Malaysia budget 2020: Govt to spend more to fend off effects of US-China trade spat

Malaysia's Prime Minister Mahathir Mohamad waving on arrival at Parliament for the budget presentation by Finance Minister Lim Guan Eng (right) yesterday. Accompanying them were Deputy Finance Minister Amiruddin Hamzah and Deputy Prime Minister Wan A
Malaysia's Prime Minister Mahathir Mohamad waving on arrival at Parliament for the budget presentation by Finance Minister Lim Guan Eng (right) yesterday. Accompanying them were Deputy Finance Minister Amiruddin Hamzah and Deputy Prime Minister Wan Azizah Wan Ismail. PHOTO: BERNAMA

Budget deficit to widen to 3.2 per cent next year; further support or stimulus possible

Malaysia expects the economy to grow slightly faster next year, at 4.8 per cent, as it will spend more than initially planned to fend off growing global headwinds such as escalating US-China trade tensions that have flattened economic growth.

Finance Minister Lim Guan Eng yesterday revealed a wider shortfall between the government's revenue and its expenditure of 3.2 per cent of GDP for budget 2020, abandoning an earlier 3.0 per cent target.

The government is still set to meet this year's 3.4 per cent fiscal deficit forecast, he said.

But Pakatan Harapan (PH), which came into power after the May general election last year, now appears to be unable to meet its own target of reducing the budget gap to 2.8 per cent for 2021, and at around 2 per cent in the long run.

Malaysia's growth has averaged 4.7 per cent in the first half of the year, the same rate as 2018. This is after GDP expanded over 5 per cent in three of the previous four years. But economists believe growth has slowed in the second half of 2019 and will decline further without any stimulus.

"A heightened risk of a global economic slowdown and the unanticipated expenditure needed to rescue troubled institutions inherited from the previous administration require pre-emptive fiscal measures," Mr Lim said.

"In the event of continued worse-than-expected external environment, the government stands ready to step in with contingency measures to provide further support or stimulus to growth."

With cost of living still the top gripe of Malaysians, PH will extend Cost of Living Aid cash handouts to singles over the age of 40 who earn less than RM2,000 monthly (S$655) as well as less-abled adults on top of the current cohort of families earning under RM4,000.

  • Highlights

  • - Economy to grow 4.8 per cent next year, from 4.7 this year.

    - Budget deficit at 3.2 per cent, wider than previous 3.0 per cent target.

    - Handouts for poor continue; new Rent-To-Own scheme for first homes.

    - Goods and services tax will not be reintroduced.

    - Foreigners can buy urban condos at RM600,000 (S$197,000); RM1 million now.

    - RM85 million to improve traffic flow at Johor checkpoints, 50 new motorcycle lanes.

Fuel subsidies will also continue to be extended to those owning vehicles with smaller engines.

Also, about 2,000 of Malaysia's richest will come under a new 30 per cent tax bracket for annual income in excess of RM2 million.

But while the bottom 40 per cent (B40) of households in terms of income have gained from expanded healthcare and housing programmes, as well as a new food bank initiative, middle-income families have been left disappointed.

"The government is still focused on pleasing the B40 while there's nothing much to cheer for middle-income workers who are paying income tax. This reflects the difficulty of economic reforms after years of populist measures," said Kenanga Investment's chief economist Wan Suhaimie Wan Saidie.

 
 
 

For 2020, official figures show lower revenue and expenditure.

Kuala Lumpur's planned collection and spending for 2020 will be RM244.5 billion and RM297 billion, respectively. The expansionary budget will see expenses growing by 6.4 per cent in total. Most of the increase in operating costs will go towards maintenance of health and educational facilities. And the development budget will expand by 4.3 per cent to RM56 billion.


 • Additional reporting by Hazlin Hassan

A version of this article appeared in the print edition of The Straits Times on October 12, 2019, with the headline 'Govt to spend more to fend off effects of US-China trade spat'. Print Edition | Subscribe