PERIKATAN Nasional’s maiden budget, which was tabled amid a twin crisis of an economic downturn and the Covid-19 pandemic, will go down in history as the largest ever government annual spending plan to date.

The RM322.5 billion Budget 2021, tabled by Finance Minister Tengku Zafrul Tengku Abdul Aziz, has upstaged Pakatan Harapan’s Budget 2019 which saw a record-high allocation of RM314.5 billion.

The operating expenditure which mainly covers emoluments, debts service charges as well as supplies and services, is expected to take up RM236.5 billion.

The development expenditure, which is budgeted at RM69 billion, will be spent on the social sector, infrastructure projects and education and training, among others.

The Malaysian Insight spoke to economic and political experts to gauge the impact of the expansionary spending plan.

Sunway University Business School economics professor Yeah Kim Leng said the budget includes crucial provisions, such as tripling the Covid-19 Fund to RM65 billion, increasing the allocations for medical supplies and equipment as well as allocating funds for the rollout of vaccines once it is available.

“While the more severely affected firms and households will find the budget inadequate for them to regain their pre-pandemic status, the importance of an expansionary budget is that it will help to put the economy on a stronger footing as more spending leads to higher economic activities and spill-over effects to the rest of the economy,” he told The Malaysian Insight.

The prominent economist said consumer and business confidence is expected to improve as the economic outlook improves with higher government spending.

Activities supported by direct government spending, fiscal and financial incentives, such as tax cuts, lowering of Employees’ Provident Fund contributions, and various initiatives, including reskilling and upskilling are expected to create more jobs and improve labour demand, Yeah said.

He also said the implementation of mega-infrastructure projects along with small- and medium-sized construction projects will benefit a broader base of industry players and businesses dependent on government projects.

“This, too, will have the intended multiplier effects as well as unintended consequences of lobbying, favouritism and leakages if not properly administered,” he said.

Asked on the widening of the fiscal deficit along with the increase in domestically funded borrowings, Yeah said this should not be a concern as long as the government embarks on fiscal consolidation when the economy recovers fully and sustainably from 2021 onwards.

The fiscal deficit is expected to widen to 6% this year following the implementation of the various economic stimulus packages, despite the initial target of 3.2%.

It is projected to narrow down to 5.4% next year.

Budget 2021 was tabled in the backdrop of a political crisis, as Prime Minister Muhyiddin Yassin grappled with a slim majority to remain in power.

The spending plan was tabled about wo weeks after Muhyiddin’s failed bid to get consent from the Yang di-Pertuan Agong to proclaim a state of emergency.

Feel-good factor

Political analyst and executive director of Ilham Centre Hisomuddin Bakar said the budget should be viewed as the government’s efforts for economic recovery.

On the political front, this can be seen as an effort by PN to earn the people’s confidence to gain a new mandate and to stay in office for another term, he said.

Hisomuddin said the government will capitalise on the budget as much as it could to gain support from the people.

Budget 2021 will also be in focus, as this is the first major spending plan tabled after the Covid-19 pandemic, which has severely affected economic development and the people’s livelihood.

“This budget will create a feel-good factor for the PN government,” he said.

The budget also presents PN with the opportunity to win the hearts of voters, after its popularity suffered following the Sabah elections, he said.

However, the vote to sanction the spending bill will be the real litmus test for Muhyiddin, he said.

“The guarantee from all parties in the government to support the budget will give the PM a breath of relief,” he said.

“Nevertheless, anything is possible in the situation of political uncertainty and given the government’s slim majority,” he added.

Meanwhile, independent political analyst Khoo Kay Peng said while Muhyiddin might have a certain amount of stability for now, he must ensure that the budget is approved.

Commenting on the record-high allocation, Khoo said that this was the need of the hour as the country grappled with an unprecedented time.

However, the main focus should be on saving jobs and helping the unemployed, he said. – November 7, 2020.