Kuala Lumpur, 4 November 2020 – As we approach Budget 2021 the focus is understandably on the ongoing disruption caused by the pandemic. Managing the health crisis remains the priority, and IDEAS calls for further efforts to protect the vulnerable. At the same time, we need to also attend the urgent work of building for a long term, sustainable recovery. The disruption from the pandemic could continue for the foreseeable future, so alongside protecting the vulnerable, more needs to be done to adapt the economy. This adaptation should not be solely focused on the short term, but also unlock sources for future growth as Malaysia transitions to high-income status. These goals will only be possible with strong institutions needed to underpin a free and prosperous society and our institutions are in urgent need of attention, the Budget must therefore include clear and measurable commitment to strengthen the integrity of our institutions.

Protect the vulnerable

The pandemic continues to pose a direct threat to Malaysians and the measures to control the virus disproportionately impact the vulnerable. Protecting these groups must remain the government’s priority

• Responding to the public health crisis remains the priority and all necessary investment should be made to ensure that health workers on the front line are equipped to combat the pandemic
• Social protection for families and households should be strengthened so that those falling out of work do not fall into poverty and hardship. Social protection should be extended to those working in the informal sector.
• The health and the economic crisis is also becoming an education crisis, with many children out in school, often without the tools to ensure proper learning. The government should pursue the necessary investment in health measures to keep schools open and where this is not possible, the government should invest in tools and supports systems for children, parents and teachers.

Adapt the economy

In this unprecedented crisis, there is a case for extending extraordinary support for business. However, in the likelihood that the disruption will continue for some time, these efforts need to be targeted and used to promote the adaptation of the economy, rather than keeping it on life support.

• Support to businesses should be targeted and used to promote adaptation, for example through incentives and offsets for retraining, repurposing assets and investing in digital technology. The government should also explore non-fiscal policies to support business trying to “pivot” in response to the crisis, for example by lowering licensing requirements and other regulatory hurdles
• Measures to adapt the economy should also be aligned with efforts to protect the vulnerable, for example by strengthening incentives for business to retain or hire workers, particularly women and young people who are struggling the most.
• The government should take the opportunity of low-interest rates to turbocharge investment in digital infrastructure, to create jobs and enable the economy to prosper in the new normal.

Unlock sources of future growth

We also need to look beyond the current crisis to chart a path for Malaysia’s economy over the medium and long term. Malaysia is on the threshold of high-income status, but without reform, this achievement risks being overshadowed but by failure to grapple with long term challenges.

• The government should demonstrate its commitment to a more competitive economy as part and parcel of the recovery strategy. This should include immediate policy decisions – such as ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – in addition to committing to longer-term structural change to modernise the regulatory environment and reshape the role of GLCs.
• The recovery should also lead to a more sustainable economy, recognising the threat of a future climate crisis. The government should commit to an accelerated phase-out of coal and turbocharge renewables and promote green technology as part of the support to businesses during the pandemic
• The pandemic has highlighted the importance of developing state capacity and the government should now develop a roadmap for establishing a broader and more progressive tax base. No options should be off the table, including taxes on capital gains and reintroduction of GST

Strengthen the integrity of our institutions

It is no secret that 2020 has also put a strain on our democratic institutions. These institutions are the foundation of a prosperous economy and a free society and preserving them should be at the heart of our response to the crisis.

• The allocation of Constituency Development Funds (CDF) needs to be decided on a fair and transparent basis that does not discriminate between political parties. Politicisation of these funds should be set aside in favour of a focus on the needs of the rakyat
• The terms of any political agreement to secure support for the Budget itself should be fully transparent. The transparency of the budget itself should also be improved, including strengthening parliamentary oversight and increasing public participation.
• The government should commit to a specific timetable to implement the initiatives of the National Anti-Corruption Plan (NACP), including to reform public procurement, political financing and GLC governance.

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