What’s in Anwar’s budget?

Wong Chin Yoong

Finance Minister Anwar Ibrahim’s first budget has been criticised for being a scheme that robs the rich to pay the poor and one which ignores the interest of the Bumiputera. – The Malaysian Insight file pic, March 7, 2023.

PRIME Minister cum Finance Minister Anwar Ibrahim’s first budget has been criticised for being a scheme that robs the rich to pay the poor and one which ignores the interest of the Bumiputera. It is viewed as perplexing for being the largest-ever spending plan despite its claim of a smaller deficit.

All the criticisms are wrong, I will say.

While it is true that those in the RM35,000-100,000 income group received a 2% tax rate reduction and those in the RM100,000-1,000,000 will pay a 0.5-2% higher rate, it is misleading to say that the M40 gets to enjoy a tax cut while the T20 is suffering a higher tax.

Anyone who has ever paid tax will know why.

Tax obligation is not calculated according to income level but sequential income brackets.

T20 income earners who earn RM100,000 and more also get a 2% tax reduction to the point of the threshold.  Unless one earns more than RM20,000 per month, one’s tax burden is barely increased.

As long as the income tax rate stays capped at 30%, the super-rich will remain unscathed.

About the lack of explicit initiatives to advance the Bumiputera agenda, measures that have been the norm in every budget over the years – what good is an announcement of tens of billions of ringgit for the Bumiputera agenda that does not state who gets what?

The term “Bumiputera agenda” is simply too broad and dysfunctional to apply to individuals facing varying difficulties who need different kinds of help.

We don’t need a blank cheque that more often than not ends up missing its target.

What we need are measure to help Bumiputera who are gig workers without social security, who have less than RM10,000 in their EPF account as they near retirement, who struggle to get a job with a TVET certificate, who are facing bankruptcy and in need of a second chance, who are burdened by PTPTN loans, who plan to return to work after giving birth, and who are keen to start a business. 

I believe Anwar’s budget has much to offer to advance the “Bumiputera in need agenda”.

Let’s turn to deficit reduction.

Yes, the RM386.1 billion budget for 2023 is the largest-ever spending plan. But a budget should grow along with the economy and population.

After all, we need more schools and hospitals to serve a larger community, and we need more fiscal incentives and support to facilitate expanding business activities. 

Don’t forget also that tax-financing is a part of the budget. This means while the government injects money into the economy via fiscal spending, it also absorbs resources from the economy through taxation.

What’s important is not the size of the budget but the size of budgeted deficit spending – spending financed by borrowing.

In 2021, the deficit was RM85.5 billion, or 5.5% of the projected GDP. In 2022, the amount grew to RM98 billion, or 5.8% of the projected GDP.

For 2023, the deficit spending has shrunk slightly to RM94.6 billion, but in terms of GDP percentage, it drastically slid 4.9%.

Numbers aside, the way the money is spent matters too.

When fiscal resources allocated to businesses via grants, tax incentives, and facilities can only be tapped by those who are ready to invest, expand and upgrade, it is not unreasonable to anticipate a faster-growing economy and stronger streams of tax revenue in the future.

In other words, the largest-ever budget can effectively be deficit-reducing.

Count me among those who believe that Anwar’s first budget is sufficiently needs-based and deficit reduction-oriented, albeit less progressive than I would like. – March 7, 2023.

* Wong Chin Yoong is a professor of economics at Universiti Tunku Abdul Rahman, Kampar campus.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.

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