This article first appeared in Forum, The Edge Malaysia Weekly on February 13, 2023 - February 19, 2023

In a commentary on last year’s budget, we critiqued it as being racially contorted, politically driven and serving neither the short-term nor long-term needs of the nation. We also noted that the budgets of the past two decades had run deficits and ignored the revenue side.

Now that an ostensibly reform-oriented government is in power, can the nation see a budget that addresses the shortcomings of earlier budgets that have squandered the nation’s considerable financial resources with relatively little return?

This upcoming revised budget (to be tabled on Feb 24) is the first real test of the Anwar administration. We will see from this budget how much of a reform government it can really be.

For reform to begin in earnest, the new government must tackle the major challenges facing Malaysia with Budget 2023.

Otherwise, this year’s exercise could end up as another instrumental agency misshaping the country’s socioeconomic development further, which is clearly evident from the following:

● The widening Gini index of inequality. Malaysia’s Gini coefficient of inequality worsened from 0.399 in 2016 to 0.407 in 2019. This was the first time since 2004 that the household income gap had been recorded as widening.

● Poverty numbers remain large and have grown, with little evidence of progress in the last decade. According to the Department of Statistics, in 2021 a majority of households experienced a decline in income with many households from the higher-income decile group moving to the lower-income group. A substantial 20% of households from the M40 group with income between RM4,850 and RM10,959 moved to the B40 group.

● Inequalities in regional development have been uncorrected. The latest data has led the World Bank to observe that significant differences now exist between bumiputera in Peninsular Malaysia and bumiputera in Sabah and Sarawak, with the latter experiencing more chronic poverty, more downward mobility and less upward mobility.

● Burgeoning government debt, and liabilities have reached record levels. Total government debt and liabilities as at June 2022 were estimated at RM1.42 trillion. Federal government debt accounts for 61% of debt-to-gross domestic product (GDP), at RM1.04 trillion up from RM979.8 billion in 2021. Total debt and liabilities are about 82% of GDP.

Prime Minister Datuk Seri Anwar Ibrahim has signalled what will be the main concerns in the coming budget. According to reports, there will be a mix of focus on everyday issues such as cost of living and food security as well as on the ignored elephant in the treasury room related to debt reduction. He has also indicated that he will not reinstate the Goods and Services Tax until income levels rise.

While this is encouraging to hear, the new government should not only take up the public concerns of the day but also begin to address the structural deformities in the nation’s socioeconomic situation.

Despite the challenges that the prime minister and the unity government face on the political front, the launch of the new budget provides a historic opportunity for:

● Nurturing more competitiveness. Malaysia is suffering a relative decline in productivity growth. This must be turned around to sustain economic growth.

● Shifting from a low-cost labour production economy towards creativity and innovation-led industries run and operated by the private sector. Government-linked corporations (GLCs) have been good in rent-seeking monopolistic and oligopolistic structured industries. These business units are coming to an end in their potential to keep growing without further subsidies by the taxpayer.

● The low wage model has given rise to the huge brain drain. This needs to be checked to enable Malaysia to seek new growth engines.

● Radical changes are needed in the education system. Within humanities, there is a glut of graduates in relation to job availability. The value of these degrees in current and future employment is questionable. Thus, there needs to be a radical evaluation and immediate change plan on what is taught and in curriculums.

● There needs to be a refocus towards technical and vocational education and training (TVET) to provide relevant skills to sole proprietorships, and small and medium enterprises (SMEs). The micro, small and medium enterprises (MSMEs) sector is a major section of the economy that can be quickly enhanced through TVET. This will have quick and positive effects within some of the B40 and M40 groups. 

● There must be an SME-centred rather than a GLC-centred budget. Pouring extra money into the public sector is only adding to inefficiency and leakages.

● Aggregate “ikan bilis” (small fry) corruption is as much as if not greater than the big newsworthy corruption scandals such as 1Malaysia Development Bhd. The systemic corruption raging through the public sector must be stemmed through reform of the Malaysian Anti-Corruption Commission and within the civil service itself.

To tackle the first three concerns identified above — widening income inequality, rising and stubborn poverty levels, and regional inequalities — the government needs to craft a universal basic income mechanism and appropriate social safety net.

This can also facilitate a new development paradigm for the nation to reverse the current pattern of wealth accumulation and concentration which, while rewarding the upper and middle classes, has been hijacked by a small elite to the detriment of the national interest and that of the great majority of Malaysians.

The new paradigm and the type of reforms that are necessary to go along with it will be elaborated on in another article.

Datuk Ramesh Chander is a former chief statistician of Malaysia and a senior statistical adviser at the World Bank in Washington, DC. Lim Teck Ghee is a former senior official with the United Nations and World Bank. Murray Hunter is an independent researcher and former professor with the Prince of Songkla University and Universiti Malaysia Perlis.

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