The first economic priority for the new government is to present a budget within a very tight timeline.
Fortunately the 2023 Budget can be done away with, along with the excessive and inflationary pre-election spending increases and the failed “vote winning” handouts.
Such populist measures must be abandoned in favor of a clear and credible budget aimed at sustainable growth and price stability that avoids the creation of inflation and higher interest rates that would follow.
Fiscal consolidation does not mean austerity and the overall budget could be about the same with 2022 increasing under inflation to about RM345 billion. This would be an ever breaking budget.
Revenue should also match 2022, about RM285 billion and the government should try to keep RM50 billion in oil royalties if possible depending on oil prices.
That would mean a deficit of about RM60 billion, compared to RM100 billion in Budget 2023, which will ease pressure on inflation and interest rates.
Sound budgeting will also benefit from smaller Covid-19 emergency packages and lower subsidies, although subsidy reform will have to be handled carefully. Falling oil prices will result in lower subsidy costs but lower oil revenues as well. If subsidies are removed too quickly prices will rise and incomes will hit again. So this is a delicate balance.
There should also be some review of taxation but this is more complex and could be part of a full tax and revenue review later.
Once the basic income and expenditure amounts have been determined the details can follow the proclamations.
It would be interesting to put together proposals from all parties. For example Barisan Nasional’s (BN) auxiliary basic income and Pakatan Harapan’s (PH) humanitarian economy agendas can be accommodated within existing budgets. Perikatan Nasional’s incentives for flexible working would also be interesting.
Both BN and PH had a similar direction of travel on student loan reform and improving competitiveness, opening markets and reforming cartels, monopolies and government-linked companies (GLCs).
Above all it is important that the new budget is sound and credible. So PH’s idea of establishing a parliamentary budgetary office must also be introduced.
Malaysia’s economic foundation has been greatly affected by the green locks and economic policies that followed from 2020. There is a lot of scarring and structural damage.
We have seen a decline in income and savings, an increase in inequality and low-wage jobs, structural underemployment, company closures, the end of pensions, very limited social protection, structural problems in higher education funding, low productivity in SMEs, low- domestic production. and foreign investment, underperforming stocks on Bursa Malaysia, corruption, cartels and monopolies and shortage of foreign workers to name a few issues.
There are some quick wins but these are mostly long-term problems and we need new solutions. There must be policy review councils for pensions and social protection, higher education funding, economic development, health care reform, small and medium-sized enterprise and business development, investment competitiveness, tax reform and of course the parliamentary budget.
The general theme should be to maintain a stable fiscal environment, support an independent monetary policy set by Bank Negara Malaysia while promoting supply-side reforms in liberalized markets, domestic and foreign private investment that promote, encourage business growth and reduce government involvement in business and. commercial activity.
This should enable the government to focus on a more social agenda and long-term structural reforms based on creating a more agile, competitive, innovative and creative economic and social environment for all.
The financial markets will proceed cautiously in the coming week but once the government and the Cabinet are settled, the markets will move forward. The ringgit is already stronger than before the election. In any case equity and financial markets should not set policy.
The views expressed are those of the writer and do not necessarily reflect those of FMT.