News analysis

Malaysia Budget: Najib extends handouts to woo middle-class as well

Handouts and giveaways in an election year are to be expected, so a 15 per cent hike in Malaysia's Budget 2018 for "subsidies and social assistance" to RM26.5 billion (S$8.55 billion) would hardly raise eyebrows.

But Prime Minister Najib Razak did not just appease core supporters of Malaysia's ruling Umno with bumper subsidies and grants for the largely Malay civil service, rural folk and lower-income earners. He also pivoted towards middle-class urbanites who have largely turned their backs on the government in the past decade.

The shift comes as a surprise as the past four years have seen Umno lean towards more Malay and Muslim-centric policies and rhetoric, even to the extent of cooperating with former bitter rival Parti Islam SeMalaysia (PAS). Analysts saw this as a retreat to safety, appealing to the Malay Muslim majority amid growing disenchantment with the government, largely fuelled by anger over rising costs.

But Budget 2018 saw the Umno president reaching out to the disenchanted. "Undeniably, this is a budget designed to win more votes. It has much to make it popular, not just with the government's core supporters, but across the board," Kenanga Investment head economist Wan Suhaimie Sadie told The Straits Times.

A key overture designed to appeal to the middle classes is a two percentage point cut in income tax for chargeable income between RM20,000 and RM70,000 per annum. This benefits those earning between RM4,000 and RM9,000 monthly the most, putting up to RM1,000 of disposable income back in their hands every year.

Visiting senior fellow at ISEAS - Yusof Ishak Institute Wan Saiful Wan Jan said Malaysia's middle-income households "are feeling the pressure as they live mainly in urban areas where prices are so high".

"They are not receiving help. As a result, the middle 40 per cent are squeezed," he told ST.

Datuk Seri Najib, who is also Finance Minister, also announced that toll charges on two sections of the Federal Highway, the most important artery in the congested Klang Valley, will be scrapped come Jan 1. This will benefit those in Kuala Lumpur and the urban centres of Selangor, both strongholds for a now fractious opposition led by Mr Najib's nemesis and former premier Mahathir Mohamad.

Umno has doubled its efforts to win back Selangor, Malaysia's richest state, which it ceded to the opposition in 2008, with Mr Najib himself promising the state a better deal and more development in numerous visits this year.

The ruling Barisan Nasional coalition could coast to victory in an election due by next August, simply on the back of Malay support - they form the majority in more than half of parliamentary wards - and "safe deposits" of voters in Sabah and Sarawak. This is largely thanks to PAS leaving an opposition pact that had come close to dethroning Barisan in 2013. Umno's agitating of Islamic issues played a key role in this development, which splits the opposition support.


But Mr Najib still has to contend with former Umno leaders who were purged from the party in 2015 for being critical of him, and formed Parti Pribumi Bersatu Malaysia. The party is led by Tun Dr Mahathir, who is still influential among Malays, having been premier for 22 years before stepping down in 2003.

Dr Mahathir also leads the Pakatan Harapan alliance, but largely urban reformists and progressives who have been fervent opposition supporters are finding it difficult to throw their weight behind a man they once accused of running an oppressive regime.

So, Mr Najib's budget strategy could be an insurance policy should Dr Mahathir's Pribumi succeed in wrenching away Malay support from Umno. Or, if all turns out well for him, it could even help him reclaim Barisan's two-thirds supermajority in Parliament that it lost in 2008 and cement his position after a shaky term as PM.

A version of this article appeared in the print edition of The Straits Times on October 28, 2017, with the headline 'Najib extends handouts to woo middle class as well'. Print Edition | Subscribe