Pre-budget statement a step forward, but government must follow suit

On August 31, 2021, the Ministry of Finance (MoF) issued a Pre-Budget Statement (PBS) for the first time in the country’s history. REFSA welcomes the publication of the declaration as a step forward in promoting transparency and reducing uncertainty in the area of ​​fiscal policy. We hope that the PBS reflects the concerted effort of the Ministry of Finance to continue to engage with civil society to promote inclusion in policy making.

Here is REFSA’s take on PBS by section:

Economic outlook and fiscal situation

The MoF has rightly taken a cautiously optimistic approach to its macroeconomic outlook for 2021/22, in line with Bank Negara Malaysia’s downgrade of its GDP forecast to 3-4% for 2021. Nonetheless, at this point, It is important to reaffirm that the country’s economic recovery for 2021 and beyond relies heavily on improving the management of the national pandemic situation. As REFSA recently pointed out, Malaysia’s strong export performance alone cannot guarantee an overall recovery as long as consumption remains subdued due to the country’s long lockdowns and lack of a strategy. exit from a solid pandemic beyond just vaccinations.

In terms of the government’s fiscal targets, we echo the receptiveness of the finance ministry to increase the statutory debt-to-GDP ratio by 60%. REFSA has already mentioned that the debt-to-GDP ratio is a moving target that can be raised temporarily given the circumstances, and now is a good time to do so. With expansionary fiscal policy supported by deficit-financed spending, there should also be greater tolerance for a higher budget deficit ratio for 2022 to account for economic recovery and growth. This should be part of a budget plan for the early 2020s that takes into account longer-term fiscal consolidation once growth returns to pre-crisis levels. According to the IMF, Malaysia’s forecast deficit of 6-7.5% of GDP for 2021 is still well below the average budget deficit of 9.8% among emerging economies from 2020, so there is room to continue targeted public spending.

Ultimately, it is important that the government does not withdraw its budget support to affected businesses and households too soon, as the path to recovery remains unpredictable and difficult.

Tax revenue strategy

We recognize the strategies proposed by the Ministry of Finance to increase tax revenue through compliance and management of leaks, which are important structural issues in public financial management. We particularly support the government’s recommendation to implement a Tax Identification Number (TIN) system, which we hope will provide the opportunity to formalize on-demand workers in the Malaysian labor market. In addition to promoting compliance, the NIF would help ensure that informal workers do not go unnoticed and benefit from greater financial inclusion through adequate social protection.

2022 budget target

REFSA agrees with the three-pronged approach underpinning the proposed 2022 budget, namely promoting short-term recovery, medium-term resilience and long-term reforms.

In line with the Ministry of Finance’s recognition that the 2022 budget should focus on strengthening the public health system, we stress the importance of ensuring adequate health allocation for an effective FTTIS + V infrastructure. A comprehensive strategy covering the detection, testing and tracing of critical access point contacts will allow us to better manage any future outbreaks. An expansion of the capacity of the health system will reduce the justification for economically punitive lockdowns, which have been shown to create uncertainty and dampen domestic demand, among others.

As the global narrative around the pandemic evolves towards rampant COVID-19, it is important that Budget 2022 provides adequate scope for corporate pandemic protection. Malaysian SMEs should receive the necessary support in this regard through grants, concessional loans and / or tax incentives, where appropriate. Meanwhile, vulnerable sectors, such as tourism, hospitality and entertainment, would benefit from additional support in the form of loan guarantees and credit extensions, as tax exemptions alone will not solve their problems. insolvency issues.

We appreciate the special consideration highlighted in the PBS for the development of human capital through digital transformation and development programs. In Budget 2022 and the 12th Malaysian Plan (12MP) in general, the focus should be on producing industry-ready graduates as well as tackling graduate unemployment to boost labor productivity and productivity. competitiveness.

Finally, it is encouraging to note that the PBS does not neglect to mention the sustainable development agenda in the 2022 budget. Although the recognition by the Ministry of Finance of the environmental, social and governance concept is crucial, we believe that it can be further accelerated through the integration of the green concept. economy. Covering programs such as modernization and energy audits, a short-term green economy framework in budget 2022 can help create jobs and generate a powerful multiplier effect to create momentum for a potential new green deal in the long term. in 12MP.

Overall, the PBS is a positive development on the path to greater budget transparency. REFSA hopes that the substantive policy recommendations mentioned in the PBS, including the statement by the Ministry of Finance on its commitment to enhanced civil society engagement, will translate into actionable and achievable actions in the 2022 budget for lead Malaysia’s economic recovery and put us on the right path to rebuild. better.

Research for Social Advancement (REFSA) is a progressive, non-profit think tank that promotes social progress in Malaysia. Since its inception in 2004, REFSA has been at the forefront of political discussions and debates on important political and socio-economic issues of the nation. Today our aspiration has not changed – we want to propel the movement for a just, inclusive and multiracial society.

We believe that we Malaysians, regardless of race, religion or cultural background, have common aspirations and seek the same things in life. REFSA seeks to participate and shape discussions that aim to create improvement for all.

Dorothy H. Lewis