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M Shanmugam
Friday, Oct 10, 2014

Malaysia

Malaysia budget 2015: Steering away from subsidies

The Star/ANN | M Shanmugam | Friday, Oct 10, 2014

PETALING JAYA - Facing a stern test to convince the people of his plan to steer the Malaysian economy away from its dependence on subsidies, Prime Minister Datuk Seri Najib Tun Razak is expected to state in his Budget 2015 speech today why the Government has to take hard measures to ensure the economy continues to improve.

In a shift from the past where budget speeches were normally laced with loads of goodies, this time around it is expected to incorporate a reality check for the Malaysian economy and the Government's reasons for pressing on with its transformation initiatives.

"The Prime Minister will state why the overall health of the economy has to keep improving so that the benefits ploughed back to the people in the form of direct handouts can be sustained," said an official close to the Prime Minister's Department.

Najib's biggest challenge in the past one year has been implementing tough measures such as a reduction in subsidies, especially for fuel, a move that has eroded his popularity among the masses.

This comes as Malaysia's economy has maintained its growth of more than 5 per cent and is seen as the best performing in the region.

It also comes at a time when global oil prices are declining.

The criticism is that while the economy has been maintaining its growth, the benefits have not trickled down to the masses.

"The Prime Minister will shed light on the disconnect between the healthy state of the nation and why it has yet to cascade down to the people.

"He will explain how this improving economy will improve the lives of the people and things would be more certain on the quantum of benefits after next year," said the official.

Next year, Malaysia will be implementing Goods and Services Tax (GST) effective April 1.

By the end of next year, the Government will be more certain on how much GST will add to its coffers and only then will it be able to come out with a more definite set of incentives to help the people cope with the rising cost of living.

"The Budget will delve a lot on GST and its impact on government revenue.

"The Prime Minister is also expected to list the status of key items, such as petrol and medicine, and whether these are subject to GST or otherwise," the official said.

Goodies for the people and the corporate sector, such as tax rebates and handouts in the form of direct cash payments, are expected to continue but no major surprises are expected.

"The normal goodies such as an increase in Bantuan Rakyat 1Malaysia (BR1M) payouts and incentives for school-going children and college students will continue.

"The other major set of incentives likely to be announced are measures to help the middle- and lower-income groups to own homes," said the official.

Apart from housing that is expected to be an important element of the Budget, the other key area likely to get attention are measures to broaden the scope of job opportunities for young graduates.

Recently, Najib had come under pressure for reducing the subsidy on petrol and diesel by 20 sen.

His initiative to implement GST has also come under scrutiny for fear that it will contribute to the rising cost of living.

Various quarters, including former leaders, have criticised the Government for handing out direct subsidies to the people, such as BR1M and vouchers to school children and college students.

But since taking the helm in 2009, the cornerstone of Najib's economic plan is to replace the current broad-based subsidy system with one that is targeted at low and lower-middle income groups.

The official said that the Budget would also touch on the report card on what the Najib administration has done to improve the balance sheet of the country.

In 2009, the Federal Government's budget deficit as a percentage of GDP was 4.5 per cent and debt had risen to the critical threshold of 55 per cent.

Both indicators did not go down well with international rating agencies and foreign investors.

Najib has promised to reduce the deficit to 3 per cent by next year, which means it has less money to spend.

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