Malaysia’s Najib pulls out a populist budget
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Malaysia’s Najib pulls out a populist budget

MALAYSIA’S Prime Minister Najib Abdul Razak tabled the 2016 Malaysian Budget in the Dewan Rakyat (Parliament) Friday. This was always going to be a tough budget for the embattled leader, with a rapidly depreciating Ringgit, low oil and gas prices, low rubber and palm oil prices, an increasing inflation rate, rising unemployment, and extremely low consumer and investment confidence prevailing throughout the country. That’s not to mention the 1MDB scandal which is dogging his every day in office.

Najib, to a heckling opposition that showed signs stating “Where is the RM2.6 Billion”, proclaimed that Malaysia is not a failed state and the poverty rate during his tenure in office has gone down from 3.8 percent in 2009 to only 0.6 percent today. He also claimed that the budget deficit will be reduced from 6.7 percent last year to only 3.6 percent of GDP this year. However this is assuming economic growth of 4-5 percent, driven by private investment of 6.7 percent and increase of private consumption of 6.4 percent, which may appear optimistic.

With what some elements of the Malaysian press have called a ‘Robin Hood’ budget – increasing taxes on the rich, with the benefits to be dispersed more to the poor – Najib sprinkled a lot of populist measures into the budget to shore up his electoral support. This was particularly the case in Sarawak, which is due to have a state election next year.

Najib themed this budget “prospering the Rakyat (people)”, basing it on two priorities; strengthening economic resilience and easing the cost of living.

Such moves included a GST rebate on prepaid mobile phone charges beginning January 1 next year, raising civil servants bonuses and allowances, increasing low income household hand-outs to 4.7 million homes, and making special grants to longhouses in rural Sarawak.

Najib also announced a first homes deposit financing scheme, more scholarships for students, minimum pension rates, and more tax relief for low and middle income earners.

There are also a number of GST exemptions made on medicines, and lifting the thresholds that require farmers paying GST from RM50,000 to RM100,000. These measures should prove popular in the UMNO heartland, giving Najib the option of going for a snap election should he decide on that route later in the year.

SEE ALSO: Malaysia: No end game in sight for Najib Razak

Najib listed over nine infrastructure projects that the Government hopes will spur on the economy over the next few years. A number of Klang Valley freeways will be upgraded, along with expansion of the MRT network. The jewel in the crown is the announcement of the Pan-Borneo Expressway, which will link Sabah and Sarawak. Just to add sweetness to the announcement, Najib committed that the expressway would be toll free. RM730 million will also be allocated for flood-mitigation projects, and a number of new hospitals will be built, which with little doubt will be awarded to companies associated with UMNO divisional leaders, throughout the country.

In addition to highways and the MRT, a number of airports including Kauntan and Kota Bahru will be upgraded.

Although one of the prime precepts of the budget is to attract private investment, there appears little in it to assist in achieving this objective. In fact a rise in taxes at the higher income levels above RM500,000 could be seen as a deterrent to potential investment, according to some commentators immediately after the budget.

To appease the rating agencies, Najib outlined a reform package for the civil service. This reform package is aimed at keeping costs down by putting a freeze on new positions and other operating expenditures such as ceremonies and dinners, very common within the Malaysian civil service.

This budget shows the Governments weak position to move on making major reforms. The budget has been primarily designed to win an election in Sarawak and provide Najib with an option to call a national election, should he feel the need to.

The rhetoric of the budget is about empowering Bumiputreras in business and education, thus focusing on the specific electoral demographics Najib needs to continue carrying in the next election to win.

The budget has attempted to shore up support in the Malay hinterland, where special programs for making grants (almost RM5Billion allocated) to special Bumiputera development programs are hidden in a number of entrepreneurship programs announced within the budget.

A number of Najib supporters may also benefit from the new infrastructure initiatives, where it will be very interesting to see if companies like George Kent (M) Bhd., a Najib family associate company, get lucrative contracts on the MRT projects. It is also interesting that RM17.3 billion ringgit has been allocated to the Defence Ministry to upgrade technologies.

Najib, through this populist budget, has also ensured that there will be little chance that BN members of Parliament would consider blocking it due to the benefits it shelves out to constituents.

The 2016 budget has been a crafty move by the prime minister to shore up his own personal position, and give him the option for an early election should he need it.