But in Malaysia the prime minister, Najib Razak, is taking them to a new level with the distribution of cash handouts to low-income workers as he prepares to fight a tight election with the country’s opposition.
With the opposition making its own splurge pledges, the voters face some tempting offers. But investors may be less enthralled by the potential pressure on future budgets.
Najib, a 59-year old former finance minister and economist, has given away millions of dollars in cash to poor palm oil plantation workers, pay rises for civil servants and even provided subsidies for young people to buy smartphones.
As an avid user of both an iPhone and a Blackberry it seems he understands the power of technology in the hands of the young voters who are flooding onto the electoral roll for the first time.
This week he announced grants for taxi drivers to offset the cost of buying a new car made by Proton, Malaysia’s loss-making carmaker.
Najib’s largesse is designed to shore up support among the masses for his Barisan Nasional governing coalition, which is not expected to improve on its showing at the last election in 2008. Then, it was shamed into the loss of its long-standing two-thirds majority in parliament,
The opposition believes it has a realistic shot at victory this time, although most pundits expect a narrow win for Barisan Nasional. But it too has plans to splurge, on free university education, removal of road toll fees and lower fuel prices.
Both are a source of worry at a time when Malaysia needs to fix a persistent government debt problem, with the debt-to-GDP ratio among the highest in Asia at 51 per cent.
Su Sian Lim, of HSBC, wrote in a note:
Policy priorities and the post-Lehman economic recovery have made it difficult to lower the country’s deficit and debt ratios in the last few years. In 2011 Malaysia’s deficit-to-GDP ratio stood at 4.8%, down from nearly 7% in 2009 but still wider than just above 3% over 2005-07. The figure seen across the rest of Southeast Asia is usually below 3%. Since the Lehman crisis Malaysia’s debt-to-GDP ratio has also been steadily rising and at over 51% currently ranks as one of the highest in the region.
By our estimate if no major reforms are carried out, public debt could touch 55% this year – the government’s internal cap….
… In light of these developments the prime minister is committed to greater fiscal discipline and aims to bring the deficit-to-GDP ratio down to 3% and public debt- to-GDP to 50% by 2015. This will be achieved through both expenditure and revenue reforms, with subsidy cuts (particularly to fuel) possible as early as this year and a goods and services tax (GST) by next.
In an FT interview, Najib says he is committed to widening the revenue base. He has previously said he is committed to weaning the country off subsidies, from sugar to fuel.
The biggest single source of revenue comes from Petronas, the state oil and gas group, which provides about a third of the budget.
Its future as a source of revenue has come into question in recent months after Petronas said it was in talks about renegotiating the “dividend” it hands over to the government – currently M$26-28bn ($8.38-9bn).
Petronas is anxious to reduce the dividend because exploration and production costs are rising and it needs to preserve more cash for capital expenditure.
Speaking in an interview with the Financial Times, Najib seemed in no mood to renegotiate the dividend. This means that current revenues from Petronas look safe – for now.
He said: “It’s a balance between leaving enough revenue for Petronas to do their investment and re-investment, because some of their equipment does need to be replaced, because it’s getting old.
“So we’ve got to ensure that Petronas is financially strong but at the same time will continue to provide a reasonable amount of revenue to the government,” Najib said.
But he dropped a hint that this may change over time. “We are quite happy at the present level but what happens in the future has to be taken in a bigger context of the total [revenue] … the government can expect.”
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