Analysis of Government Spending Policies and Economic Growth Impact

This report examines the positive influence of government spending on economic growth, focusing on various policies and their impact on key economic indicators. The rationale behind government spending is analyzed, emphasizing its indirect impact on a country's GDP by stimulating economic growth through job creation and increased purchasing power. The report analyzes specific policies from a budget, such as creating a Real Estate Investment Trust, tax exemptions, zero-based budgeting, credit systems for tax deductions, allocation of matching grants, spending on national connectivity, reduction of taxable income, partnerships with NGOs, upgrades to railway tracks, and incentives for investment in the oil palm industry. Each policy's potential to boost economic growth is discussed, considering its effects on employment, investment, and aggregate demand. References to relevant economic literature support the analysis.

How spending will positively influence the economy
The rationale of spending has indirect impact to the country's GDP. Spending by both
government and private sectors stimulate economic growth through either putting money in
people pockets or creating employment. The circulation of money in the market affects the
individual purchasing power and therefore impacting the demand and supply.
Government spending can lead to an economic balance only when it is directed to the efficient
allocation. Both reduction and increase of taxes by the government on specific areas/zones have
an impact on the economy.
Government spending can create a multiplier effect. Where more jobs are created through
spending, people will have more income to spend thus increasing aggregate demand.
In reference to our case;
Policy No. 2 – Government creating the first Real Estate Investment Trust will be long term
project intending to create direct and indirect employment hence, multiplier effect. The trust will
also foster physical project investment as a measure for economic growth. On the same note, tax
exemption for specific services will encourage more investors in the country since the tax money
will be diversified to the most profitable business leading to a strong economy and increase in
GDP.
Policy No. 5 – Adopting of Zero-based budgeting will create a clear foundation for suitable
economic growth measurement. The control and monitoring of spending will efficient because
refer will be from scratch.
Policy No. 27- Introduction of a credit system for sale tax deduction to avoid double taxation and
to reduce business cost will encourage more investors to come on board creating employment

opportunities. Double tax avoidance will reduce the tax burden on citizens which will lead to an
increase of private spending and investment.
Policy No. 33- Allocation of matching grants for investment by the government will encourage
more investors venturing in business and therefore creating more job opportunities. This will
positively affect GDP and therefore positive impact on economic growth.
Policy No. 36- Spending on national connectivity will be the major booster for e-commerce.
Business minded will be able to trade online, online training and jobs will be accessible leading
to reduced cost for doing business and increased income. This will result in more investment and
therefore foster economic growth.
Policy No. 49- Reduction of taxable income for companies will lead to reduced cost of
production and subsequently low cost on product and services. This will increase aggregate
demand and therefore affecting economic growth positively. On the same note, the excess money
will be diversified to more investment.
Policy No. 53- Government partnering with NGO and social enterprises to helping
underprivileged communities will ensure equal resource mobilization. The combined projects as
a result of the partnership will contribute to economic growth and development.
Policy No. 65- Allocation to upgrade and rehabilitate railway tracks will create employment
opportunities and at the same time reducing business cost. This will increase business saving and
therefore, more investment.
Policy No. 69- The allocation to assist oil palm smallholder will encourage them to venture more
in the business. This will create an employment opportunity leading to increased income.
Policy No. 73- Incentive on investment will encourage more investors. This will lead to more job
opportunities hence reduction of unemployment.

References
Govindaraju, V. C., Rao, R., & Anwar, S. (2011). Economic growth and government spending in
Malaysia: a re-examination of Wagner and Keynesian views. Economic Change and
Restructuring, 44(3), 203-219.
Qazizada, W., & Stockhammer, E. (2015). Government spending multipliers in contraction and
expansion. International Review of Applied Economics, 29(2), 238-258.
Taskinsoy, J. (2018). A macro stress testing framework for assessing financial stability:
Evidence from Malaysia. Journal of Accounting, Finance and Auditing Studies, 4(3), 284-334.
Woodford, M. (2011). Simple analytics of the government expenditure multiplier. American
Economic Journal: Macroeconomics, 3(1), 1-35.