‘Stop fake targeting, inject cash and grants universally in Budget 2022’

KUALA LUMPUR – As Malaysians await the basket of goodies to be dished out by the government on Friday, some believe the only way to aid a nation reeling from the impact of multiple lockdowns and a pandemic is to provide a direct injection of cash to the people and grants to businesses.
 
“Keep it direct and simple,” said Prof Geoffrey Williams, an economist at Malaysia University of Science and Technology.
 
He said that, instead of a tired, ordinary Budget approach, the government should take a more open and universal attitude.
 
“Everybody has been hurt because of the crisis and everyone needs help,” he said. “But people are hurt for different reasons and they need help in different ways. 

“The government cannot possibly know what people need at an individual level or company level.
 
“So, they should stop fake targeting and provide universal help to everyone in the form of direct cash transfers for a period of time and phase it out as the economy recovers,” said Williams, a graduate of University of Cambridge.

He said that the focus should entail direct help to individuals and companies, especially small and medium enterprises (SMEs), instead of schemes for specific interest groups.
 
“Give people the support directly and let them decide for themselves what to do,” he told The Vibes.
 
“This is a refreshing, vibrant and ambitious approach but does Finance Minister Datuk Seri Tengku Zafrul Tengku Abdul Aziz have the imagination to do this or not? It’s a test of his style.”
 
It should include a direct grant of RM1,500 per household in the B40 and M40 groups for three to six months, phased out as the economy recovers and incomes stabilise, he said.
 
“This will benefit 5.8 million households and 23 million people, and only cost around RM8.7 billion per month,” he said. 

“For three months, it would be RM26.2 billion and for six months, RM52.4 billion.
 
“This is a direct injection that will lead to consumption in the market, income for companies large and small, and will promote recovery and restoration of jobs.”
 
Middle-income families also hard hit

Williams also singled out the M40 group as having been badly affected by the lockdowns, saying it is not always lower income groups that are the hardest hit.
 
“Many middle-income families have lost jobs and cannot afford to finance their homes,” he said.

“So, direct cash transfers should cover the M40, too. In the end, they will spend it in the economy, which will boost consumption, or they will rebalance loans and savings, which will stabilise the financial system, so it’s a direct benefit all around,” he said.

These measures are necessary to put the economy, which has been set back a few years, back on track, he added.
 
According to the World Bank, Malaysia’s gross national income (GNI) per capita, based on the current US dollar, was at US$10,580 (RM43,916) last year, lower than it was in 2018 when the country’s GNI per capita reached US$10,650. 

Malaysia’s highest GNI per capita was in 2019, when it stood at US$11,230.
 
In its first pre-Budget statement, the Finance Ministry had declared that Budget 2022 will focus on the recovery from the pandemic, rebuilding of national resilience and catalysing reforms.

Sectors in Budget sights
 
Meanwhile, Williams said that the tourism sector will also likely be targeted in the Budget. 

“But my view is that, opening up and offering tax holidays is more valuable than schemes and programmes. Companies need customers more than anything else,” he said.
 
“Reducing and simplifying the tax and regulatory system is always good and benefits all businesses big and small.”
 
SMEs are also likely to be targeted, added Williams, who has held academic positions at London Business School, Pembroke College University of Oxford and the University of London.
 
“I think each of the roughly one million SMEs, many in tourism, should be given a universal, unconditional RM10,000 restart, recover and rebuild grant to be spent as needed for their businesses. This would cost RM10 billion,” he said.

Political handouts again?

Williams, however, said he expects Budget 2022 to continue the trend of handouts to special interest groups, targeting constituencies Barisan Nasional wants to focus on in the next general election.

“I think the government will target specific ethnic and other special interest groups, or there will be more useless e-commerce or training grants and matching schemes delivered by government-connected organisations,” he said.

He also expects an increase in government spending, which will be presented as a stimulus but will probably not have much impact, such as the eight economic stimulus packages totaling RM530 billion from Prihatin in March last year to Pemulih in June this year, wherein only RM240 billion has been allocated.
 
For Budget 2022, the government is expected to allocate a total sum of RM348.3 billion, which is 10.6% higher than the revised RM314.8 billion in its 2021 iteration. 
 
The increase is underpinned by an expected RM83 billion spending on development expenditure, far higher than the RM68.2 billion in Budget 2021, to drive socio-economic recovery activities and the nation’s development agenda. 
 
The increase in development expenditure has raised the question of how the government can reduce the budget gap, given that the 12th Malaysia Plan (12MP) has indicated a fiscal shortfall of 3% to 3.5% in gross domestic product (GDP) by 2025, as opposed to 2022 estimates of 6.5% to 7%.
 
On this, Williams said that the budget gap, deficit and debt ratios are not of concern as most of it is domestic debt and the government can finance it easily.
 
“The ratios have risen in part because GDP has fallen. As GDP rises again, the ratios will fall, even if the government borrows the same amount,” he said.
 
“The focus now must be on recovery and growth, not on debt and deficit. As the economy recovers, the government can finance the debt more easily.”

Healthcare spending must target prevention, care

On the wish list of stakeholders in the healthcare sector hoping that the government will allocate at least 4% of GDP to the public system in Budget 2022, Williams said that Malaysia spent around 4.2% of GDP on healthcare before the crisis.
 
“But this includes both public and private spending, and it is very low in international terms.
 
“Around half of this was private payments and 35% of the total, or 70% of private spending, was direct, out-of-pocket payment as opposed to private insurance for example, which was only 8% of the total or 15% of private spending.
 
“The use of private out-of-pocket spending is the real problem and, since this money is already being spent, it should be converted into a national health insurance scheme. 

“I calculate this would cost RM2.54 per person per day,” he said.
 
Williams said that despite the money being invested in a government fund, it could still be spent in the private sector but not out-of-pocket.
 
“Then, people would be covered, even if they have big bills. Those who can’t afford it would have the premium paid by the government.
 
“In the long-term, the level of healthcare spending must rise but it must target prevention, care for the elderly and long-term care, which account for less than 0.01% of all public and private spending at the moment.
 
“This is a national scandal actually, with people basically left to themselves, their families or charities.
 
“Healthcare management and governance is also in terrible shape and must be reformed. It’s not just about money.” – The Vibes, October 25, 2021