Prime Minister Najib Razak gave out extra cash handouts to poor Malaysians and more tax reliefs for middle-income earners who are facing rising living costs, despite having limited room to manoeuvre in unveiling Budget 2016 yesterday.
Faced with headwinds from slower global growth, Malaysia is cutting its expected economic growth next year to between 4 per cent and 5 per cent, and delaying its long-term plan to eliminate government overspending, as Datuk Seri Najib seeks to shore up public confidence in his leadership by raising spending.
The petroleum-exporting country is also facing a big challenge in lower government revenues caused by the sharp fall of oil prices last year. And in April, the 6 per cent goods and services tax (GST) - which most people blame for spiking inflation - was introduced.
"To the people, do not be worried. Have faith. This is a government which you can rely on, for your future and the future of your future generations," said the 62-year-old Premier, who is also Finance Minister.
"In whatever situation, my fellow colleagues and I will continue the nation's economic plans, prioritising and giving importance to the well-being of the people."
Government revenue is expected to inch up just 1.4 per cent next year despite a full year of GST being levied. The broad-based consumption tax has been a major source of public dissatisfaction, leading Mr Najib to stress its importance in boosting revenues.
The Prime Minister announced increased cash handouts for next year, ranging from RM400 (S$130) to RM1,050, that will be offered to 4.7 million poor households and individuals. The programme will cost RM5.9 billion next year, up from RM5.2 billion allocated this year.
Income tax reliefs for the care of children and parents were increased, although taxable incomes above RM600,000 per annum saw tax rates raised between 1 and 3 percentage points.
Analysts said that while the Budget was sensitive to the needs of the public, it failed to prepare Malaysians to face potentially worsening economic conditions.
"China may continue its slowdown and the challenges may get tougher. The Prime Minister has not prepared the public," said independent economist Hoo Ke Ping.
To boost growth, Malaysia is proposing pump-priming initiatives such as an RM11 billion Cyber City Centre near Kuala Lumpur, another RM18 billion for the Rapid petrochemical hub in Johor and an airport township dubbed Aeropolis around Sepang International Airport.
Consumer inflation has come in at 1.9 per cent in the year to date, far lower than projected due to the decline in fuel prices, but is forecast to pick up next year to between 2 per cent and 3 per cent.
Recent polling saw nearly four out of five Malaysians saying they are unhappy with the Najib administration, largely owing to its handling of the economy. The ringgit has been Asia's worst-performing currency this year, with net foreign outflow from Malaysian equities at over RM17 billion so far this year, compared with RM7 billion for last year.
Mr Najib has faced mounting calls to resign over allegations of financial misconduct in state investor 1Malaysia Development Berhad and the poor explanation of how US$700 million (S$975 million) - or RM2.6 billion - ended up in his private accounts.
He did not touch on these issues, but the opposition reminded him of the scandal when many of them held up placards asking, "Where is the RM2.6 billion?" at the end of his speech.
