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Budget 2013 Targets Consumer Spending For Economic Growth
Malaysia Perspective | 24 October 2012

By: Yang Ming Wan

Prime Minister Datuk Seri Najib unveiled his 2013 Budget at the end of September. It was a budget that was generously sweetened, with a view to stimulate spending, to sustain the country’s economic growth in 2013 and aim to achieve the economic growth target set under his economic transformation plan.

In its economic report that was released in conjunction with the unveiling of Budget 2013, the Ministry of Finance maintains a minimum economic growth forecast of 4.5% for next year, while raising its upper estimate slightly to 5.5%. This provides a bigger breathing room for our economy to grow, as compared to this year’s growth forecast of between 4.5% and 5%.

Election-Year Economic Strategy Kills Two Birds With One Stone
Even though the economy achieved a surprising 5.4% growth in the second quarter of this year, while the first quarter growth figure has been revised upwards to 4.9% and the full year performance of the economy is expected to exceed official forecasts, the Government has stuck to its growth forecast of between 4.5% to 5%, and is not showing any signs of revising this forecast upwards.

This conservative stance indicates the Government’s pessimism about economic growth in the second half of this year, due mainly to the grim situation in overseas markets – the European debt crisis is quagmired; emerging economies, especially China and India, Malaysia’s closest economic and trading partners, are slowing down; the global Purchasing Managers’ Index (PMI) is heading south, which spells doom for the country’s export-oriented manufacturing sector.

Coupled with falling prices of primary products such as palm oil as a result of the sluggish world economy, it seems Malaysia has to rely on domestic demand once again to prop up its economy over the second half of the year. In addition to the infrastructure development projects which the Government had committed to and the domestic investment demands of the economic transformation plan, the country needs to enlist the help of consumer demand and contributions from direct stimulus.

In view of this, as well as the impending general elections, it is of no surprise that Budget 2013 has been packaged as a generous, voters-friendly Budget. From a positive point of view, the Budget kills two birds with one stone with both political and economic gains.

Giving RM 5 Billion To The People
While the sweeteners to the Budget are sprinkled across the board, they add up to a significant sum. They certainly will prove to be an important stimuli for the Malaysian economy, which in recent years has been relying on domestic demands to sustain its growth.

First of all, the 1Malaysia People’s Aid, launched last year in conjunction with Budget 2012, gave out RM500 to every family with income lower than RM3,000; next year’s Budget extends this aid to young adults reaching 21 years of age who earn less than RM 2,000 by giving them RM250. In short, 1Malaysia People’s Aid has the potential to contribute a minimum disposable cash of RM 3 billion to the market.

Next, the Government is lowering the tax rate of taxpayers with a taxable income of between RM2,500 to RM 50,000 by 1%. This would put a total of between RM 700 to 800 million of disposable income back in the hands of some 1.7 million taxpayers. Furthermore, 5.4 million primary and secondary students will each get RM100, and this move will cost the Government RM 540 million. Another 1.3 million tertiary students will each get RM250 in book vouchers, costing the Government another RM325 million. 1.5 million young people can enjoy RM200 each in smart phone rebates, which adds up to RM 300 million. Simple arithmetic shows that these Budgetary candies for the people will bring about at least RM 5 billion worth of consumer spending.

Specific Recipients To Receive More Than RM 5 Billion
Apart from the smattering of candies handed out to the general public, a variety of extra cash which amounts to more than RM 5 billion will be handed out to specific groups, including RM 1.2 billion in aid for the disabled, RM 2.6 billion in welfare assistance to students from poor families, hundreds of million ringgit in bonuses given to serving and retired uniformed servicemen, as well as extra bonuses for civil servants.

Taking into collective consideration the aforementioned candies for the public, the total cash handout will bring an additional RM10 billion in cash spending to the market. This Budget can indeed be regarded as one that gives out the highest amount of cash in history. This is going to become an important driving force behind the Malaysian economy, which has had to rely on domestic spending to keep it humming since the first quarter of 2011. It is predicted that government-initiated public spending will either plateau or contract slightly by 1.4% next year, after two consecutive years of double-digit growth in 2011 and 2012.

With ongoing infrastructure projects nearing completion and while new large-scale projects are still in the planning stages, the timely support of private sector spending will ensure that the country’s economy will be able to sustain its growth. This is precisely where the latest Budget can work its magic.

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