But more needs to be done to reduce government intervention, reform the public service and end Malaysia’s culture of subsidies.
The clear objective of the 2013 budget is to promote domestic demand. Towards that end there are measures to assist firms that want to engage in outsourcing and acquire new technology so they can participate more aggressively in global supply chains.
This is the subtle shift in focus from multinational corporations to SMEs, and it signals the government’s efforts to rebalance the economy.
The budget as has provision for the expansion of industrial areas nationwide and funds are provided to increase innovation and productivity. Both the smaller and larger companies will benefit from this policy.
Hawkers and small businesses will also benefit. The government has created an agency, Perbadanan Nasional Berhad, to guide and advise hawkers and small businesses on franchising opportunities and it has proposed a group insurance scheme worth RM16 million (US$5.3 million). This is a praiseworthy initiative because vulnerable groups such as hawkers are usually not considered worthy of attention, nor do they have the kind of collateral that would qualify them for insurance coverage.
This year’s budget seems to have emphasised aspects of the economy that traditionally were considered to be ‘soft’, particularly people’s well-being and education. There is a substantial amount of money for education and training, which accounts for 21 per cent of the total budget.
The theme of the budget is to ‘enhance the well-being of the rakyat’ — the common people — and there is money for projects to improve the condition of schools and health clinics, water tank projects and flood mitigation plans. In total, though, the government has only committed RM6 billion to achieving this goal.
The budget also includes infrastructure projects that are likely to benefit the poor. Two such projects are the River of Life plan for the beautification of the Klang River, which has been allocated RM 500 million (US$165 million), and the plan to replace water pipelines and sewage, accorded RM300 million (US$99 million).
The insurance scheme is yet another encouraging sign of the government’s interest to support the underprivileged. It has extended an insurance scheme to fishermen and allocated RM300 million (US$99 million) for the refurbishment of their houses. Like hawkers, fishermen are a group of people who find it difficult to obtain insurance coverage.
Farmers, fishermen and hawkers are not the only occupational categories that need the insurance scheme. Production operators in the manufacturing industry are susceptible to retrenchments, open to the vagaries of the global electronics market and regularly face the risk of unemployment.
So while the budget has commendable elements, it is not perfect. It continues to place undue emphasis on government intervention in business; there is no reform of the civil service; and the culture of subsidies remains unattended.
It would be politically difficult to introduce a goods and services tax (GST) ahead of the general elections. With allegations of corruption and waste in government, many in the electorate would argue that rather than increase government revenues through the GST, it would be sufficient to reduce government inefficiencies. The government has been wise not to challenge this popular perception by introducing a GST.
The budget stresses that the civil service must adopt a culture of productivity, creativity and innovation, when in fact the sheer size of the civil service must be reduced. Malaysia’s public service is proportionally one of the region’s largest. The first line of reform would be to reduce the ratio of public servants to its population.
The government’s talk of a lean, efficient and productive civil service makes sense. But a civil service this bloated will never be as efficient and productive as it needs to be.
The 2013 budget ensures that the government is ensconced in the country’s business environment. For example, the budget seeks to establish Malaysia as a hub for oil and gas through supports for the industry in refining, storing and trading oil. The budget provides the Tun Razak Exchange, a government initiative, with fiscal incentives, and gives government agencies an active role in encouraging the growth of Bumiputera entrepreneurs.
Malaysia has been running fiscal deficits for years on end. It has a RM502.4 billion (US$165 billion) debt, which is 53.7 per cent of GDP. Malaysia’s operating expenditure, which has more than doubled since 2003, exceeds its development expenditure. These are some unsettling issues, and the budget only partially deals with them. On the one hand, the 2013 budget strives to rebalance the economy and claims that it will narrow the fiscal deficit. On the other hand, the government seems content with its current fiscal path.
Shankaran Nambiar is an economist who consults for national and international agencies. He lives in Kuala Lumpur.
A version of this article was first published here in the Edge Financial Daily on 24 October 2012.