THE recent announcement by Prime Minister Muhyiddin Yassin saying that the Government is running out of money (having spent RM340 bil on pandemic-related stimulus measures and RM322 bil on Budget 2021) is in fact greatly exaggerated and misleading, said a not-for-profit think tank.
According to Research for Social Advancement (REFSA), the statement is misleading for two reasons; one being the misinterpretation of ‘government spending’, overstating the fiscal burden on state coffers.
“The RM340 bil figure quoted refers to the total value of all seven stimulus packages introduced up to March 2021. However, by the Finance Ministries’ own admission, only about RM72.6 bil or 21.4% of the total stimulus size takes the form of direct Government expenditure through fiscal injections,” explained REFSA researcher Jaideep Singh.
“This figure covers health spending, cash transfers, the Wage Subsidy Programme and infrastructure spending, which are all borne out of the Government’s budget.”
There is also a time lag between the announcement of fiscal policy measures and the eventual disbursement of funds.
This means that the actual amount of government spending to date is likely to be even lower than RM72.6 bil as not all the injections are immediate.
Meanwhile, the remaining RM267.4 bil covers a range of strategic, operational and monetary policy measures, including loan moratorium extensions, tax exemptions, loan guarantees and financing schemes.
“Some of these, such as tax relief, do not have a direct accounting value apart from the opportunity cost of tax money foregone, which is likely to be negligible for affected sectors anyway,” Jaideep pointed out.
Not to mention that the RM40 bil withdrawals from the Employee Provident Fund (EPF) comes from the contributors’ own money and does not constitute as a fiscal stimulus.
In fact, other macro-financial measures, support typically comes from Bank Negara, which does not rely on Government money and therefore does not directly affect the country’s fiscal deficit.
Jaideep also said that another reason as to why the PM’s statement was misleading is due to the fact that he did not elaborate on what he meant when he said the government did not have enough money.
“Now is not the time for alarmism. We can already expect an increase in government revenue beyond Budget 2021’s forecast, with Brent crude oil climbing to over US$60 per barrel today from the US$42 assumed during preparations for the budget,” Jaideep explained.
If anything, Jaideep believes that the recent PEMERKASA package suggests that the Government still has the fiscal space to introduce substantial new injections.
“Ultimately, the way out of the pandemic-induced contraction is to implement more directed, strategic expansionary fiscal policy measures to promote consumption and crowd-in private sector investment, and not by making unsubstantiated claims about the Government’s fiscal situation,” he concluded. – April 14, 2021