Malaysia Budget 2012

Budget 2012 signals Prime Minister Najib Tun 
Razak’s preparation for early polls, with much of the handouts targeted at retaining Barisan Nasional’s traditional vote bank.

Many of the allocations are targeted at key constituents such as the civil service and Bumiputera voters. These form BN’s core power base. But the budget also contains provisions obviously meant to widen support among the lower-income group and the country’s youth.

The announcement of a half-a-month’s bonus payouts, raising the civil service retirement age from 58 to 60 years and RM500 cash handouts to public service pensioners were clear indicators of the significance of civil service support in maintaining a BN government.

As many as 600,000 government pensioners received an annual pension increment of 2% while civil servants will see their pay packets rise between RM80 and RM320.

Another is the allocation of RM300 million for Teraju, the Bumiputera fund set up to assist the ethnic majority with small businesses.

Teraju was set up amid fears of a potential Malay voter backlash following loud hissing from Malay rights group Perkasa, which demanded the maintenance of support towards Malaysia’s ethnic majority, be it in the form of contract awards or funds.

With Chinese support for BN dwindling, Umno, the ruling coalition’s lynchpin, knows it must do everything to defend its entrenched Malay votes.

Meanwhile, the one-off RM500 cash handout to households with monthly incomes of less than RM3,000 and a RM100 cash aid and RM200 book vouchers for students are likely to win some support from the lower-income group and the young.

The majority of those in the lower-income group are Malays. This group also represents the majority of voters, which is probably why most of the budget provisions – such as the abolition of school fees – are aimed at charming them and not the middle class.

Long-term fiscal concerns
Will BN lose the middle class votes? UCSI-based political analyst Ong Kian Ming noted that the budget seemed to have left out the middle class, but said this was not likely to change the voting pattern significantly.

“The middle class is generally known not to support BN,” he told FMT in a brief interview.

But while Najib may be revelling in the prospect of increased support as a result of the budget announcements, he has not done much to allay fears of long-term hazards to the Malaysian economy.

“We are expected to meet the deficit target from increases in government revenues like in oil tax, for example,” said Ong. “There is concern over our long-term fiscal situation.”

Again, political expediency has pushed to the backseat the promises to transform the economy from one driven by pump-priming into one growing on innovation and private-sector productivity.

Apart from the announcement to open up 17 sub-sectors to foreign ownership in a bid to attract foreign direct investments, there are few initiatives to improve Malaysia’s limited income sources.

The Budget 2012 again showed Putrajaya’s reliance on construction to inject cash into the economy, a non-creative age-old solution that has failed to steer Malaysia out of financial messes.

There are also concerns over whether the tax holidays introduced in the budget will affect Malaysia’s revenue stream.

But as a prime minister who is yet to get an election mandate, Najib is probably not too bothered with the economic impacts of the budget. What probably matters most to him is to win that mandate, and Budget 2012 is possibly his best weapon as election looms.