Prime Minister Najib Razak announced measures to claw back an expected RM9 billion (S$3.06 billion) in lost revenue from plummeting oil prices, in a "recalibration" of Budget 2016 that still has the people's welfare at heart.
Savings will come from cuts such as the rescheduling of "non-physical projects" to delay commitments of RM5 billion, but affordable homes, schools and transport will still be given priority.
"The government will continue to spend prudently by prioritising projects and programmes with high impact centred on the philosophy of the people economy," Mr Najib, who is also Finance Minister, said in a speech televised live yesterday.
With inflation and unemployment expected to rise as gross domestic product growth heads south, the PM's commitment to rein in spending is being tested amid growing public angst over the weak ringgit and shrinking purchasing power.
Yesterday, he announced tax reliefs for those earning RM8,000 or less a month. Some 160,000 will not need to pay any tax while another two million will enjoy savings of up to RM475 for their 2015 income.
More significantly, employees are allowed to reduce their compulsory contribution to the Employees' Provident Fund (EPF) by 3 percentage points, which is expected to increase private consumption by RM8 billion a year.
While the revised Budget could see a short-term uptick in the market, analysts doubt if the changes have the depth to outlast a downturn that extends beyond the year.
"The real issue for me is the cuts are not deep enough. I was hoping that there will be a real attempt to reduce operating expenditure by merging some duplicative ministries. But this Budget seems designed to just survive the year," the head of policy think-tank Ideas, Wan Saiful Wan Jan, told The Straits Times.
"It's a dilemma actually because in an economic slowdown, the government still needs to spend to spur growth," said Kenanga Investment Bank economist Wan Suhaimie Saidie. "As in the past, putting money straight back into the people's pocket does boost private spending or at least alleviate their burden due to higher cost of living."
Consumers seem to agree with the latter, even as the central bank warns that inflation could be as high as 4 per cent in the first quarter.
"Even with the extra money, I will end up buying less because prices have gone up, including GST, which is the government taking back the money," said 34-year-old part-time realtor Diana Wan, referring to the 6 per cent consumption tax introduced in April last year.
Banking executive Adrienne Lee, 24, said the boost was "not a lot".
"It's just enough for the toll hike and GST. In the end, the EPF money still comes out of my own pocket."
But the EPF's head of economics Nurhisham Hussein told The Straits Times that not all the new measures were aimed just at boosting disposable income and GDP.
"Outside of the EPF contribution cut and the income tax relief, most of the other new measures are really directed at addressing concerns over cost of living, prioritising spending, and improving government delivery of public goods," he said, referring to initiatives such as limiting affordable housing to first- time buyers, increasing access to cheaper basic goods and efforts to curb rising income inequality.
The government expects that it will meet its deficit target of 3.1 per cent of GDP even though oil prices have fallen to between US$30 and US$35 a barrel from US$48 a barrel when Budget 2016 was first tabled in October last year.