Kuala Lumpur, 7 November 2020 – The Institute for Democracy and Economic Affairs (IDEAS) welcomes the government’s RM322.5 billion Budget 2021 to support the Revitalize stage in combating the twin health and economic crises. Overall, the key measures presented in Budget 2021 are balanced in its coverage of the vulnerable segment of the population, economic and business activities, but short of a clear policy direction to guide the country’s development in the post-pandemic new normal. IDEAS also cautions that government revenue collection estimates are optimistic and premised on the assumption that the pandemic and economic conditions will experience rapid recovery in 2021, which are still unpredictable.

1. EPF Account 1 withdrawal undermines the financial security of individuals and families

The announcement to allow EPF withdrawal from Account 1 raises concerns over the financial security of EPF members and also their families. About 70% of EPF members aged 55-60 years who, upon retirement, opt for lump-sum withdrawals, and half of the members exhaust their savings within just five years. While the withdrawals can help to sustain livelihood in the short-term, we would still strongly caution against the implementation of this measure out of consideration for the longer-term financial security and opt for other financial assistance and reskilling programmes that were announced in the Budget.

2. Protection of vulnerable groups and support on mental health and prevention of violence and substance abuse a step in the right direction

We acknowledge the government’s budgetary allocation on protecting the vulnerable groups through various financial assistance programmes as well as financial support on mental health and prevention of violence and substance abuse. The unprecedented impact of the COVID-19 pandemic on public health and the economy has disrupted the livelihoods of many individuals and households. Historically high unemployment rate and business closures are expected to affect the mental well-being of many. So, the government’s allocation for providing targeted financial assistance and addressing mental well-being is encouraged.

3. Promotion of high technology and innovative activities will create new impetus for growth but lacks a clear agenda to build SME resilience

We acknowledge the emphasis given in the Budget 2021 to attract high technology and high value-added activities as a means to ensure Malaysia’s competitiveness in the global value chains. This is crucial to not only create multiplier effects to reinvigorate domestic economic activities but to also support Malaysia’s transition into high-income nation status. While allocation continues to be made to spur SME digitalisation, the Budget 2021 lacks a clear policy agenda or direction to build SME resilience such as through increasing SME capacity to innovate, enhancing MNC-SME technology transfer and linkages, and also a new approach towards social security to meet changing needs for the digital economy. See Brief IDEAS No. 29 – Building SME digital resilience: What have we learned from the MCO? for a fuller list of recommendations.

4. Commitments to implement the NACP are welcome and critical to sustain the recovery for the long term

We welcome the Finance Minister’s commitment to implement the National Anti-Corruption Plan (NACP) and to dedicate the necessary human resources to strengthening governance and integrity in Malaysia. The reform outlined in the NACP including to reform public procurement, political financing and GLC reform are vital steps to ensuring Malaysia has the institutional foundations for a prosperous economy and free society. We look forward to an updated and detailed timeframe for implementation.

5. Measures to support the most vulnerable businesses are justified but need to give greater focus to adaptation

The pandemic has precipitated an unprecedented crisis which calls for an unprecedented response, including support for the most vulnerable businesses. However, the disruption from the pandemic is likely to continue and some changes may be permanent. Some sectors, such as tourism, were struggling before the crisis and in need of reform. Measures to support businesses should be coupled with reforms to ensure firms can adapt and innovate for the long term. In the case of tourism, targeted financial support should be coupled with regulatory reform to outdated tourism regulation and supporting digitalisation. See Brief IDEAS No. 28 – Tourism Recovery Plan: An Opportunity for Change Post COVID-19 for a fuller list of recommendations.

6. Spending on propaganda is not a priority at this time

Malaysia faces severe health and economic crises, and as such we see no justification for the substantial investment of RM85.5 million in the Special Affairs Department (JASA) as part of Budget 2021. JASA is a department that was actively used by the previous Barisan Nasional government for its public messaging campaigns, now revived and significantly scaled up in size and budget. The 2021 budget for JASA is almost three times the amount that was allocated in the 2018 budget of RM30 million.

7. Measures on sustainability do not match up to the scale of the challenge

The government set high expectations that Budget 2021 would place sustainability at the heart of the recovery. Whilst the inclusions of strong language on sustainability is a welcome signal, the policies themselves disappoint. Malaysia needs bold action to reduce its dependence on fossil fuels, reduce emissions and hardwire sustainability into the economy. These commitments have not been reflected in the document.

8. NGO’s role in public service delivery can be expanded to include policy consultation and monitoring

We broadly welcome the government’s initiative to incorporate NGO and the civil society in supporting public service delivery through social enterprises and volunteering programmes. However, we believe the role of NGOs and civil society can be expanded further to include formal and regular policy consultation and monitoring. This is to ensure that policy gaps and challenges observed from the ground-up can be effectively researched, analysed, communicated and acted upon in the policymaking processes. Such a partnership with independent research organisations and think tanks should also be structured in a sustainable and long-term manner, instead of ad-hoc consultations which have their limitations.

9. GLCs risk of becoming ‘too large to fail’ if social objectives are not substantiated with economic rationale

The unprecedented scale of disruption to the economy warrants collective actions by both the public and private sectors. However, we raise concerns over the feasibility of certain budgetary measures which entail GLCs. For example, under the short-term employment programme (MyStep), GLC is expected to provide 15,000 job opportunities based on a contract in technical and financial sectors, particularly on hiring the graduates. While the high unemployment rate particularly the youth is a source of concern, the decision on job hiring should still be based on a mix of qualifications and skills as well as expected demand for output. By absorbing the cost to employ and hence becoming inefficient, GLCs risk facing financial challenges in the long run and may require state support.

In conclusion, we appreciate the challenges faced by the government in addressing the public health and economic crises, and thus the need to make a budgetary allocation to protect income and jobs, as well as promoting training and reskilling.

However, Budget 2021 lacks a strong and clear policy direction to spur private activities in an effort to revitalise the economy. This was a golden opportunity for the government, in its inaugural budget and first serious policy document of the year, to present a bold approach that would signal to industry and the rakyat its clear future direction. We urge the government and all members of the parliament to build consensus and provide policy leadership on what is needed for Malaysia to reinvent and position itself for growth in the post-pandemic new normal.

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For media enquiries: E: amir@ideas.org.my