IT was a giveaway Budget, with the finance minister distributing handouts left, right, centre and everywhere else. This is the standard prescription when the economy has been crimped by controls put in place following the Covid-19 outbreak.
So pervasive has this approach of helicoptering money down been, not just in Malaysia but worldwide, that not enough questions are being asked on whether that money is reaching the right people and helping those who are really in trouble.
At the end of the day, any kind of stimulus package must have as its ultimate aim the saving of jobs as much as it is possible, and channelling aid immediately to those who have lost their jobs, and whose income from self-employment has been severely curtailed.
However, with such unprecedented spending, one wonders how much leakage of the expenditure will take place away from those for whom it is intended, especially the handouts that are being generally disbursed.
Budget 2021 has the biggest expenditure in the country’s history at RM323 billion, of which RM237 billion is for operating expenditure, RM69 billion (development expenditure) and RM17 billion (Covid-19). It raises the Budget deficit to around 6% of gross domestic product, or the sum total of goods and services produced in a year. The RM323 billion is a high 17% above the total RM276 billion expenditure projected for 2020.
A glaring weakness in the Budget is that there is no declaration of how the giveaways – announced by the finance minister as some RM28 billion in subsidies, aid and incentives – are being monitored to ensure they are not misused.
Take, for instance, the blanket wage subsidies for employees that are given directly to employers with the understanding that there will be no retrenchment for a period of six months. What monitoring is in place to ensure there is indeed no retrenchment?
Since this is a blanket graduated subsidy for workers earning less than RM4,000 per month, does it mean even industries that are very profitable will continue to get the subsidies? The sums involved are large – over RM11 billion has been disbursed.
A case in point: glove manufacturers whose businesses have shot through the roof because of Covid-19. They are making several times the profits they used to make before the virus crisis, but technically, they can claim the wage subsidies.
There appears to be no vetting to ensure that those who do not need the subsidies, do not get them. Glove manufacturers have not been made to pay windfall taxes, but at least, they and others like them should not get any wage subsidies.
This is just one example of a leakage of funds that are intended to mitigate the effects of the pandemic. There are likely to be many more. One way to get around this is to simply pay directly to the person affected. If you are retrenched, you become entitled to a graduated allowance.
It is just as well that the loan moratorium is not extended. As explained by the finance minister, some 85% do not need an extension anymore. Banks do not mind extending them because they still charge interest – effectively, it is an extension of the loan tenures. So long as the borrowers pay up, banks do not lose money. In fact, they gain.
There has hardly been any measure to raise money, with the government relying mainly on Petronas funds from a declaration of RM34 billion in dividends and the raising of the government debt ceiling from 55% to 60% of GDP.
However, the Economic Report for 2021 indicates that the federal government debt figure has already been exceeded. Government debt at the end of 2019 was RM793 billion, or 52.5% of GDP.
At the end of this year, it is projected to increase to RM874 billion, which is already 60.7% of GDP, giving the government little to no room to use debt to increase spending. This is an indication that spending has to be restrained in 2021.
However, spending next year is overall some 17% higher at RM323 billion, raising serious questions about how it is going to be funded.
One notable feature of government expenditure for 2021 is that development expenditure, at some RM69 billion, is nearly 40% higher than this year’s. One hopes that this is justified by allocation to proper projects that will help the country’s development instead of expensive infrastructure projects that are not justified by demand.
A bright spark for 2021 is the recovery of the economy – after a 4.5% contraction this year, the economy is expected to recover by 6.5% to 7.5%. This is not only because of the contraction in 2020 caused by Covid-19, which means that this year has a lower base, but also strong government spending.
Coronavirus stimulus to push up the economy should not be an excuse to raise spending willy-nilly. Aid has to be disbursed carefully and monitored to ensure those who most need it, get it. Expenditure needs to be controlled and disbursed for maximum economic gain.
Otherwise, dangers lie ahead. – The Vibes, November 7, 2020
P. Gunasegaram says prudence is a desired quality during good, and especially, bad, times. He is editorial consultant at The Vibes.