Budget 2022 has tried to be a caring and inclusive budget, attempting to redress the negative effects of the pandemic felt across the population.
In attempting to deal with the concerns of as many affected sectors and groups of individuals as possible, the government may have spread its resources too thinly in some areas and ignored others, as so often happens in broadly cast plans such as this.
Budget 2022 has had the difficult task of balancing a number of concerns. It has tried to remedy the immediately felt problems of companies and households, it has taken a forward-looking view by addressing longer-term objectives associated with supporting economic recovery, and it has sought to solve the tricky question of finding sources of finance for government expenditure.
The government has, largely, taken a supportive position on MSMEs. The budget promises to make financing available for micro-entrepreneurs through agencies such as Tekun, Agrobank, BSN and Bank Rakyat. RM14 billion will be made available for SMEs through SME Bank, Agrobank and several other institutions. The business financing guarantee limit has also been increased, making it easier for SMEs to obtain financing in these difficult times.
At the level of households, the budget displays a caring attitude. There is the Bantuan Keluarga Malaysia cash assistance programme which might provide some relief, especially for those in the bracket below RM2,500. The one-off payment of RM150 for youth and full-time students at institutions of higher learning is more a token amount than anything, although the early schooling assistance may come in handy.
There are areas where the government has not defined the trade-off between immediate and structural problems carefully. One example of the error in deciding on short-term gaps versus long-term solutions comes up in the decision to prioritise education over healthcare. Giving free tabs to disadvantaged students may be a good thing, but it is not a priority as the pandemic settles and the movement restrictions are opening up.
It might make sense, perhaps, to invest in infrastructure facilities that can enable mixed-mode instruction. But then, again, a much-need transformation on education has long been postponed – and that may be what is necessary.
Similarly, healthcare, particularly public health care facilities, have long been neglected. The gaps in healthcare facilities did come up when the pandemic was at its worst and should have been given a bigger allocation in the budget.
The biggest challenge for the biggest budget so far is, of course, raising adequate government revenue, and that too when we have a heavily expansionary budget. Of course, one is sympathetic to an expansionary budget under the circumstances. But the government would have had quite a puzzle to solve in deciding on how the spending was going to be financed.
An easy answer could have been found in increasing government borrowing. But if there are limits to borrowing, then the space narrows.
One option would have been to go back to the GST. Obviously, this would be the wrong time to re-introduce the GST, among other things, without resolving the glitches that marred its implementation.
Another possibility would have been to broaden the SST and to widen it to give it some of the characteristics of the GST. For some reason, the government did not find it useful to get into the harmonisation of the SST and the GST.
The high price of oil would add to government coffers.
To some extent, the improving economy would lead to a gain in tax revenue. But surely not enough.
In the search for additional sources of revenue, the government has resorted to “cukai makmur”, or the prosperity tax. Two things stand against the prosperity tax.
First, it is seen to be punishing the big earners. Second, it encourages distortionary behaviour. The big boys will likely resort to transfer pricing to minimise the impact on their tax payments. Also, there are probably going to be delays in decisions taken to invest in Malaysia. The big earners may want to wait and watch before making their decision.
More than that, the question of “forward guidance” comes into play. There was no prior indication either in the pre-budget statement or in the finance minister’s speeches to indicate that the prosperity tax was going to be introduced.
Having announced that there would be no new taxes, expectations would have been formed accordingly. The credibility of information disseminated would come under observation. It would have been wiser to have maintained silence.
This is not to say that countries should not impose prosperity or windfall taxes. They can and should, particularly, if they are one-off and, better still, if they are for pre-announced and specific reasons.
However, information announcements and expectation formations are subtle points. Nevertheless, the markets were not pleased and the KLCI fell by more than 20 points on Nov 1.
Undoubtedly, it was a tough call, and there are strong reasons why big businesses and those who are higher up on the curve would have to make sacrifices for the disadvantaged. Not totally unexpected given the limited fiscal space.
There are some issues that are cause for concern, among them the increasing operating expenditure. Problems such as this are of a structural nature but need to be faced at some point.
Nevertheless, Budget 2022 has the interests of the rakyat at heart and can be expected to help in the economic recovery process.
This article was originally published at https://www.freemalaysiatoday.com/category/opinion/2021/11/12/a-compassionate-budget-for-2022/