The Malaysian Insight

FUNDS for rural infrastructure and incentives for small and medium enterprises are among the ways that Budget 2020 is helping to realign the economy and meet the goals of Pakatan Harapan’s shared prosperity agenda.

PH leaders and independent economists said higher tax rates for the ultra-rich and a petrol subsidy system targeted only for low- and lower-middle income households will also ensure that aid goes towards the neediest.

However, one economist said the budget did not go far enough to reduce the wealth gap as there could have been higher tax rates for rich Malaysians on income, profits from property and services the government provides.

The added revenue from progressive income taxes and higher fees on road taxes for the rich, for instance, could have been used to increase aid for income-earners in the bottom 40 category, said economist and former senior Treasury official Ramon Navaratnam.  

“Government fees and charges could have been made more progressive so that the rich are charged higher. Luxury taxes could have been introduced to share wealth,” said Ramon, who now heads the Asli Centre for Public Policy Studies.  

“Corporate and income taxes should have been made more progressive and estate and property gains taxes could have been raised. The budget is spread thin with a little for many.”

However, lawmaker Fahmi Fadzil said the budget is an intermediary one before the actual implementation of the Shared Prosperity Vision 2030 economic agenda, which begins in 2021.

Details of what will drive the SPV2030 agenda will be in the 12th and 13th Malaysia Plans, said the Lembah Pantai MP.

Nevertheless, Budget 2020 will start the process of realigning the economy from industries that the country used to depend on to new ones which will create future sources of wealth.

“In order to share prosperity, we have to create prosperity and that means identifying new engines of growth,” Fahmi said.

“We have to pivot from the industries, such as commodities, which are no longer bringing in the big revenues they once did, to ones which can, such as software development in order to reach goals in the SPV.”

Spreading the wealth   

For 2020, Sabah and Sarawak will receive the largest portion of financial grants amounting to RM5.2 billion and RM4.4 billion respectively, according to the Finance Ministry.

About RM587 million will go towards rural water projects, out of which RM470 million for Sabah and Sarawak to meet the target of 99% access to clean water.

Out of a RM1 billion allocation for rural roads, RM326 million will go to Sabah and RM224 million to Sarawak, thus benefiting an estimated 145,000 people living in the interior.

Such measures are seen as being in step with PH’s economic agenda, which starts from 2021 to 2030, to create new sources of economic growth while ensuring that the wealth generated will be spent equally among ethnic groups, regions and income classes.  

Works Ministry special adviser Chua Tian Chang, better known as Tian Chua, said these steps will reduce the income gap between the richer states in the peninsula’s west coast and other poorer regions.

“These projects have a tripling effect on the socio-economic landscape of these regions by connecting people in the interior and bringing them into the mainstream production and supply chain,” said Chua.

Better access to interior areas in Sabah and Sarawak will also reduce living costs as it brings down the cost to transport goods.

“It is far more efficient to invest in infrastructure versus just giving more cash aid because it helps these areas grow and the communities’ incomes to go up naturally.”

The budget’s focus on SMEs to drive growth and expand the digital economy will also create new sources of wealth, said government-linked think-tank MIDF Research.  

“Emphasis on increasing efficiency and productivity would be a net positive to Malaysia’s economic growth, while at the same time reduce our dependency on foreign labour and increase the competitiveness of our products in the export market,” MIDF said.

Ramon said the RM1.1 billion for public-private initiatives in areas, such as Kuantan, Johor, Sabah and Sarawak, will also help spread development outside the crowded Klang Valley.

The allocation of RM445 million for Bumiputera businesses and a separate provision for female entrepreneurs will also help spread wealth across ethnic and gender lines, he said.

But Ramon cautions that there has to be measures to ensure that all the aid goes to people who are genuinely into business.

“Hopefully, the budget will be implemented on needs-based instead of a race-based approach.

“Budget 2020 was realistic and pragmatic, given the circumstances we faced,” Ramon said, referring to the fact that world economic growth is slowing and would impact a trade-dependent nation like Malaysia.

“But it could have been ‘more progressive’ in that it could have taxed the rich more and regrettably, there were no new structural changes.” – October 14, 2019.