KUALA LUMPUR (Oct 29): While Budget 2022 puts the nation on the right track in the short term, Research for Social Advancement (REFSA), a think tank promoting social advancement in Malaysia, however contends that the Budget could go further in setting the stage for long-term policy making.

REFSA economic advisor Frederik Paulus and researcher Jaideep Singh said that considering that Budget 2022 is the first Budget under the tenure of the 12th Malaysia Plan (12MP), there should be clarification as to how it helps promote the development of emerging sectors — such as the care economy and the green economy — beyond the limited measures that have been included.

The duo noted that the Budget is economically aligned with the right themes, namely an expansionary Budget to support the economy which also aims to provide targeted support for vulnerable groups.

However, they also said that since the pandemic, there has been very little debate about economic policy across the political spectrum, with “nearly everyone” agreeing that fiscal spending through an expansionary Budget and generous targeted support for lower-income and vulnerable households is indispensable.

“The main points of contention are on the magnitude of the proposed measures and how to pay for them, in particular on the sustainability of Budget deficits and rising debt.

“Budget 2022 squarely fits in this framework and has clearly benefited from the engagement with the Opposition parties and wider civil society in terms of the measures proposed,” they added.

Paulus and Jaideep noted that from the fiscal perspective, they do not expect the deficit, which is expected to come in at 6% of Gross Domestic Product (GDP), to be burdensome in the short-run.

They asserted that there is room to maintain the deficit at 6.5%, the same as in 2021, adding that the increase in development expenditure could bode well for future growth assuming economic recovery and a rebound in revenue.

“But it is important to ensure that the money is spent strategically, such as on growth generators where Malaysia could gain a competitive advantage,” Paulus and Jaideep noted.

They acknowledged that fiscal consolidations will be necessary in the medium-term adding that a capital gains tax would have been a “more efficient, equitable and sustainable” revenue-raising measure than the one-off company income tax dubbed Cukai Makmur — whereby earnings of up to the first RM100 million to be subject to income tax at the rate of 24% and the remaining taxable income will be subject to income tax at the rate of 33% — proposed in this Budget.

“Although the proposed tax avoids the worst drawbacks of a windfall tax on specific sectors, we are still concerned that it could increase uncertainty and hence be a disincentive to investment,” they said.

Paulus and Jaideep noted that while the magnitude and therefore impact of some of the allocations can be questioned, and the lack of longer-term vision is “regrettable”, overall the measures go in the right direction and should contribute to putting Malaysia back on the path of robust growth.

See more Budget 2022 highlights here.