Malaysia’s government offered incentives to attract investment and wide-ranging financial goodies for ethnic Malays and the poor but hiked taxes for the rich in a smaller national budget for 2020 seen as appeasing critics in its second year of power.
The budget, unveiled in Parliament on Friday, forecast economic growth will inch up to 4.8% from 4.7% this year as the U.S.-China trade war casts a shadow over global growth.
Finance Minister Lim Guan Eng said the proposed “mildly expansionary” budget for 2020 focuses on driving growth and building on institutional reforms that began last year after Prime Minister Mahathir Mohamad’s alliance won a stunning election victory that ousted the graft-tainted long-ruling coalition.
He said the country’s fiscal deficit will dip to 3.2% of gross domestic product from 3.4% in 2018 but still higher than the targeted 3%, due to fiscal measures to shore up growth and unanticipated expenditures to rescue troubled institutions that it inherited.
“The hard work is paying off. Our country, Malaysia, is among the best performers in the World Bank’s 2019 Worldwide Governance Indicators. This is concrete proof of a kleptocracy before and a democracy now,” Lim said.
Former leader Najib Razak, who denies any wrongdoing, is on trial on multiple corruption charges linked to a massive scandal involving the 1MDB investment fund that he founded. Najib’s wife and other former government officials also face graft charges.
Lim said the government is committed to paying off all borrowings inherited from Najib’s government including 1MBD’s billion-dollar debts.
The proposed 2020 budget, which must be approved by Parliament, forecasts total spending of 297.02 billion ringgit ($71 billion), 6% lower than the record 316 billion ringgit for this year.
To lure Fortune 500 companies and global unicorns in high technology, manufacturing and new sectors, Lim said the government will offer special incentives of 1 billion ringgit ($239 million) every year for five years. Tax incentives will also be offered to the electrical and electronics industry.
The budget also provides millions of dollars to write off debts owed by Malay palm oil settlers and develop infrastructure to improve their livelihoods. An array of financial handouts is also provided for farmers, fishermen, civil servants and the poor as the government seeks to win Malay support. Many Malays, who account for about two-thirds of Malaysia’s 32 million people, support the opposition.
Lim said the government will increase taxes for the country’s top 2,000 income earners to 30% from the current 28% to create a more progressive tax structure.
To reduce reliance on 2.2 million low-skilled foreign workers who account for 15% of Malaysia’s labor force, Lim said the government will offer wage incentives under a new scheme to boost employment of Malaysian workers.
Gasoline prices will be gradually floated to reduce cross-border smuggling of fuel but 2.2 billion ringgit ($526 million) in subsidies will be given to more than 8 million motorists, he said.
In a move that will bolster property sales, Lim said the government will lower the threshold for foreign ownership of high-rise property in urban areas by 40% to 600,000 ringgit ($143,000) to reduce a supply glut in the sector.
“Many people are happy. Almost everybody got something,” Mahathir told reporters when asked if the budget would boost his government’s declining popularity. He said it shows the government’s strong financial position despite being saddled with a huge national debt.
Mahathir, 94, the world’s oldest leader, returned to the helm a second time after stepping down in 2003 after a 22-year stint.