Budget 2021: Missing the forest for the trees?

By Dr Jeyakumar Devaraj

THERE are a few aspects of Finance Minister Tengku Zafrul Ariffin’s Budget 2021 speech that I found disconcerting.

The first was that my wife and I are both going to receive one-off payments of RM300 each as we are Government pensioners. Does the Government have a surplus of funds such that it can reward people like us who have not suffered any loss in income?

Should not finite Government funds be focused on those whose income has been ravaged by the pandemic and recession?

The women working as daily paid helpers in restaurants, retrenched workers from hotels and tourism companies, operators of stalls in pasar malams (night markets), school canteen operators and others alike – are the people whose lives have been upended by the pandemic.

Some of them are facing problems putting food on the table. Should not they be the main recipients of Government support?

The Bantuan Prihatin Rakyat of RM 1,800 per family with household income below RM 2,500 per month will be of help to the groups of people mentioned above, but this will not be enough.

Families with a monthly income of less than RM 1,000 per month will need a monthly cash transfer of RM 500 to RM 1,000 to be able to provide the basic necessities for themselves.

The Minister did say in paragraph 9 of his speech that, above all, the Government prioritises the protection of the citizens. Well, in a situation where the economic downturn has affected different sectors of the economy to different extents, should not the Government be focusing more on the 700,000 families who are really struggling to make ends meet?

Unless of course, the real intention is to build goodwill and political capital in case an election has to be called a few months down the line.

The second point that I found very disconcerting came in paragraph 14 of the honourable minister’s speech where he said that the Government expects the economy to bounce back to a 6.5% to 7.5% GDP growth rate next year. He goes on to say that the global GDP is expected to expand by 5.2% in 2021.

It would be great if his projections are correct, but given the fact that a safe and effective vaccine is still not at hand, and that it will take months for such a vaccine to be administered to populations across the world, the uncomfortable truth is that COVID-19 aggravated recession is going to last for most of 2021 and perhaps even longer.

This raises the question whether the ministry’s projections of Federal Government income for 2021 and the level of economic want in the population and the SME sector is premised on the minister’s over-optimistic expectations of GDP growth in 2021. If so, the deficit will be much larger than the 6% the minister announced.

The third is that the elephant in the room was not acknowledged at all – the source of funds.

In a time of recession, Government taxes will go down – businesses make much less profits, and the Government gives tax breaks to stimulate aggregate demand.

In the case of Malaysia, our returns from Petronas have already been affected by the collapse in petroleum prices. We are already using 13% of our operating budget for debt servicing – paying the interest on the RM 850 bil of Government Securities (MGS) that we floated in previous years.

Relying on the market for all the deficit spending we need to do in 2021 would push up debt servicing costs too much.

Parti Sosialis Malaysia (PSM) has proposed previously that Debt Monetisation be used to raise RM 60 bil out of the total of about RM 190 bil that we need to borrow for 2021 – RM80 bil to roll over the MGS that are maturing in 2021, and the remainder RM110 bil for deficit spending in 2021.

Debt monetisation refers to the selling of government bonds to the country’s own central bank at low interest rates. This is being done in several countries including Australia, India and Indonesia.

This Budget session would have provided a good forum to debate the pros and cons of such an approach and to determine guidelines how debt monetisation could be deployed in the Malaysian context. Unfortunately the issue of where the funds are going to come from was not discussed in any detail by the minister.

We are in unfamiliar territory. The minister himself acknowledged this is paragraphs 6 and 7 of his speech. Sadly his presentation focused on a myriad of programs but did not broach the major issues. Well, our parliamentarians have two weeks to give their input.

Hopefully they will bring the issues flagged above as well as other relevant issues to the floor. – Nov 8, 2020

Dr. Jeyakumar Devaraj is Parti Sosialis Malaysia chairperson and former MP for Sungai Siput.

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