Malaysia: Najib to push for voter support in last budget before GE14

  • Prime Minister Najib Razak will aim to reduce unhappiness over rising costs of living when he unveils his Budget 2018 on 27 Oct 17, ahead of an election that must be held within 10 months.
  • Prices rose sharply in Malaysia – where household debt is among the highest in Asia – after Najib cut subsidies and in 2015 imposed a broad-based consumption tax, denting his popularity.
  • The leader also faces a political challenge from his mentor-turned-foe, former prime minister Dr Mahathir Mohamad, who called Najib a thief in connection with a scandal at state fund 1MDB. Najib has denied any wrongdoing.
  • Najib will bank on the new budget to shore up support before his five-year tenure ends in Jun 18.
  • Most economists expect the new budget’s fiscal deficit target will be slightly below 3.0%. Any widening of the deficit would disappoint foreign investors. They have gradually returned to Southeast Asia’s third largest economy as the ringgit currency, after a tumultuous period, strengthened 6% against the dollar thus far in 2017.
  • Najib, who has pushed a pro-business stance since becoming prime minister in 2009, dismantled decades-old fuel subsidies after narrowly winning the 2013 elections, to stave off the threat of a sovereign rating downgrade.
  • To bolster government revenue in 2018, Najib will likely broaden the scope of the goods and services tax (GST) imposed in 2015 to include e-commerce transactions, though he is unlikely to change the 6% rate.
  • The extra revenue is expected to fund “goodies” for Malaysia’s 1.6 million civil servants – a key vote bank for his Barisan Nasional (BN) ruling coalition – to mitigate the strain from pricier goods and services.
  • Civil servants saw a salary hike between 7% and 13% in 2012, ahead of the 2013 polls. But the recent sharp price increases may be eroding support among them.
  • Najib, who is also finance minister, has already rolled out billions of ringgit worth of handouts for palm plantation settlers and armed forces veterans, and affordable housing projects, new schools and hospitals across the country.
  • He is likely to maintain cash handouts to low-income earners, provide tax breaks for middle-income earners and expand policies to provide affordable housing.

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