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

Malaysia's Finance Minister Lim Guan Eng with a briefcase containing the 2020 Budget documents in Putrajaya on Oct 11, 2019.
Malaysia's Finance Minister Lim Guan Eng with a briefcase containing the 2020 Budget documents in Putrajaya on Oct 11, 2019.PHOTO: EPA-EFE

KUALA LUMPUR - Malaysia expects the economy to grow slightly faster next year to 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 unveiled yesterday 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 a stimulus.

“A heightened risk of a global economic slowdown and the unanticipated expenditure needed to rescue troubled institutions inherited from the previous administration requires 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 despite last year’s change of government, 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.

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

Meanwhile, an estimated 2,000 of Malaysia’s richest will be hit with 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,” Kenanga Investment’s chief economist Wan Suhaimie Wan Saidie told The Straits Times.

For 2020, official figures show both 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 to maintenance of health and educational facilities.

The development budget will also expand by 4.3 per cent to RM56 billion.

Former premier Najib Razak, who was also finance minister while in power from 2009 to 2018, criticised the government for raising its fiscal deficit.

"This trillion debt that they talked about is a self-fulfilling prophecy, if based on the annual debt as incurred by PH," he told reporters, referring to the new administration's claim that it inherited RM1.1 trillion in liabilities.