The Budget 2017 will be tabled amid factors that make it a challenging one to be drawn up:

• Expectations of an election-friendly budget as the 14th general election is looming on the horizon.

• Decline in petroleum revenue and tax receipts.

• Slowing global economy.

The Government needs to prioritise conflicting demands, given the increasing likelihood of an early 2017 election.

On the assumption that the Government may proceed with an election-friendly budget, the people could expect measures such as continuation of the BR1M programme, one-off civil servant bonus hike and increase in public infrastructure spending. However, such populist measures would require the Government to spend money for short-term growth, at the expense of long-term growth.

The Government has tapped most of its resources to increase revenue — implementation of GST, increase in sin taxes, spectrum allocation exercise. According to a lecturer from Sunway University, the only major area left to increase revenue is through asset sales. There is also a possibility of Bank Negara Malaysia loosening the monetary policy via lower interest rates, according to the head of equity strategies in Affin Hwang Asset Management Berhad. The Government may also employ unconventional methods such as the optional cut to Employee Provident Fund contributions to increase consumption.

Therefore, it is possible for the Government to afford pre-election handouts, which may be positive for the economy in the short term. However, it may be detrimental to long-term development if it does not address productivity and income growth for the future. The Government runs the risk of reducing investment in key areas such as education. If the Government invests in education, it enables the people to improve their skills, which in turns makes them less dependent on cash handouts. However, given the current economic conditions, it is not surprising for the lower- and middle-income group to hope for some form of assistance, in terms of lower taxes or levy waivers.

The Government must now strike a balance between fiscal prudence and having an election-friendly budget with the Budget 2017. For now, the Government should consider plugging any leakages and the savings can be used to help the people cope with the current economy and increasing costs of living.

Source: The Edge Malaysia, 3 October 2016