also getting less revenue this year.

The Covid-19 pandemic has had a significant impact on individuals, households and companies, as well as almost all sectors of the economy. Its scale and impact far exceeded expectations, and countries around the world have experienced significant economic contraction.

According to the International Monetary Fund (IMF), the world economic growth is expected to contract by 4.4% this year, the worst contraction since the Second World War.

GDP contracted by 8.3% during the first half of 2020.

However, the negative impact on economic growth this year is temporary and is expected to recover in 2021.

Taking into account the current economic position, economic growth this year is estimated to contract between 3.5% and 5.5% in 2020.

Nevertheless, with the increase of Covid-19 cases in the third wave, the government had to reintroduce the conditional MCO in several states and cities, including Selangor, Sabah, the Federal Territories of Kuala Lumpur and Putrajaya. This will likely affect economic performance in October and November.

We expect recovery in 2021, at between 5.5% and 8%. This is consistent with the projection by the World Bank of 6.3% and the IMF of 7.8% in 2021.

But this depends a lot on whether we can contain possible further surges of the pandemic and when we can have access to the vaccine.

After the crisis this year, next year is a sort of transition, and we have to manage the transition. Some new norms may be here to stay such as work from home and a fundamental change in international travel behaviour, for instance, will see its effects long outstay Covid-19.

Education is a low hanging fruit as it is a RM11.8bil business from the contributions of international students, mostly from private higher education institutions, and RM31.5bil more in the form of tuition fees and living expenses through food and rentals. Education is one of Malaysia’s biggest exports as we have the 10th largest market of international students worldwide. Is the government making it easier for the private sector?Our IPTA (public higher learning institution) and IPTS (private higher learning institution) have been affected. IPTAs are relatively fine because of the government’s support.

However, some IPTS have been closed. The drastic drop in the number of international students will result in a number of IPTS facing many challenges and knock on effects on residential property, restaurants, etc. We have to prepare for a difficult year in 2021 for higher education.

Why is there a perceived lack of support from bureaucrats for the private sector?This is not really true. For example, at the Economic Action Council (EAC) secretariat, one of our main responsibilities was to engage with stakeholders from the private sector.

The secretariat, headed by Prof Tan Sri Noor Azlan, conducted about 270 engagement sessions with various business organisations, industry associations, academics, NGOs and individuals to date.

The MOF has held hundreds of engagements for the Budget. This government listens to the private sector. We want them to be the main engine of growth.

And so, we are always open and willing to listen to challenges facing Malaysian businesses.

We have been talking to SMEs, chambers of commerce, business associations, retailers, hoteliers, engineers, lawyers, education providers, people in construction and agriculture, manufacturers, investors both foreign and local, you name it, every sector.

Malaysians appreciate that we listen to them. We need feedback because we need to know the actual situation on the ground. Only then can we respond to the real issues.

With GDP reduced to at least -3.4% this year, cutting spending is a reasonable option to help the government cover the big gap between its income and expenses next year. But many experts that we spoke to suggested that the government should continue spending on what matters most to get Malaysians through the pandemic. What are your views?As I’ve mentioned, cutting spending is a no-go during these trying times. People are struggling, and they are looking to the government for help. It would be irresponsible for us to forgo this duty.

However, if things go well next year – for example, if we achieve a growth rate of 7% to 8% as some international institutions have forecast, then hopefully we will be better placed to make changes.

Whatever changes we make, however, will have to be done gradually.

Malaysia’s fiscal deficit is expected to rise to 6% and the country is increasing its debt to

GDP ratio to 60% – these signs can cause rating agencies to reconsider Malaysia’s credit rating under normal conditions. But these are extraordinary times for every country around the world, is this something manageable or something to worry about?Every nation has been affected by this worldwide pandemic. The only country achieving growth in the third quarter of this financial year has been China.

The United States, Europe and other major Asian countries have been detrimentally affected. This is a matter of survival. Increased debt and deficits are inevitable.

If it were only Malaysia that was going through this crisis, this may be something to worry about.

However, ensuring our credit rating’s stability will likely be manageable because all countries are facing the same issue – Covid-19. The agencies will understand the need to increase our deficit and debt in order to sustain jobs and incomes of the people.

However, for the post-Covid-19 period, we will need to draw up a strategy to reduce our debt to GDP ratio, and to pay down our interest payments over the next four to five years. This is important to maintain our financial sustainability.

We need a debt strategy for the next three to four years, gradually reducing debt to GDP ratio and bringing interest payments under control.

Some Malaysians feel that Budget 2021 may look like a Budget ahead of the general election next year and that the 12th Malaysia Plan will serve as a prelude to the government’s manifesto. what is your view?

We have to be responsible and demonstrate leadership. All the five packages (of financial stimulus) have been well accepted by the people. The recent surge requires additional support.

Going forward we have to continue allowing most economic activities to continue operating, we have to protect jobs. When people do not have a job or no business, they will be unhappy. The job of the government is to create an environment for businesses to flourish and keep the unemployment rate low.

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mustapa mohamed , budget 2021


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