Big or small? Economists tell how Budget 2023 could help fight recession

With a global economic recession expected next year and Malaysia's economy still trying to regain its footing after the Covid-19 pandemic, much appears to be riding on the budget for 2023, to be tabled in the Dewan Rakyat this week.  

Of late, the US dollar has risen to its strongest level in two decades, accompanied by a drop in value of other currencies including the British pound, China's yuan and the ringgit, making the import of goods such as food and raw materials more expensive for these countries. 

Rising interest rates have also seen borrowers in countries such as the US and UK struggle to repay their debts and financial commitments. 

In Malaysia, meanwhile, the overnight policy rate (OPR) has been increased several times and is expected to rise again in the near future. 

Economist Geoffrey Williams said the government would need to maintain a small budget following the series of aid packages given to cushion the impact of Covid-19.

"The savings should be passed back to the people, to allow them to spend more of their own money however they choose, rather than having the government spend it for them," Williams, of the Malaysia University of Science and Technology, said. 

"This would put money directly in the hands of consumers and businesses, and help sustain consumer spending, increase revenues for businesses – especially SMEs – and allow more private investment for growth." 

He also urged the government to avoid a populist budget that could disrupt the market, weaken the ringgit, and put pressure on interest rates. 

Ahmed Razman Abdul Latiff of the Putra Business School however expects the government to present its biggest budget yet.

Speaking to MalaysiaNow, he noted that it would be the last budget before the dissolution of Parliament and the holding of polls. 

For him, the focus should be on individuals, households and businesses, through the provision of high-impact incentives. 

"Larger allocations could help generate a more vibrant economy, but at the same time control the rise in inflation rate," he said. 

"If this is not controlled, the OPR rate will rise alongside non-performing loans." 

To control the increase in rate of inflation, he said, the government should continue with bulk subsidies to ensure that the price of basic goods and services does not increase. 

Budget 2022, presented last year, had been the biggest budget to date with an allocation of RM332.1 billion.

Williams said keeping the interest rate at between 2.5% and 3% would be key to ensuring that there is no pressure from monetary policy following an excessive fiscal stance. 

Beyond the "goodies" expected in conjunction with the election, he said, structural reforms should be carried out, including an end to subsidies based on specific products, brands or companies that are the cause of high transaction costs and corruption.

He said this would include introducing a cash transfer scheme or "universal basic income" through the reform of cash assistance schemes, and a tax system that could be made into fixed monthly payments for the low-income groups.

"This would replace the current complex welfare payments with one simpler system," he said. 

"Essentially, we should avoid project-based handouts and focus on wider cash transfers directly to people and businesses." 

He also suggested an overhaul of the duties and tax system, which would end the debate on the goods and services tax and sales and services tax. 

Razman meanwhile said the government could offer home ownership methods other than bank financing, such as a "council home" method that combines rent and purchase payments. 

"The government can come up with a budget that really deals with economic issues, not just a populist budget," he said.

"Every proposed initiative should have a significant positive impact on its recipients," he added, citing as example incentives for employers to increase their employees, Bantuan Keluarga Malaysia, career generators and financial financing for SMEs.