The hoopla over the annual budget has come and gone. And while some good measures were announced,Budget 2017fails to reckon with one of the country’s most pressing issues: the shrinking domestic demand ravaged by the GST and depreciating ringgit.

THE year 2017 has been declared “Startup and SME Promotion Year” by the Malaysian Government when the Prime Minister tabled Budget 2017 a few weeks ago.

Under the budget, a total of RM6.7bil (2.57% of total allocation) has been allocated for SME development through the following key measures:

* RM70mil to promote High Impact Programmes in the SME Masterplan

* RM350mil to promote exports, mainly through the National Export Promotion Funds and financing and insurance credit facilities

* RM200mil for Working Capital Guarantee Scheme to support startups

* RM290mil for supporting B40 entrepreneurs

* RM1.4bil for empowerment of Bumiputera entrepreneurs

* RM200mil for financing of Indian entrepreneurs

* RM90mil for financing of Chinese entrepreneurs

* RM2bil for promoting women entrepreneurship through I-KIT, I-KeuNita and Women Career Comeback programmes

* RM162mil for the implementation of e-commerce initiatives under MDEC.

The largest share of the allocation goes towards promoting women entrepreneurs. This could be interpreted as a good sign showing a commitment towards the economic well-being of women.

This is followed by the big allocation for the empowerment of Bumiputera entrepreneurs. Also, the Government is stressing the importance of exports for SMEs. This is certainly a timely measure in view of shrinking domestic market.

Also worth mentioning is the initiative for supporting B40 entrepreneurs which, if implemented efficiently and effectively, would help to improve the well-being of the low income groups.

While we are happy to see some initiatives for promoting SMEs, we doubt Budget 2017 is able to address the key issues confronting our economy and to chart the way forward.

First of all, out of a total budget allocation of RM260.8bil, a whopping 82.36% goes towards operating expenditure. Only 17.64% goes to development expenditure.

This is mainly a budget for paying the salary of public servants and for servicing debts, since nearly half of the operating expenditure goes to emoluments and debt services. The budget doesn’t allocate sufficient funds for capacity-building to ensure the competence of domestic enterprises and human resource development.

The budget also fails to tackle the key issue confronting the economy: the shrinking domestic demand.

Since its implementation, the GST has been killing domestic demand by siphoning out huge amounts of potential spending.

Our economy has been relying on foreign direct investment and exports based upon cheap labour costs as a source of growth since 1970s. This source of growth stalled after the global financial crisis of 2008, due to the slowdown in exports to the US and Europe.

As a result, the economy has to rely on domestic demand as a source of growth.

While the Government has been able to collect a substantial income through the GST, it has reduced the domestic demand dramatically. With the income of the majority of the Malaysians being stagnant, they now have to pay more towards tax and, as a result, have less to spend.

The domestic demand is going to shrink further next year, as RM40bil is expected to be siphoned out from the economy by the GST.

The depreciation of the ringgit will make the situation worse. The public will suffer from shrinking purchasing power as ringgit depreciates against the major currencies in the world.

SMEs have already felt the adverse impact of GST. In the past year, they have witnessed a drop in turnover of 30%-50% due to the weakened domestic demand. This year, the decline in domestic spending is going to paint a gloomy picture for 80% of the SMEs — those that rely solely on domestic demand.

The most worrying thing is that the budget fails to shed light on the possible solutions to the pressing issues of shrinking domestic demand, depreciating ringgit and unsustainable cheap migrant labour policy.

This, in turn, may lead us to the next economic downturn.

We need bold measures that can put Malaysia’s economy on a sustainable growth path. The usual tax cuts and financing measures are not going to take us anywhere.

What have been missing are policies that nurture Malaysian industrialists and entrepreneurs in ways which will eventually enable them to become internationally competitive.

the source: www.thestar.com.my