What happened to high-income agenda, economists ask of Budget 2016

by Anisah Shukry
The Malaysian Insider
24 October 2015

Economists said they had expected far more from Budget 2016 that is supposed to propel Malaysia towards high-income nation status in five years’ time.

Economic analyst Dr Muhammad Abdul Khalid said Prime Minister Datuk Seri Najib Razak had inadvertently revealed in his speech yesterday that the country was not entirely on track to becoming a high-income nation in five years.

“According to the Performance Management Delivery Unit (Pemandu), the country’s gross domestic product (GDP) should grow by 6% each year for Malaysia to achieve high-income status yet Najib said GDP will only grow between 4% and 5% in 2016.

“Even this year, GDP is expected to expand between 4.5% and 5.5% only, not 6%,” Muhammad told The Malaysian Insider.
He said Najib, who is also finance minister, had also not addressed the fact that the ringgit’s depreciation against the US dollar would make it more difficult for the country to achieve high-income status.

He explained that a high income nation requires the country to have USD$15,000 GDP per capita, but with the weakened ringgit, Malaysia was off target by 17% “just by doing nothing”.

Low wages and foreign labour

Institut Rakyat executive director Yin Shao Loong said that Najib’s “big picture plan” was to drive economic growth through private sector spending and domestic consumption, yet little was being done to increase wages and thereby, encourage spending.

The growth of wages from the manufacturing sector has been sluggish, said Yin, adding that it was tied to the wages of the service sector and was a good indicator of wage growth in general.

“So when people’s wages are not outpacing inflation then people will not be economically at ease to spend more. So, where are they going to get the money to spend?

“I predict there will be more people taking loans and getting into debt to finance their consumption,” he told The Malaysian Insider.

Yin said Najib was not putting much effort in developing the manufacturing sector so that it can move up the value chain, make better products, increase exports and increase wages.

Even the Federation of Malaysian Manufacturers (FMM) responded to the budget, saying more could have been done to spur the sector towards “high value and high-tech manufacturing incentives”.

The last time the sector benefited from a major incentive was in 2008, FMM said in a statement yesterday.

Economist Dr Yeah Kim Leng said that he had wanted the government to address the country’s high dependency on foreign labour, which he said was “retarding Malaysia’s structural transformation”.

“What has been desired is how to reduce dependency on foreign workers. The negative implications of cheap foreign labour is in a way retarding our structural transformation,” he told The Malaysian Insider.

Muhammad echoed Yeah’s concern on foreign workers, and added that the government should have placed the entire matter under the purview of the Human Resources Ministry, instead of the Home Ministry as is the case now.

“At least the Human Resources Ministry knows which industry needs foreign workers, and how many,” he said.

Missed opportunities

Muhammad touched on other missed opportunities for improvement, such as ensuring the private sector provided unemployment insurance for workers, which he said would not have cost the government a sen.

He also noted that while the government had increased the 1Malaysia People’s Aid (BR1M) amounts, it had failed to improve on the programme.

For instance, he said that the government could have stipulated that the BR1M recipient for every household was the mother, rather than “heads of households”, which usually ends up being the father.

“Mothers have a higher propensity to spend cash aid on education, groceries and other practical matters. Studies have shown that this intervention has worked in other countries.

“The government could have also made BR1M conditional, like making sure recipients’ kids go for classes or health check-ups. Ultimately, you want people to stop receiving BR1M.”

The economists praised Najib’s move to increase the number of zero-rated food items and medicine under the goods and services tax (GST), but Muhammad added that the government should have included all medicines and healthcare services in the list.

“In the end, there is nothing unexpected from this budget. It is all a realisation of the 11th Malaysian Plan,” Muhammad said.

But Yeah said that the budget indicated government spending remains on track, as indicated by the higher-than-expected revenue from GST and its commitment to reduce its fiscal deficit.

He noted that the budget had also lived up to Najib’s pledge for transformation, and pointed to the high allocation for research and development, as well as vocational and education training.

“Those are in line with longer term aspirations,” said Yeah. – October 24, 2015.

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  1. #1 by Bigjoe on Saturday, 24 October 2015 - 9:28 pm

    For the life of me, I don’t know why the critics have such a hard time criticizing Najib’s budget. Its CRAPPY WORK. Except for two items, large amount of money for Sarawak and Sabah and pushing through public transport plan the rest of the budgets can only be described as SPRINKLES.

    5% increase in BR1M when the past has been 25%-40% and prices of everyday consumables for above? Money for Agriculture when all we really do is Palm oil when urbanisation is at 80%? I can go on and on.

    Remember that the UMNO/BN Warlords GOT MILLIONS EACH FROM THE RM2.6b “donation” and still pocketing money left and right. They are pushing ahead with big increase, BILLIONS, in Defense procurement which are ALWAYS more money in their pockets.

    Really millions for EACH FEUDAL LORDS and each of uswget SPRINKLES and people give him CREDIT??? Seriously??

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