KUALA LUMPUR: Prime Minister Najib Razak will aim to reduce unhappiness over rising costs of living when he unveils his Budget 2018 on Friday, ahead of an election that must be held within 10 months.
Prices rose sharply in Malaysia – where household debt is among the highest in Asia – after Najib cut subsidies and in 2015 imposed a broad-based consumption tax, denting his popularity.
The leader also faces a political challenge from his mentor-turned-foe, former prime minister Dr Mahathir Mohamad, who called Najib a thief in connection with a scandal at state fund 1MDB. Najib has denied any wrongdoing.
Najib will bank on the new budget to shore up support before his five-year tenure ends in June.
Given the coming election, “it will be more surprising if he announces something not people-friendly”, said Brian Tan, a Singapore-based economist with Nomura.
Stronger global commodity prices have aided the oil-dependent economy and given Najib some room to boost spending. But progress in narrowing the fiscal deficit – expected at 3% this year compared with 6% in 2009 – would plateau next year if the government focuses on pre-election spending, said Moody’s analyst Anushka Shah.
“It depends on what they do… whether they spend it on handouts and be seen as more populist or whether they save it, in which case we should see a reduction in the deficit,” Shah said.
Change in GST?
Most economists expect the new budget’s fiscal deficit target to be slightly below 3.0%.
Any widening of the deficit would disappoint foreign investors. They have gradually returned to Southeast Asia’s third largest economy as the Malaysian ringgit, after a tumultuous period, strengthened 6% against the dollar this year.
Najib, who has pushed a pro-business stance since becoming prime minister in 2009, dismantled decades-old fuel subsidies after narrowly winning the 2013 elections, to stave off the threat of a sovereign rating downgrade.
To bolster government revenue in 2018, Najib will likely broaden the scope of the goods and services tax (GST) imposed in 2015 to include e-commerce transactions, though he is unlikely to change the 6% rate.
The extra revenue is expected to fund “goodies” for Malaysia’s 1.6 million civil servants – a key vote bank for his Barisan Nasional (BN) ruling coalition – to mitigate the strain from pricier goods and services.
Civil servants saw a salary hike between 7% and 13% in 2012, ahead of the 2013 polls. But the recent sharp price increases may be eroding support among them.
‘Goodies’ are expected
The opposition naturally anticipates that the coming budget will have handouts to help the BN win votes in the election.
“Malaysians can expect many goodies… budgets are one of the political tools for BN to prepare them for general election,” said DAP’s Kerk Chee Yee.
Najib, who is also finance minister, has already rolled out billions of ringgit worth of handouts for oil palm plantation settlers and armed forces veterans, and affordable housing projects, new schools and hospitals across the country.
“We have to ensure quality of life of Malaysians (by) introducing more affordable housing, steady level of income growth, managing cost of living and certain initiatives that can supplement income,” Najib said on the government’s official budget website.
He is likely to maintain cash handouts to low-income earners, provide tax breaks for middle-income earners and expand policies to provide affordable housing.