Budget 2023 is Responsive, but What about Responsible Reforms?
Updated: Jan 16
Written by Benedict Weerasena & Abel Benjamin Lim
Amidst talk of Parliament dissolution, Budget 2023 was tabled with a record-breaking RM372.3 billion allocation. This Budget is certainly a crucial one in setting the foundations right to face a looming global recession, in addition to a potential new government post-GE-15.
As an overview, Budget 2023 upholds inclusivity in promoting economic well-being through a comprehensive range of short-term cash assistance, tax breaks, incentives and grants. This aligns well with the first of the 3R cornerstones: Responsive to the challenges faced by every segment of society. However, Budget 2023 falls short of the other two cornerstones: Responsible to uphold fiscal reform and financial sustainability and Reformist in transforming the country’s development landscape.
The Pre-Budget statement offered high hopes for fiscal reform including ‘improving fiscal governance, broadening the revenue base and optimising expenditure’. Yet, when push comes to shove, Budget 2023 clearly lack comprehensive strategies to rationalize operational expenditure. As a result, the projected revenue collection of RM272.6 billion is almost entirely spent on operational expenditure (RM272.3 billion), leaving the development budget fully funded by debt. How sustainable is this in the long run?
After nearly 2 and a half decades of expansionary fiscal policy, Malaysia recorded a fiscal deficit of 6.5% in 2021 and 5.8% in 2022, with a projection of 5.5% in 2023. With such a minimal decrease, how will we realistically achieve the targeted 3.5% in the 12th Malaysia Plan?
Also, Budget 2023 is a missed opportunity to broaden the tax base. With such a large budget which is a substantial 12% increment from a year before, one crucial question on everyone’s mind is ‘How are we going to raise the money to fund this?’
Realistically speaking, how much longer can we depend on petroleum-related revenue, considering the volatility of global prices and decreasing reserves? When GST was implemented, our dependency on petroleum-related revenue dropped to 14.6% in 15.7% of total revenue in 2016 and 2017 respectively. In 2023, petroleum-related revenue is projected to contribute to 21.6% of total revenue. However, will we see a repeat of the year 2022, where the initial projection of petroleum-related revenue 18.8% skyrocketed to 27.3% of total revenue due to additional dividends from PETRONAS? Indeed, Budget 2023 falls short of greater fiscal reform.
Besides that, several exceptional and exciting initiatives are worth highlighting, while several others magnify missed opportunities for significant reforms.
First, we understand the significance and impact of the Bantuan Keluarga Malaysia with its enhanced coverage for larger families. However, one-off direct cash aid is only a temporary stop-gap measure, without a clear plan or policy for breaking out of the poverty trap. In our recently published book “Assessing and Addressing Urban Poverty in Malaysia – Social Mobility Through Entrepreneurship”, we highlighted the importance of promoting upward social mobility through empowerment. It’s about promoting reforms that can place the poor in conditions to earn the resources they believe they need, instead of only providing the urban poor with the resources they do not have.
Next, in the spirit of an inclusive Keluarga Malaysia, we regret that there was a total absence of targeted initiatives in Budget 2023 for the stateless community in Malaysia. This is certainly disappointing considering that the stateless community was most recently recognized by the Prime Minister as a vulnerable population, who will be protected against manipulation, neglect and abuse.
On the other hand, initiatives to promote Gender Inclusion through gender-responsive budgeting are a step in the right direction. For instance, the establishment of Gender Focal Teams in each Ministry and agency to pursue gender-conscious national programmes. For women returning to work after a career break, the tax exemptions given for income received between 2023 to 2028 are significant, in addition to the three-month wage subsidies of between RM600 and RM750 under SOSCO in encouraging employers to hire them.
This is crucial because the COVID-19 pandemic has set female labour force participation back by 3 years with younger workers and young females pushed outside of the labour force. Also, increasing female labour force participation boosts total factor productivity gains and generates overall economic growth for the nation. However, the absence of initiatives to overcome the lack of childcare or elderly support at home might serve as a stumbling block.
Next, sustainable development was a key focus in Budget 2023, in line with our country’s sustainability agenda from reporting to engagement sessions to SDG-related programmes. Budget 2023 provides further allocation to UNDP and All-Party Parliamentary Groups (APPG) to increase programmes pertaining to SDGs. The pressing concern lies not only in conducting programmes which are SDG related but also in how we can create a global citizenship mindset amongst Malaysians. Increasing global instability, coupled with the current economic downturn and changing climate conditions, has called for more resilient growth, stability, implementation and strong governance. This call must place emphasis on involving the whole of government, engaging all sectors of society, obtaining buy-in from financial institutions and making stakeholders accountable.
Besides that, skills development was given priority in Budget 2023. In the past, heavy investments have been placed in infrastructure and funds to accelerate skills development in the country. As evidence, Malaysia has 662 public training institutions up to December 2020. Following on, Budget 2023 reiterated its endeavour to continue providing Malaysians with opportunities to participate in diverse skill improvement and retaining programmes – through initiatives such as Jamin Kerja, SOCSO Employment Incentive, MyStep, skills training by HRD Corp, Digital Innovation Fund (DIGID) and Graduate Entrepreneur Programme (PUSh). On the other hand, such initiatives should also be accompanied by proper tools to support and facilitate workers’ ability to identify training that best suit their needs and preferences. They also need to have career guidance and advice to plan a suitable career pathway prior to enrolling in any training programmes.
Another noteworthy initiative is the expansion of social security to cover other self-employed workers, especially those in high-risk sectors. Under the Self-Employment Social Security Scheme (SKSPS), the Government will bear 80% of SOCSO contributions, while the self-employed such as food delivery riders, farmers, fishermen, FINAS art practitioners and hawkers have to pay only 20%. This move is essential and timely to prevent more individuals and households from falling through the cracks, especially evident during the COVID-19 pandemic. Yet, other medium to long-term reforms in social protection are still crucial to overcome overlapping programmes, fragmentation, insufficient coverage and adequacy of benefits.
In terms of education, the rise in the allocation of Early Schooling Aid (BAP) from RM100 to RM150 for all pupils is a noble move. However, one can’t help but question why this aid will be distributed to all regardless of parents’ income level. A better mechanism would be targeted aid which promotes equity instead of equality. In addition, the additional expenditure saved would be better reallocated for providing remedial lessons for the ‘lost generation’ during school closures and online lessons during the COVID-19 pandemic. Our research has shown that Malaysia has the highest learning losses among Asian developing countries, with an alarming rate of loss of 0.95 years (11.4 months), in the pessimistic scenario.
All in all, Malaysia needs to place a greater emphasis on medium to long-term reform, instead of just stop-gap measures which generate benefits in the short term. We need to pursue more budgetary initiatives and programmes which uphold the 3R of ‘Responsible’ and ‘Reformist’ and not just ‘Responsive’.
Benedict Weerasena is Research Director and Abel Benjamin Lim is the Head of Development Economics of Bait Al Amanah.