Malaysia’s “Stand United” budget heading into testy debate

Malaysia’s 2021 budget, labelled the “Stand United, We Shall Prevail” budget, strikes a conciliatory tone, but it will face some vigorous debate when it reaches parliament

Kevin Zhang and Dr Lee Hwok-Aun
November 13, 2020
Malaysia’s “Stand United” budget heading into testy debate
Malaysia's Prime Minister Muhyiddin Yassin (L) and Finance Minister Tengku Zafrul Tengku Abdul Aziz (R) posing for pictures with the national 2021 budget after unveiling at the Parliament in Kuala Lumpur. Photo: Zarith Zulkifli/Malaysia Department of Information/AFP

Malaysia’s Finance Minister Tengku Zafrul tabled Budget 2021 last Thursday, against the backdrop of mounting Covid-19 cases, economic recession and a volatile political climate. The inaugural budget tabled by Prime Minister Muhyiddin Yassin’s administration is themed “Stand United, We Shall Prevail.” While it strikes a conciliatory and sanguine tone, the document will likely face some testy debate in parliament.

It is an expansionary budget, but whether it is boldly so depends on the reference point. The total budget of RM322 billion exceeds the RM297 billion allocated in Budget 2020, but is only slightly above the RM315 billion actually spent in 2020. Malaysia carved itself a bit more fiscal space in August, when parliament passed a temporary bill which permitted the national debt ceiling ratio to be raised from 55 per cent to 60 per cent of GDP until 2023. Understandably, the budgeting relies on projections of taxation revenue and expected oil revenues – an especially dicey venture in these times of manifest uncertainty.

Expenditure for social welfare has risen significantly; Budget 2021 extends various Covid-19 relief packages, chiefly the Prihatin assistance for low income Malaysians – the segment disproportionally impacted by the pandemic. The established conditional cash assistance scheme will be renamed as Bantuan Prihatin Rakyat (BPR), or People’s Compassionate Aid, come 2021, with the size of cash assistance dependent on income and household size. BPR will expand coverage to middle-lower income households with monthly incomes of RM4,001 to RM5,000. With the revision of the income eligibility threshold, about four million additional Malaysians are expected to receive cash assistance. Loan moratoriums will also be extended to BPR recipients, for an additional 3 or 6 months depending on the quantum on monthly repayment.

The expanded cash assistance coverage and loan moratorium will provide some relief for families affected by the current economic downturn. However, civil society activists have heavily criticised the inadequacy of the one-off handouts. In addition, there does not seem to be a cohesive plan for addressing broader socio-economic challenges, including the disruptions to schooling, health and nutrition, especially among low-income households.

Despite the Muhyiddin-led Perikatan Nasional’s razor-thin parliamentary majority, Budget 2021 is unlikely to be voted down – at least not overtly

The Wage Subsidy Programme, a cornerstone of Budget 2020’s economic relief, is projected to change from a general provision to become a “targeted” subsidy for specific sectors, namely tourism and retail, starting in 2021. The subsidy is expected to cost RM1.5 billion for 2021, a sharp decline compared to the RM12.5 billion disbursed between April and October 2020. While tourism and retail will foreseeably be among the worst impacted sectors, it is unclear why other sectors – such as transport, food and beverages – have been excluded from the wage subsidy come 2021.

For the unemployed, the extent of public assistance is questionable. Budget 2021 proposes that Malaysians who are retrenched be given the option to withdraw their retirement savings from their Employees Provident Fund (EPF), at up to RM500 per month for a year starting 2021. The government has already permitted Malaysians to withdraw from their EPF since April 2020 under the i-Lestari scheme. This was taken up by 4.7 million members, with a total withdrawal value of RM11.6 billion.

While EPF withdrawals may resolve in part the immediate economic hardship among the retrenched and lower-income Malaysians, the government has yet to announce whether and how the retirement savings will be replenished when the economy picks up. Slightly more than half of EPF contributors have saved below RM50,000 for retirement at the age of 54. Coupled with announcements in Budget 2021 that the minimum employee EPF contribution rate will be reduced from 11 per cent to 9 per cent beginning 2021, EPF savings are expected to further decline, exacerbating the future financial strain of low-income Malaysians.

Unsurprisingly, parliamentary debate has commenced. The opposition Pakatan Harapan (PH) has signalled that inadequacies in social assistance will be a major focus. While various agencies and programmes have not been allocated huge sums, they are still being scrutinised for the political implications they engender. For example, the Communications and Multimedia Ministry’s Special Affairs Department (JASA), with a budgeted expenditure of RM85 million, has come under intense scrutiny. JASA was perceived as the propaganda arm of the former Barisan Nasional administration, and was disbanded soon after PH took over in 2018.

Meanwhile, Barisan Nasional (BN) backbenchers’ chairman Najib Razak has said in parliament that BN will support Budget 2021 on the conditions that the following demands be fulfilled – a one-off withdrawal of up to RM10,000 from the EPF retirement account and extension of loan moratoriums till June 2021. BN is the largest component party within the ruling Perikatan Nasional administration and should BN withhold their support, the upcoming budget is unlikely to be passed. Should Budget 2021 be defeated in parliament, it will be tantamount to a vote of no-confidence against Prime Minister Muhyiddin Yassin.

The budget for Islamic development stands at a record high of RM1.4 billion for 2021, with the expenditure having risen steadily over the years. Much of the allocated budget is expected to be channelled towards the Federal Islamic Development Department (JAKIM). Civil society activists have in past years raised objections against the sizeable budget allocation for JAKIM. But the objections thus far have been muted, as civil society shifts its attention towards social welfare amid the pandemic and economic downturn.

Despite the Muhyiddin-led Perikatan Nasional’s razor-thin parliamentary majority, Budget 2021 is unlikely to be voted down – at least not overtly. The Agong has called on all MPs to support the bill in order for government policies combating Covid-19 pandemic to proceed unimpeded. However, we can expect vigorous parliamentary debate, and perhaps compromises and amendments, in the weeks ahead.

Kevin Zhang is a Research Officer at the ISEAS – Yusof Ishak Institute, and Dr Lee Hwok-Aun is a Senior Fellow at the same institute. The piece was originally published here.

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