Given this objective, Prime Minister Najib Razak loaded his self-declared ‘mother of all budgets’ with vote-getting goodies. This has the potential to help the incumbent government win votes, though how well it will fare will depend on a variety of factors.
First, the budget was not overly expansionary in anticipation of the upcoming elections. Instead, it balanced fiscal prudence by maintaining a targeted downward budget deficit of 2.8 per cent. By comparison, the expected budget deficit for 2016–17 is 3 per cent.
There are plans and budget allocations that appear to mitigate some of the impacts on households’ rising costs of living. These include personal income tax reductions, the abolition of toll collections on four major highways, goods and services tax (GST) exemptions on certain items and the continuation of the 1Malaysia People’s Aid (BR1M) welfare program.
This approach satisfied international credit rating agencies, which have so far maintained a stable outlook for the Malaysian economy. It also helped to bolster a positive perception among market watchers that the government remains fiscally responsible with an eye toward long-term growth.
Second, the International Monetary Fund and the World Bank have projected a modest global economic recovery and a rebound in oil prices in 2018. These factors will help bolster Malaysia’s economic growth, which is anticipated to be around 4.5–5 per cent. This may then increase the government’s revenues and help offset losses stemming from the planned personal income tax cuts.
The growing optimism in the Malaysian economy has already drawn foreign capital inflows of nearly 8 billion Malaysian ringgit (US$1.97 billion) into Malaysian bonds in September 2017. Coupled with the government’s demonstrated fiscal responsibility in the 2018 budget, foreign investor confidence will likely improve.
Third, the low- and middle-income groups that have borne the brunt of the economic downturn for the past three years will directly benefit from budget provisions like the income tax cuts, as well as from a projected economic improvement in 2018. These benefits will provide immediate relief to a large segment of the electorate. The relief is projected to improve domestic consumer sentiment and public confidence, which had been on a downward trend since 2015.
The combined effect is to contribute to a ‘feel-good’ factor that will be pivotal for the incumbent government as voters go to the polls. The government will certainly leverage this sentiment to reinforce the message that better times lie ahead. It will claim to have successfully steered the country through economic difficulties while maintaining unpopular but necessary economic policies such as the GST and abolition of subsidies.
To be sure, the government could not now remove these unpopular policies, even though these were akin to austerity-inducing measures that worsened the impact of the economic downturn on low- and middle-income groups.
This was primarily because the downturn — marked by massive foreign capital outflows, the stock market fall and the ringgit’s sharp depreciation — surfaced the debt repayment woes of state fund 1Malaysia Development Berhad, which sparked a protracted political crisis.
The government had to refrain from seeking more credit to avoid a downgrade by credit agencies, so it needed GST revenues — even if this imposed pain on the people. If this pain is mitigated with timely feel-good sentiment, it will be to the government’s advantage.
On the other side of the political divide, Pakatan Harapan’s (PH’s) alternative budget — now in its third iteration — remained focused on the opposition’s electoral campaign issues of good governance and bread-and-butter grievances.
Even though PH’s alternative budget is peppered with populist promises such the abolition of the GST and the reinstatement of fuel subsidies, as well as a pivot to supporting BR1M, it may have a harder task in generating the same feel-good sentiment necessary for an electoral win.
First, the incumbent government may have already stolen some of the opposition’s thunder by pre-emptively zero-rating additional items and administering personal income tax relief.
Second, PH’s proposal to abolish GST may alienate market actors that prefer policy stability. Coupled with the proposal to eliminate highway tolls, it also raises serious questions for voters on how PH plans to raise revenue and implement their policies.
To date, PH’s rationalisation of potential revenue sources remains vague, dampening the opposition’s ability to create public confidence and a feel-good sentiment around its fiscal governing capabilities. For example, while PH’s has rightly emphasised its anti-corruption measures as part of its good governance initiative to prevent unnecessary costs of doing business, this is not a method of revenue creation.
Third — and perhaps most importantly — these ambiguities in PH’s vision of the Malaysian economy can create public misunderstanding and apprehension on its alternative budget and by extension on the opposition’s electoral campaign as a whole.
If material concerns remain foremost in voters’ minds, a feel-good budget may stack yet another card in Barisan Nasional’s favour. Pre-election polls have indicated that when compared to good governance, bread-and-butter issues are more pertinent to voters.
But it remains to be seen if economic considerations will be a major factor in the constituencies and marginal districts that matter most during the 14th general election, given the salience of other intersecting issues such as religion, race and inequality.
Saleena Saleem is an Associate Research Fellow, and Amalina Anuar is a Student Research Assistant at the Malaysia Programme, S Rajaratnam School of International Studies (RSIS), Nanyang Technological University, Singapore.
This article was first published here on RSIS.