Malaysia Budget: Najib can't afford to be too generous

A public housing block in Kuala Lumpur. With high house prices a persistent complaint among Malaysians, Mr Najib is expected to offer further support for low- and mid-range house buyers.
A public housing block in Kuala Lumpur. With high house prices a persistent complaint among Malaysians, Mr Najib is expected to offer further support for low- and mid-range house buyers.PHOTO: BLOOMBERG

Oil slump, big deficit and weak economy make it hard to dish out election Budget

The question on everyone's lips is whether Malaysian leader Datuk Seri Najib Razak will unveil today a populist election Budget filled with generous handouts.

There is a limit, though, to what the Prime Minister can dish out even if he wants to go to the polls a year before the 2018 deadline, due to low global oil prices that have forced his government to forgo an estimated RM40 billion (S$13.3 billion) in annual revenue.

The government's share of petroleum revenue has shrunk to just 15 per cent from over 40 per cent when he took power in 2009.

And his administration had overspent in the first half-year amid the weak economic growth.

Mr Najib, who is also the Finance Minister, will unveil Budget 2017 in Parliament at 4pm today.

 
  • What to expect

  • •Bumping up cash handouts from this year's RM1,000 (S$330) per household, amid higher cost of living.

    •Corporate tax of 24 per cent, comparatively high in the region, could be cut. Income tax might see some adjustments too.

    •More details on big infrastructure projects, as the first of three MRT lines is set to start operations soon.

    •More support for first-time and low-income house buyers. A similar programme could be rolled out for car buyers to shore up shrinking sales.

    •Previous election budgets saw increases in salaries and benefits for civil servants, discounts for public transport and allocations for skill training.

    Shannon Teoh

"There is much anticipation that the coming Budget 2017 will be an 'election Budget' with big giveaways (but) the ability to sustain (a reducing deficit) is proving more challenging going forward as revenues tighten and growth slows," said UOB economist Julia Goh, referring to the 2017 Budget as a "Goldilocks moment (neither too hot nor too cold)".

The government has been running a deficit for nearly two decades, with the Ministry of Finance (MOF) insisting it can meet the government's 3.1 per cent deficit target this year.

The deficit rose to 5.6 per cent of gross domestic product in the first six months of this year.

In the meantime, the economy expanded by just 4.1 per cent in the first six months, continuing a five-quarter slump.

Mr Najib faces more than just low oil prices, a yawning deficit and a weak economy.

PROVIDING RELIEF FOR THE PEOPLE

As the government, me and my colleagues are concerned and aware that we need to present a Budget that is able to provide relief for the people.

PRIME MINISTER NAJIB RAZAK, in a video posted on Facebook yesterday.

He needs to build the foundations for a happy electorate if he wants to call an early election.

The public has persistently complained about runaway house prices and the high cost of living despite various government initiatives on both fronts in recent years.

Economists expect Mr Najib to offer further support for low- and mid-range house buyers as well as first-time car buyers amid low sales volume in the auto sector.

"As the government, me and my colleagues are concerned and aware that we need to present a Budget that is able to provide relief for the people," Mr Najib said in a video posted on Facebook yesterday.

In a bullish pre-Budget statement yesterday, Mr Najib also projected growth of "up to 5 per cent" next year.

One of the bedrocks of his populist measures is the BR1M scheme, which gives direct cash handouts of up to RM1,000 to households with a monthly income of RM4,000 or less.

The programme reaches more than half the public and costs the government nearly RM6 billion a year.

Under his Barisan Nasional's 2013 election manifesto, he promised to raise the payout to RM1,200.

Analysts expect the government to increase both the reach and amount of BR1M next year, given continued grouses over the 6 per cent goods and services tax.

Still, election Budget or not, the government needs to be mindful of financial constraints as ratings agencies are watching closely amid global volatility, economists say.

"Into 2017, MOF will have to walk the fiscal tightrope between ramping up pre-election spending and demonstrating commitment to fiscal consolidation.

"At the very least, the latter would have to imply a smaller targeted deficit," said Citi Research's head of Asean economics Kit Wei Zheng.

A version of this article appeared in the print edition of The Straits Times on October 21, 2016, with the headline 'Najib can't afford to be too generous'. Print Edition | Subscribe