Is Malaysia's revenue projection too optimistic?

Is Malaysia's revenue projection too optimistic?

Despite insisting that the 2017 Budget would not be an election Budget, Prime Minister Najib Razak's giveaways for next year are reminiscent of previous measures by Malaysia's government ahead of national votes.

This has led to accusations not just of vote-buying, but also creative accounting to unleash more populist spending.

Aside from heeding calls to increase cash handouts and pump money into affordable housing, the Premier also announced yesterday a swathe of incentives for civil servants that came out of the Barisan Nasional (BN) coalition's old playbooks.

In a speech littered with jibes against the opposition as well as his nemesis, Tun Mahathir Mohamad - the long-serving former premier who has spearheaded a campaign to oust Datuk Seri Najib - the Prime Minister hailed BN's success over the past six decades in delivering constant economic growth.

"To formulate a complex Budget is not an easy task. As a government that feels the pulse of the people, we have received thousands of ideas from various segments of society," he said.

But he added that tough decisions, such as implementing the goods and services tax - a 6 per cent broad-based consumption levy - in April last year, have supported government spending "amid limited resources".

However, questions were quickly raised over whether the embattled Malaysian leader was allocating resources responsibly, and being overly optimistic by projecting a 3 per cent hike in government revenue to allow for several populist measures.

"Although the PM had dismissed talk of this being an election Budget, the emphasis of the expenditure allocations, together with how he ended his speech today, drumming up the idea of how there will be an 'ultimate victory in the 14th (next) General Election to the Barisan Nasional' should not be missed by investors," wrote OCBC Bank economist Wellian Wiranto in a note.

Speculation has mounted that Mr Najib will go to the polls next year while the opposition remains fractured, despite the current term ending only in August 2018.

The allocations for civil servants mirror those announced for the last two general election years in 2008 and 2013, while the 2004 vote coincided with an expansion in low-cost housing.

Having grappled with a 12-year low in oil prices this January, the net petroleum exporter is expecting the commodity to average US$45 (S$62.80) per barrel next year, higher than a US$30 to US$35 projection for this year.

But it is the projection of a 9.5 per cent jump in corporate tax revenues - worth RM6 billion (S$2 billion) - despite economic growth targeted at just 4 per cent to 5 per cent, that raised more eyebrows among economists.

"I don't know how much value can be given to the projections in this speech," Mr Wan Saiful Wan Jan, head of policy think-tank Ideas, told The Straits Times.

According to the Finance Ministry's economic report, Malaysia will also see an increase in individual income tax revenues, and other indirect taxes coming in higher than the gross domestic product growth target.

Mr Najib, after being held back in the last two years by the oil price crash and damaging allegations over the 1Malaysia Development Berhad scandal, now wants to move past these, and Dr Mahathir's Vision 2020, by charting his own economic and social vision for the country.

He said there will be discussions soon on Transformasi Nasional 2050 (TN50), or National Transformation 2050.

"From now on, TN50 is our lucky charm. Let the old legacy pass. The future of Malaysia, we recreate," he said.

This article was first published on October 22, 2016.
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