Asia Sentinel
October 27, 2016

Annual budget focuses too little on money, too much on politics

On Oct. 21, Malaysia’s scandal-hit Prime Minister Najib Razak tabled a RM260.8 billion budget that is not only short on money and long on politics but seeks to obliterate the philosophy behind the economic blueprint of his arch-enemy, former Prime Minister Mahathir Mohamad.

Najib, also the finance minister, dubbed his 30-year development program “Transformasi Nasional 2050 (National Transformation 2050),” an alternative to Mahathir’s Vision 2020, launched in a landmark Najib’s plan, however, was short on details but long on rhetoric.

“The New Economic Policy under the late Tun Razak was planned to create a successful New Generation within 30 years. So is TN50, which will span three decades, to form a first-caliber nation state as well as with excellent mindset,” Najib said at the end of his budget 2017 speech, recalling his father Abdul Razak Hussein’s affirmative action plan, which was actually a 20-year policy.

One third of the 106-minute speech was devoted to politics and for the first time included a Powerpoint presentation as well as an introduction to leaders of various communities and social workers at the public gallery in parliament.

“Let TN50 bear witness; (let it) be recorded in history that we are responsible citizens and forefathers, to leave behind the best and he greatest legacy to be inherited by future generations.

“From now on, TN50 is our lucky charm. Let the old legacy pass. The future of Malaysia, we will recreate,” he said, in a dig at Mahathir’s Vision 2020 plan.

In an immediate reaction, veteran opposition leader Lim Kit Siang – who has struck a loose alliance with Mahathir – called out Najib’s volte-face of Mahathir’s policies, saying: “It is most shocking that Najib could so cavalierly and unceremoniously repudiated Vision 2020 when only in the last budget presentation last year, he reiterated his commitment to achieve Vision 2020 and the goal of a developed nation status. Has he abandoned both Vision 2020 and its final lap?”

The answer isn’t clear but what is clear about the budget speech was its focus on several demographics that could help Najib keep power in the next general elections, due 2018 but which many believe will be called earlier.

Najib announced he would continue his cash payments for lower-income Malaysians, which first started in 2012, a year before the 2013 polls, in which the ruling Barisan Nasional (BN) won fewer parliament seats and also lost the popular vote.

For 2017, Najib said he would further increase the cash payments with RM6.8 billion set aside for the eligible lower income group of seven million out of the 30 million population.

The finance minister also plans to extend tax relief for all taxable income earners – estimated at 2.1 million out of the 14.6 million workers – to include the purchase of smartphones, internet subscriptions and newspapers apart from tax incentives to Islamic banking and allocate funds to invest in potential small-and-mid capitalized companies.

Muslim clerics and village headmen will also get more allowances, in what is seen as a move to shore up support among lower-income Malaysians, especially among the Malay-Muslim community in the rural areas that are a vote bank for Najib’s United Malays National Organization.

There are also more incentives for affordable housing, including renting out 10,000 houses to youths in urban areas but critics say none of the affordable housing has been taken up due to strict lending conditions imposed by the central bank, Bank Negara Malaysia. The plan to build 500,000 houses or 100,000 annually under a scheme has yet to bear fruit although a government minister said it was still an on-going project.

Malaysian academic James Chin, who heads the Asia Institute at Australia’s University of Tasmania, told the Wall Street Journal that the spending blue-print was “an election budget in disguise” and predicted that a general election could be held in 2017.

Most analysts and political observers agree, saying that a fractured opposition and recent UMNO victories in by-elections could spur Najib to hold elections sooner than later. However, Najib is a cautious politician, enmeshed in the 1Malaysia Development Bhd. scandal, in whuch as much as Us$7 billion has gone missing from state-backed coffers. In 2013, he went to the end of his coalition’s last mandate before calling elections.

The extra cash for the lower income Malaysians pales in comparison to the deep cuts in money for state universities and teaching hospitals or the estimated RM40 billion to be collected in 2017 through the controversial Goods and Service Tax (GST) imposed since April 2015.

The fiscal consolidation by the government to achieve its 3 percent fiscal deficit, however, means government-linked companies or Non-Financial Public Corporations (NFPCs) will have to bear the burden of incentives and loans for so-called government projects, which opposition Member of Parliament Tony Pua has described as a “time bomb.”

“In layman’s terms, the government has hidden the bulk of its excessive spending under the NFPCs maintain a semblance of ‘moderate’ budget deficit,” Pua said in a statement. “However, so much spending has now been shifted to these NFPCs, that the NFPC deficit has grown by leaps and bounds to now become even bigger than the federal government deficit!”

Pua noted that in 2013, the NFPC deficit was a modest RM10.6 billion but the NFPC deficit leapt to RM52.3 billion in 2014 and further increased to RM56.9 billion in 2015. The estimated deficit for 2016 is currently RM50.5 billion, he said.

For context and perspective to the scale of these NFPC deficits, he said the BN government budget deficit for 2015 was RM37.2 billion. In 2016, it is estimated to hit RM38.7 billion while the government forecast RM40.3 billion for 2017.

“There is no question that the NFPC deficit is the biggest time bomb to the Malaysian public finances. We can already feel its ticking with the rapidly rising “debt service charges” which the government is forced to bear annually.

“This is caused, in no small part, by the government being obligated to pay for interest and loans that the NFPCs are unable to fulfil,” Pua said.

Despite Pua’s warnings, Najib denied Malaysia is a failed state in economic governance and also forecast that the country’s economy was expected to grow between 4 and 5 percent in 2017, compared with 4 and 4.5 percent in 2016, due to effects of softer global crude prices since mid-2014.

The jury’s out on Najib’s forecast and his ability to win the next elections but his generous handouts and political strategies might still see him keep his job notwithstanding the scandals that have buffeted his political career.