Najib Unveils ‘Feel-Good’ Budget, Boosting Odds of Snap Polls

(Bloomberg) -- Malaysian Prime Minister Najib Razak announced billions of ringgit in cash and grants to assist lower-income citizens and youth as he unveiled a budget that hints at the prospect of early elections.

The government will give special bonuses and cheaper housing to civil servants, offer discounts on the repayment of student loans and provide tax relief on smartphones and tablets, Najib said in his annual budget speech on Friday. He pledged to keep the budget deficit under control in the face of global risks and low oil prices, while relying on key infrastructure projects and cash handouts to help underpin growth in the economy.

After weathering more than a year of political turmoil and financial scandals, Najib must tackle a slowing economy while keeping voters happy ahead of a possible early general election that may come as soon as March. The premier is under pressure to find ways to sustain growth while gradually closing the budget gap after a collapse in crude prices slashed revenue in the oil-producing nation.

“Budget 2017 that was announced is best characterized as a ‘feel-good’ election budget and raises the odds of early elections that are not due until May 2018,” said Weiwen Ng, an economist at Australia & New Zealand Banking Group Ltd. in Singapore. "It remains a fine balancing act to maintain fiscal prudence and growth, with oil as the wild card."

Smaller Deficit

The government estimates gross domestic product will expand 4 percent to 5 percent in 2017, from 4 percent to 4.5 percent this year, the Ministry of Finance said in its 2016/17 economic report released Friday. The fiscal shortfall is forecast to narrow to 3 percent of GDP next year, from 3.1 percent in 2016. Najib reiterated a commitment to achieve a near balanced budget by the end of the decade.

The premier unveiled income tax cuts for small and medium-sized companies, and announced allocations to mitigate floods, build and maintain roads in rural areas and to boost food production. For the 1.6 million-strong civil service, he said they will get bigger housing and motorcycle loans and access to homes at below-market prices.

Najib also increased some stamp-duty exemptions for first-home buyers as he eased financing rules for the government’s affordable housing program.

Opposition lawmakers walked out during Najib’s delivery after holding up placards that made reference to Malaysian Official 1, a description by the U.S. Department of Justice of a politician who controlled accounts that got hundreds of millions of dollars in diverted funds from a state company. The premier previously acknowledged funds went into his accounts before the 2013 election and said the money was a donation from the Saudi royal family and most was later returned.

Diversion Strategy

The populist budget is a diversionary tactic, opposition lawmakers said.

"This is an attempt to buy votes and the hearts of the people ahead of the elections," said Nurul Izzah Anwar, a lawmaker with the opposition People’s Justice Party. "We want to give a message that when corruption, abuse of power, is not addressed by the government, then what we have are just temporary election sweeteners."

Najib’s administration is counting on ongoing projects to draw private investment, including the 1,796-kilometer highway linking the Borneo states of Sabah and Sarawak, Petroliam Nasional Bhd.’s RAPID refining development in Johor and subway construction in the capital. Cash transfers to low-income earners and lower contributions by workers to the national pension fund will support consumer spending, the Finance Ministry said in its report.

Consumer prices are forecast to rise between 2 percent and 3 percent in 2017, compared with 2 percent to 2.5 percent this year, the ministry said. Inflation was unchanged at 1.5 percent in September, and the central bank cut interest rates once this year to 3 percent in July.

"The government is aware of the rumors on the so-called deteriorating investors’ confidence on the Malaysian economy," Najib said. "A nation’s economy is highly related to perception, as without confidence there will be no investment to drive the economy."

Other highlights from the budget report include the following:

• Current-account surplus forecast to narrow to 14.8 billion ringgit ($3.5 billion) in 2017 from 16.4 billion ringgit this year

• Goods and services tax collection seen rising to 40 billion ringgit next year from 38.5 billion ringgit this year

• The share of oil-related income to government revenue is estimated to drop to 14.6 percent this year from 21.5 percent in 2015

• Subsidies and social assistance spending projected at 22.4 billion ringgit in 2017, down from 24.6 billion ringgit in 2016

• Emoluments to rise to 77.4 billion ringgit next year from 73.9 billion ringgit in 2016. The estimates for 2017 exclude measures to be announced in the budget.
  
  

Expenditure (in billions of ringgit)	2015	2016	2017
Development	40.8	45	46
Operating	217	207.1	214.8

--With assistance from Chan Tien Hin and Niluksi Koswanage To contact the reporters on this story: Chong Pooi Koon in Kuala Lumpur at pchong17@bloomberg.net, Anuradha Raghu in Kuala Lumpur at araghu3@bloomberg.net, Liau Y-Sing in Kuala Lumpur at yliau@bloomberg.net, Choong En Han in Kuala Lumpur at echoong6@bloomberg.net. To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Shamim Adam, Daniel Ten Kate

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