New Malaysian PM Anwar Ibrahim has to lead his “unity government” in navigating the process of revising the country’s Budget 2023 through some significant headwinds.
The Malaysian parliament was dissolved in October to pave the way for the country’s fifteenth general election (GE15). The country’s federal budget for 2023, tabled in the lower house three days prior, remained in limbo. Now that GE15 is over, all eyes are on the re-tabling of Budget 2023 in the new Parliament’s first session commencing on 19 December 2022.
What can we expect from the revised Budget 2023? Several factors will shape the revision. For starters, the political leadership has changed – Prime Minister Anwar Ibrahim is from Pakatan Harapan (PH), which played no part in the previous government, as it was led by Barisan Nasional (BN) with the support of Gabungan Parti Sarawak (GPS) and Parti Islam Se-Malaysia (PAS). However, in GE15, PH and its political allies did not win enough votes to form a government. Consequentially, PH needed the support of BN and GPS to form the new “unity government”. Thus, the new government is not entirely new. Both BN and GPS are expected to exert some influence on the revision of Budget 2023.
The PH-led government will have limited time to revise the budget, as it has already been delayed by two months.
In terms of structure and timing, Budget 2023 is likely to be presented in two packages – the first to be tabled in the abovementioned parliamentary session in December and the second possibly some three months later. There is precedence for this schedule – a two-part budget was presented in December 1999 and February 2000 following similar electoral circumstances.
This two-stage approach makes good sense, as it will allow the PH-led government to quickly sign off on key operational expenditure allocations in the first package. These allocations would include civil servant salaries and other expenses needed to support the government’s day-to-day operations beginning in January 2023. A significant chunk of the operational expenditure allocation proposed in the earlier version of Budget 2023 is likely to be maintained in the revised Budget.
However, a few other areas will receive significant emphasis, especially in the first budget package.
Prime Minister Anwar Ibrahim, who is also Finance Minister, has announced that addressing Malaysians’ cost-of-living issues will be the top economic agenda of his government. The first package of the revised budget is thus likely to contain extensive allocations for targeted subsidies and income support for the poor (B40), as well as some support for the middle class (M40). The newly formed National Action Council on the Cost of Living has been tasked to come up with proposals. As the income support programmes need to take effect immediately, lump-sum cash transfers using existing channels (namely, Bantuan Keluarga Malaysia) are likely to be proposed and refined (perhaps re-named Bantuan Sara Hidup, as per Pakatan’s manifesto).
In terms of structure and timing, Budget 2023 is likely to be presented in two packages – the first to be tabled in the abovementioned parliamentary session in December and the second possibly some three months later.
Allocations for farmers and fishermen in the form of output and input subsidies were present in the previous version of Budget 2023. These are likely to remain in the revised budget, given the rise in the prices of fertilisers and other agricultural inputs. However, this will delay Pakatan’s plan to gradually transition from input subsidies to output subsidies.
Two other types of programmes that can help to address the cost-of-living issues and poverty alleviation are childcare support and the provision of meals to school childcare. Such programmes were present in previous budgets with across-the-board political support.
Support for businesses, particularly micro, small- and medium-sized enterprises, is another area that requires continuing attention. Micro-credit schemes were present in previous budgets and this is an area PH’s election manifesto emphasised. Employment support programmes for the youth were a key feature of the earlier version of Budget 2023. These programmes might also be acceptable to the PH-led government even though its election manifesto was relatively silent on this issue, instead focusing on education and training.
Some of the more ambitious programme proposals (including those featured in election manifestos), especially those having longer-term budgetary impacts, are likely to be delegated to the second Budget 2023 package. These would include more ambitious promises made in the election manifestos of PH, BN, and GPS. Some are costly and need to be scrutinised further for their financial feasibility, including BN’s promises to provide monthly income support to guarantee minimum incomes above the poverty line and free university scholarships to students from B40 families.
There is a risk that the negotiations among factions in Anwar’s unity government might delay the second package. The financial feasibility of the negotiated budget proposals will be constrained by the fiscal space of the government, which in turn depends on the government’s ability to undertake reforms. These will include increasing tax revenues in future. However, such reforms will not be politically feasible if the economy is slowing down and if inflationary pressures have not subsided.
Finally, there is some uncertainty in the second Budget 2023 package, as the myriad interests of the various parties in the unity government, including the demands from Sabah and Sarawak’s politicians, will affect its scope, content, and breadth. Comparing the earlier budget proposal and GPS’s manifesto, the latter demands may include the construction of military camps as well as immigration and custom facilities for border security and infrastructure projects for coastal roads. Sabah and Sarawak are also demanding greater shares of the Federal government’s revenues and development expenditure.
How the new premier who has also taken on the mantle of finance minister will reconcile these demands, given the constraints on his coalition and of time, remains to be seen. Whilst there is apparent continuity – the former Finance Minister Tengku Zafrul (in charge of the original Budget 2023) is now the international trade and industry minister – Anwar would want to differentiate his government’s budget in a way that reflects his and PH’s priorities.
Editor’s note: The author would like to thank Francis Hutchinson, Siwage Dharma Negara, Jayant Menon and Maria Monica Wihardja for their valued inputs.
Cassey Lee is a Senior Fellow and Coordinator of the Regional Economic Studies Programme, ISEAS – Yusof Ishak Institute.