Malaysiakini Letter

Suggested enhancements for Budget 2015

Saleh Mohammed  |  Published:  |  Modified:

The prime minister in his 2011 Budget speech, reminded us “the era of the government knows best is over. To attain developed nation status, we cannot remain complacent. We must change our mindset. Business is not as usual. Success demands drastic changes, not incremental. It requires a quantum leap. The choice before us is clear. Change is not an option but an imperative. We must change or risk being left behind.”

For the 2015 Budget, the key strategies employed for the last four years have more or less been repeated except three new ones i.e. advancing the bumiputera agenda, upholding role of women and developing national youth transformation programmes.

An important strategy, fiscal policy, has been emphasised three different times: Enhancing fiscal governance; Strengthening fiscal management and fiscal consolidation. The Malaysian Institute of Economic Research (MIER) in its Economic Outlook report stressed that fiscal policy needs to be strengthened, and managed in a competent and sustainable manner through strengthening further the fiscal consolidation process.

MIER also urged the regulatory policies (dealing with major economic issues, such as suppressed wages, high cost of living, rising inequality, high taxes and excessive regulations, and a heavy dependence on foreign workers) need to be examined and implemented in a comprehensive and competent manner.

A short-term populist fiscal consumption transfer is non-productive and does not enhance either human capital development or physical capital formation. In addition, the effect will be reduced by a combination of factors, such as higher inflation and rising cost of living and the implementation of the goods and services tax (GST) itself.

The doling out of cash during a period of high disparity will not assist in the achievement of a high income nation.

The present group of lawmakers, maybe with the exception of YM Tengku Razaleigh Hamzah, may not be aware that the policy of keeping wages low in the 1980s was to attract foreign investments. The then recession caused high unemployment. The government of the day also provided relief through subsidised fuel, electricity, etc.

But the subsidies are slowly and surely being taken away at a time of purportedly high employment while wages remain low. A double whammy awaits the wage earners in the form of the GST. It is more punishing to the non-civil service retirees.

One of the measures to enhance fiscal governance is implementing the GST. Various parties have lauded its implementation and even calculated that a Malaysian earning RM2,000 would only fork out 2.6 percent of his expenditure on the GST. However, the net revenue to be collected will only amount to RM690 million.

Tengku Razaleigh has urged a postponement given the current unfavourable state of the economy. He has even proposed for a significant shift in the economic management of the country to avoid an economic crisis which would lead to destabilisation of peace, prosperity and security - a more serious implication compared to whatever justifications made today.

In the 2015 Budget, efforts to enhance or carry out fiscal consolidation do have lots of room for improvement. Total emoluments and pensions/gratuities takes up around 37 percent while debt servicing is on the increase to 11 percent of total operating expenditure. In Singapore, emoluments takes up only around 17 percent of the operating budget.

Finding new sources of income

It is imperative to find new sources of income to reduce budget deficits but at the same time there should be serious efforts to minimise costs and increase productivity.

A simple and small example is money spent by the Department of Islamic Development Malaysia (Jakim) to sight the moon for the start of Ramadhan and the two Hari Rayas. Is there a need to go to 29 locations to sight the moon and send a sizeable team to each site each time? There are four different locations in Terengganu. Or one site each in the peninsula, Sabah and Sarawak would do? I could not find any religious demands for multiple location for sightings.

Jakim may want to have a re-look at this and advice the Majlis Agama in each state to reduce unnecessary expenditures. At this day and age where humankind has the mental faculty to calculate the return of Halley’s Comet and correctly predict whether there will be a partial or full eclipse, I think the authorities should arrange a seminar/conference to discuss this matter and finally come up with a ‘fatwa’.

Another example is Permata. When it started in 2007, it was initially a programme of care and early education for children under the age of four years. Over the years, more programmes were included like Pintar, Seni, Insan, Remaja and Kurnia. Could these new Permatas be absorbed under the relevant ministries - e.g. Remaja to be under Youth and Sports?

Do we not have Sekolah Berprestasi Tinggi or High Performance School which is a part of the National Key Result Areas of the Government Transformation Programme (GTP)? We could possibly merge the original Permata programme with Tabika Kemas and Tabika Perpaduan and be focused on early education for children under the age of six years. Under the Prime Minister’s Department it is only a division called Bahagian Pendidikan Awal Kanak-Kanak.

Having separate entities will obviously increase costs, invite duplication and will not ensure proper co-ordination. For that matter, there are other departments or agencies in the PM’s Department that can be merged with other relevant ministries e.g. Federal Territories Director Of Lands And Mines Office, Department of Waqaf, Zakat and Haji (Jawhar), Sabah Commercial Vehicle Licensing Board and a few others.

For the merger of Sime Darby with two other big plantation companies, Ahmad Sarji explained the benefits were clear - best practices, cost reduction and research and development (R&D) spending more effectively increased.

We should follow this principle to make the various government machineries more efficient, effective, productive and avoid duplication. It is a bit different in the creation of a global conglomerate in the form of Felda Global Ventures Holding (FGV). It was to realise a vision with the intention to unleash the potential value and raise funds for the world largest listed plantation entity.

Increasing allocations for PM’s Department

On a larger perspective, the Prime Minister’s department (of which the above examples are part of) has an allocation which is about 15 percent higher than in 2014. Comparing with 2009, it is close to 90 percent higher. It cannot on the one hand correct market imbalances by removing subsidies whilst on the other hand spend big amounts. There has to be some control.

As usual, education continues to receive the biggest allocation. Questions have already been raised whether it will be well spent. As a percentage of gross domestic product (GDP), it seems it is more than double the Asean average and even higher than those of South Korea, Japan and Singapore.

Despite such high expenditures, our performance in international assessments such as the Trends in International Mathematics and Science Study (TIMSS) and the Programme for International Student Assessment (Pisa) remain wanting. Are we getting the appropriate return for this investment and achieve the strategy of developing human capital ?

Bonuses are normally a reward for good work or productivity improvements. It is fine for those who have shown improvements to receive bonuses but our civil service does blanket distribution. Members also enjoy perks such as free medical, housing and pension benefits that are not available in the private sector.

The non-civil servant tax payer already has to bear the burden of increased expenditure on the civil service and to have them 'subsidise' civil service bonuses is adding salt to the injury.

One small example I can offer to increase income is to abolish the waiver of import duty on about 300 luxury goods like handbags, jewellery and perfumes valued at over RM200 implemented in 2011. If we want to tax across the board through GST, why should we give special treatment to the luxury item purchasers? I will let the experts come up with bigger examples.

The government of the day needs to practice greater fiscal discipline, efficiency, stronger accountability and good governance. There is also this thing called Supplementary Budget. Fact is, there were two supplementary budgets a year since 2009, totaling more than RM20 billion (more than 10 percent of the original total) each year.This shows there is poor planning, lack of fiscal discipline and a lack of control and supervision. How would Pemandu mark the KPI here?

Risks associated with capital accumulation

Private investment that is skewed toward residential structures, catering for affluent markets and mega projects by government-linked companies (GLCs) does not help much in improving long-term growth dynamics, ensuring sustainable growth and balanced development as a whole. It is a fact that there will be risks associated with capital accumulation through fast-track mega projects e.g. twin deficits, debt accumulation, weak currency, corruption, etc.

Big reform does not start with just one speech. It should start with sincerity,  strategy, inclusiveness, advice and political will.

It is hoped the era of ‘the government knows best’ is over. So is complacency. Have we changed our mindset and is business still as usual?

The interview with Nur Jazlan Mohamed in the Sunday Star on Nov 9, 2014 would lend credence to the above.

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