Malaysia Budget 2021 –The Good, The Bad and the just “Weird”

By Edika Amin

On 6 November 2020, the Perikatan Nasional Government presented the 2012 Budget themed “Resilient As One, Together We Triumph”. The total budget outlay will be RM322.5 billion (USD$78 billion), or 20.6% of our Gross Domestic Product (GDP). This is an increase from its total expenditure allocation for 2020, which has been revised upwards to RM314.7billion (USD$76.3 billion).

Snapshot of the budget

Some key figures of interest include:

1. GDP growth: -4.5% (2020) 6.5%-7.5% (2021)
2. Fiscal deficit: -5.4% (far exceeding original target of -3.2%)
3. Total budget: 5billion (USD$78 billion)
4. Operation Expenditure (OPEX): 5 billion (USD$57.3 billion) or 73.3% of the budget
5. Development Expenses: RM69 billion (USD$16.7 billion) or 21.4%
6. Estimated 2021 Revenue: 9 billion (USD$57.4 billion)

The budget is divided into three main objectives and 14 strategies namely:

1. The well-being of the people : Budget allocated for the fight against COVID-19, social protection measures, job creation and inclusivity to close current inequality gaps.
2. Business continuity: Measures to drive investment, strengthen key sectors, promote digitalization and automation as well as increase access to financing; and
3. Resilience of the economy: Expansionary budget on infrastructure related projects, enhancing the roles of Government Linked Companies (GLCs) and civil societies, promoting resource sustainability and enhancing the civil service.

Key Takeaways of the Budget

There are three major takeaways from the Minister of Finance’s presentation. The first is that Budget 2021 is the biggest federal budget to date, as it contains many measures to help ordinary Malaysians and to stimulate economic recovery in the midst of the COVID-19 pandemic. Second, Budget 2021 is aligned with priority policies under the soon to be announced 12^th Malaysia Plan and the Shared Prosperity Vision 2030. Lastly, for the first time in the country’s history, this is one of the best attempts on a unity budget as inputs have been sought from opposition lawmakers.

The Good

1. Streamlining job creation: Budget 2021 announced the formation of the National Employment Council that will seek to create job opportunities, skills enhancement and training for employees. This will serve as a one shop center for future policies that will shape the employment landscape moving forward. The establishment of this council is a welcomed measure particularly for Malaysia. As quoted by Professor Norma Mansor from Malaya University, coordination in Malaysia remains fragmented. This fragmentation provides administrative burdens to the Government, employers and prospective employees as they struggle to identify of the most effective programmes and services available. This fragmentation also complicates analysis which can hinder enhancements for future programmes[1]. It is in the hopes that the establishment of this council will serve as a first step to establishing an integrated national employment service in Malaysia.
2. Social protection: The Government has quickly learned that social protection systems – including social assistance, social insurance and labour market policies – act as essential safety nets for the poor and vulnerable citizens. Ultimately, COVID-19 has taught Malaysia that social protection can act as automatic stabilisers during a crisis. What many may have missed in this year’s Budget is the Government’s effort to enhance benefits to children, senior citizens and people with disability. These social protection benefits are in line with the International Labour Organization Convention 102 on Social security[2].
3. Recovery via digitalization: We have witnessed first-hand on how a health crisis can spur digitalization. The recent global lockdowns have increased the use of technology in almost every aspect of our everyday lives. Whether it’s’ e-commerce, e-payments or teleconferences, the use of technology has become even more pronounced now more than ever. A number of key initiatives and grants are available to spur digitalization in Malaysia via Budget 2021 which include:
4. RM1 billion (USD$242 million) allocated for high-tech and value-added investment incentive packages;
5. RM150 million (USD$36.3 million) to implement the Shop Malaysia Online;
6. Industrial Digitalization Transformation Scheme worth RM1 billion (USD$242 million);
7. RM150 million (USD$36.3 million) will be provided under the SME Digitalization Grant Scheme and the Automation Grant; and
8. RM500 million (USD$121 million) high-tech fund will be provided by Bank Negara Malaysia to support companies in the high-tech and innovative sector.
9. Malaysia adopting global best practices: Lastly, Malaysia has formally agreed to accept the 2030 Agenda and 17 Sustainable Development Goals (SDG). SDG 17 in particular (International cooperation) promotes cooperation and dissemination of best practices. This is significant given the nation will be reviewing critical legislations in 2021 which includes the personal data protection act and competition laws. It is in the hope that recognizing SDGs is the first step of many steps that Malaysia takes when adopting global best practices.

The Bad

1. COVID-19 vaccines with glovemakers: It is no surprise that the demand for personal protective equipment (PPE) has skyrocketed in the past five months. Instead of collecting a super-normal windfall tax for the Government, Top Glove Corp Bhd, Hartalega Holdings Bhd, Supermax Corp Bhd and Kossan Rubber Industries Bhd have instead pooled together RM400 million to help the nation fight COVID-19. Unfortunately, this may just be revenue lost for the Government.
2. Lack of health and mental health funding: In total, there was only a 4.3% increase in the overall allocation for the Health Ministry (MOH) in Budget 2021 as compared to Budget 2020 (setting aside the additional non-MOH allocations in the COVID-19 Fund). Currently Malaysia’s funding on health remains below the Organisation for Economic Co-operation and Development (OECD) average benchmarked at 7% of GDP. Based on recent estimates, Public and Private spending for health in Malaysia totals is <5% of Malaysia’s GDP. More worryingly, the budget for mental health services and infrastructure observed a 61% (RM42 million) reduction from RM69 million in 2020 to RM26 million in 2021[3]. This is the lowest allocation in recent years. The spending for health and mental health is even more pertinent during a health crisis such as COVID-19.
3. Political uncertainty continues to linger: The Opposition continues to scrutinize the budget and has warned that it is unlikely Budget 2021 will receive full support in Parliament if it isn’t amended to take better care of the people. It is rather troubling that politicking continues to take a front seat in the midst of a crisis.

The Just Weird

1. Megaprojects resume: The RM15 billion (USD$3.65 billion( allocation to revive and ensure the continuity of several mega projects such as the Mass Rapid Transit Line 3 (MRT3), the Klang Valley First Phase Double Tracking Project, Pan-Borneo Highway and Kuala Lumpur-Singapore High-Speed Rail (HSR) may not be appropriate at this point of time given these funds can be used instead for social protection, job creation and health funding.
2. JASA Department Funding: Another sticking point of the budget is the revival of Special Affairs Department (JASA) with a whooping fourfold increase of RM85 million (USD$20 million) budget. Bear in mind, previous funding for Jasa before it was disbanded was in the realms of RM20 million (USD$5 million) a year. There are concerns that JASA may act as a propaganda unit for the Perikatan Nasional Government to enhance their agenda with upcoming snap polls in the horizon.

Conclusion

Overall, credit given where it’s due. This was an inclusive budget that captured the Bottom 40, Middle 40 and Top 20 as well as small and medium enterprises and multinational companies. Although there are some flaws it was never expected to be the perfect budget particularly given the circumstances of the current Government. What I hope every Malaysian realizes is one thing we can take solace on from this crisis, is the nation’s ability to do things the Malaysian way. Afterall, a Malaysian crisis requires a Malaysian solution. At the end of the day, this virus doesn’t care about our differences. This virus could care less about our race or religion or whether we support the Government or opposition. This virus is attacking all of us as Malaysians and this will call for all of us to be united as we rebuild. I strongly believe that as we rebuild, we bounce back and Malaysia has always bounced back. Ultimately, while the world views COVID-19 as an obstacle, Malaysia should see it as an opportunity. In my personal view, the COVID-19 pandemic may just be the black swan event that Malaysia needed to enhance the cracks in our system particularly with social protection and digitalization. In the words of Winston Churchill, one should not waste a good crisis.

[1] https://www.thestar.com.my/news/nation/2020/10/03/making-labour-policies-work

[2] http://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:::NO:12100:P12100_ILO_CODE:C102:NO

[3] https://codeblue.galencentre.org/2020/11/09/budget-2021-is-bad-for-our-mental-health-finn-see/