Budget 2021 – Considerate, sufficiency yet to be seen

By Dr. Margarita Peredaryenko and Ameen Kamal,

In the lead up to Budget 2021 announced by the government on 6 November 2020, EMIR Research has been advocating for an ‘empathetic budget’, following the theme of “Economics of Empathy” as coined by the President and CEO of EMIR Research Datuk Dr. Rais Hussin, in order to provide policy recommendations to address various unprecedented socio-economic issues through unprecedented measures.

In general, we advocated initiatives to alleviate the sufferings of the people and keep businesses afloat, as much as reasonably possible.

The Economics of Empathy is a shift from favouring economic survival for governments and businesses, to focus on the survivability of the rakyat. This is the principle that drives economic and financial policies to favour the human condition, and not only the economic condition. In simpler terms, it’s the principle that promotes one to do more, to give more, than what is usually practiced or would seem reasonable or deemed to be sufficient under the older model of economic practices.

We are pleased to observe three main objectives in Budget 2021 namely well-being of the people, business continuity, and economic resilience which fit well to the focus of our policy recommendation for an empathetic, people-centric budget.

Despite the lower revenue gained by the government, developing an unprecedented RM 314.7 billion budget has shown that the government is committed to protecting lives and livelihoods. EMIR Research views this as a sign of Economics of Empathy being adopted and integrated in government policies. We hope that it is just the beginning and more has to be done.

As a preliminary review on Budget 2021, EMIR Research produced two set of commentaries: one for its ‘needs-list’ that are more ‘social-centric’, and another that is more ‘tech-business-centric’. The following section provides the summary on the latter, together with EMIR Research’s preliminary commentary, in relation to Budget 2021.

Increased allocation for healthcare

We echo the call for a minimal 4% of GDP as the quantum to be allocated to MOH, and preferably beyond that to account for more innovative medicines, digital transformation and the unprecedented battle against Covid-19. In particular, we called for special attention to vaccination efforts, which should account for significant unknowns and potential scenarios surrounding covid-19 vaccines, which could complicate vaccination efforts and further increase expenses beyond what is expected. In relation to vaccination budget, EMIR Research also advocated for free vaccination for all. A notable call was for the enhancement medical tourism, particularly through digital transformation.

We also hoped to see considerable funding allocation for mental healthcare and upgrading of health infrastructure in rural areas, as our third quarter research (3Q2020) findings show that 7 out of every 10 respondents indicated extreme mental/depression/stress-related worry as a result of the pandemic, and that rural dwellers are worried about inefficiencies of the local clinics and hospitals due to the shortage of medical personnel. 

Comments: RM 3 billion has been allocated to procure vaccines through the Covax platform. Actual costs are not yet available but if we follow the previously reported cost of RM 600 million for 3 million doses under Covax, this amount is only sufficient of 15 million doses. EMIR Research has outlined several factors such as immunity retainment, dose per person, efficacy rate and many other potential issues that may complicate vaccination efforts, and therefore, complicating cost estimations.

It was mentioned that the Covid-19 fund has been increased from RM 45 billion, to RM 65 billion ringgit, and the additional RM 20 billion was said to be inclusive of the expected vaccine procurement. Perhaps a portion of the RM 20 billion includes costs for the bilateral deals to secure vaccines.

Other forms of assistance such as various tax-exemptions, financial aids, one-off payments, special allowances, vouchers, are lauded for its thoughtfulness, and it further support the notion that the pandemic, and healthcare related issues continue to gain strong and unwavering focus by the government.

Though there was no mentioning of vaccines free, considerable efforts to make it accessible for all is likely to be a priority for the government.

We are pleased to see that RM 24 million has been allocated for mental health, and anti-substance abuse programmes, and that the Malaysia Healthcare Travel Council has been allocated RM 35 million to enhance the competitiveness of the local health tourism industry.

Digital perks’ to cater for online learning like free digital devices, tax relief, free Internet data, particularly for B40 households, and especially for villagers and sub-urban dwellers.

EMIR Research’s 3Q2020 Poll showed that villagers and sub-urban dwellers should perhaps be given priority as our research discovered they experienced greater online learning related challenges. Furthermore, EMIR Research Focus Group Discussion (FGD) discussants indicated challenges faced by the youth to secure comfortable job which is reliably related to their relatively low educational attainment.

We suggested for the considerations of electronic device subsidy which could also be introduced to help underprivileged students to purchase the needed gadgets like laptops and printers, in order to cope with distance learning.

Comments: There has been significant focus in this area, with participation not only from the government, but also government-linked companies (GLCs), government-linked investment companies (GLICs), and even private companies.

Jaringan PRIHATIN Programme has been allocated RM 1.5 billion to reduce the burdens of B40 households by providing RM 180 worth of telecommunication credits. Telecommunications companies was also said to provide benefits amounting to RM 1.5 billion in the form of free data.

Budget 2021 mentioned that GLC and GLICs will contribute RM 150 million in the CERDIK Fund to provide laptops to 150 thousand students in over 500 schools as a pioneer project, managed and overseen by Yayasan Hasanah.

Furthermore, the government, working with BSN aims to provide RM 100 million to finance the BSN MyRinggit-i COMSIS Scheme – a laptop loan scheme to help PTPTN loan holders from institutions of higher learning continue their learning online.

Increased budget for digitalisation, particularly for SMEs

EMIR Research called for budget to sufficiently support the digital transformation of SMEs as a competitive tool to increase revenues i.e. adopting enabling technologies as a business enabler. As an example, we suggested increasing budget allocation under the overarching National Digital Economy Masterplan spearheaded by Malaysian Digital Economy Corporation (MDEC), and the National Technology Innovation Sandbox (NTIS) spearheaded by Ministry of Science, Technology, and Innovation (Mosti).

Comments: Overall, digital transformation appears to be a significant focus, with substantial emphasis for SMEs – which was precisely what EMIR Research pushed for. According to Budget 2021, the government, through BPMB has provided the Industrial Digitalization Transformation Scheme valued at RM 1 billion, which aims to boost digitalization activities.

Specific examples directly from Budget 2021 include RM 100 million allocation for MDEC to ease the shift of talent to fill the needs in ICT sector, RM 150 million for training programmes and sales assistance as well as digital equipment for 100 thousand local entrepreneurs to encourage adoption of e-commerce under the e-Commerce SME and Micro SME Campaign, RM 150 million ringgit for Shop Malaysia Online initiative through e-commerce platforms to promote online spending that may benefit 500 thousand local sellers including the halal products and handicrafts entrepreneurs. In addition, additional funds amounting to RM 150 million will be provided under the SME Digitalization Grant Scheme and the Automation Grant to support of automation and modernization. These are just some examples of initiatives supporting this focus area.

Given that most businesses in Malaysia are SMEs, providing over half of national jobs, we applaud the focus given, but its sufficiency and effectiveness to increase Malaysia’s SME’s competitiveness remains to be seen. We would also suggest that outreach by the government has to be intensified to increase the awareness by entrepreneurs of the said programs. Our latest research findings indicate that there is very little awareness of existing government initiatives aimed at supporting entrepreneurs.

Extension of the wage subsidy

We believe that more can be done to help businesses in sailing through the storm, perhaps through increasing the WSP amount per employee. ER suggested considering an increase in the wage subsidy amount, from the current amount of RM600 per employee that covers about 18.6% of the average wage in the national level to a minimal 40% of the national average wage (RM3,224) and specifically targeted at hardest-hit sectors such as aerospace, aviation, tourism as well as construction, and in promoting the hiring of disabled individuals.

Comments: This was taken up well by the government with a very similar approach. According to Budget 2021, the government intends to extend the implementation of the Wage Subsidy Program for another three months with a more targeted approach, specifically for the tourism sector, which includes the retail sector at a rate of 600 ringgit per month for workers earning RM 4,000 and below.  Furthermore, the limit of 20 employees per application will be increased to 500 employees. A total of 1.5 billion ringgit is allocated for this purpose and is expected to help about 70 thousand employers and 900 thousand employees.

It is pleasing to know that employers will be given an additional incentive of 20% to encourage job opportunities for people with disabilities, those who have been unemployed for long and workers who have been terminated. The government takes this up further by providing additional tax deductions to employers who employ senior citizens.

Concluding remarks and some notable mentions

  1. We echo the call of “Teguh Kita Menang Bersama” in the Budget 2021 concluding remarks. This unprecedented time requires the great cooperation, with the right actions driven by compassion and empathy from all the players: government, industry players, politicians, and the rakyat themselves. There has never been a time where the call for unity is more crucial. The issues meant to be addressed through Budget 2021 should cut across political sentiments, and the apparent general divide in the ethnic dimension in terms of support for the government—the theme that run across our latest research findings where respondents across the ethnic dimensions showed clear signs of political fatigue and desire to stand united to combat the unprecedented challenges faced.
  • The push to be a ‘high-income’ and ‘high-tech’ nation may call for higher allocations. Budget 2021 included “RM 1 billion as a special incentive package for high value-added technology to support elements such as R&D investment in aerospace as well as electronic clusters”. Relatedly, it also includes “a High Technology Fund worth RM 500 million will be provided by Bank Negara Malaysia (BNM) to support high technology and innovative companies”. Also, “RM 400 million has been allocated to support developments in science and technology, for R&D involving several ministries and agencies”. Though these are highly welcomed, these quanta can be spent by large multi-national technology giants. This could be an underfunded area, especially as a national budget in the trajectory towards a high-tech nation.
  • Participation from companies that may have benefitted well during the pandemic to ‘give back’ is an example of economics of empathy, and shared prosperity. It was mentioned thatTop Glove, Hartalega, Supermax and Kossan committed to contributed RM 400 million in the fight against Covid-19, including to support the cost of vaccines and medical equipment.

Dr. Margarita Peredaryenko and Ameen Kamal are part of the research team of EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.

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