Where does Malaysia stand on fiscal policy to date? I think there was policy uncertainty with the stimulus packages in the initial stages of the Covid-19 pandemic.
That is to be expected, with a public health threat the likes of which we have had no experience. The government was perhaps in a quandary as to whether to lend more support towards the business sector or to disadvantaged households.
It also seems to have been in a fix in dealing with the lives versus livelihoods trade-off, often treating it as a binary opposition. There was also a sense that the government was trying to reap non-economic advantage out of the stimulus packages.
But all in all, the government did well to recognise that only government expenditure could save the day. It would have been inept to have tightened the strings on support for sectors that depended on the government’s largesse to survive the crisis.
The government was right to ignore more conservative policies that called for less government expenditure and advocated allowing struggling sectors to fail, if their survival could only be secured through government support.
The government has been subject to what may have been unfair criticism in its crafting of its 2022 budget. The government tried to spread the net wide. While that did invite disapproval from some quarters, it may have been unavoidable.
The budget entertained a large deficit and saw debt increasing. Again, a point that was not taken kindly. There is no denying that large debt carries risks but also raises the question of inter-generational burden, with future generations having to bear the excesses of present-day policy.
With options severely limited, the government seems to have been caught in a bind, one that it could squeeze itself out of by raising the debt limit. In doing so, Malaysia is not alone, following as it did the strategy by many other countries.
Nevertheless, it is true that some of the priorities in the budget were misplaced. In certain respects, it was not a particularly bold budget.
To take a striking example, that of raising tax. The government may not have been particularly innovative in exploring possible options. For some reason, it did not find value in harmonising the GST and SST, bringing some of the features of the GST within the fold of the existing SST.
The attempt to raise revenues through the prosperity tax was an attempt, in a manner of speaking, at walking on the edge.
Positively, the prosperity tax can deliver the shortfall in tax revenue. And it can effect a redistribution, taxing the rich companies and supporting the disadvantaged sections of the economy. Negatively, it can upset about 250 companies that would have to pay the tax.
If the prosperity tax does not discourage investment, then it would have been a well-calculated risk. At this moment, it is a policy that one cannot be terribly sure about.
The government had very appropriately delivered a pre-Budget statement. This is a first and a commendable act. It is useful for the advance notice that it gives and the transparency in policy thinking that it promotes.
The pre-budget statement is a part of the process of fiscal responsibility and transparency that multilateral agencies are emphasising these days.
Much has been made of the Fiscal Responsibility Act that is set to be introduced, a commendable move, and in so doing would be walking in the footsteps of countries like New Zealand and Indonesia.
There is no credit that can be specifically accorded to the government on the FRA as it is not a Malaysian fiscal policy innovation but part of an effort by international agencies such as the International Monetary Fund and World Bank to improve fiscal responsibility.
Having been caught in a fiscal corner due to the pandemic, the government has had the difficult task of devising the right policy response.
On one hand, there have been calls for more to be done for the B40. On the other hand, the SME sector has often complained of insufficient attention. Much the same tension has been voiced on lives and livelihoods, when it was wrong to phrase the problem in those opposing terms to start with.
Tengku Zafrul Aziz, the finance minister, was tested in the most severe possible way when he had to take on the job in the midst of an almost impossible crisis. He has tried to cultivate bipartisan support. He has been guided by kindness and concern for the rakyat; and he has done everything to listen to the many opposing voices.
The finance minister may have gone through a baptism of fire. Perhaps the most nerve-wracking phase of the portfolio may be over. But the task of putting Malaysia’s fiscal policy back on track will be a demanding one.