The government planners, especially in the Treasury, have no doubt had serious problems planning for the Budget 2016 that is to be presented to Parliament this Friday.

So I believe that the rakyat cannot and even should not expect too much. In fact they could expect only a few little goodies. They will need to accept that the Budget is planned in the best interests of the long-term good and the sustainability of our economy and not to meet short-term interests.

A. The national budget is actually like planning our own personal home budget. If your income is lowered, your expenditures are increasing with rising prices, your savings are limited and you cannot borrow much more, what do you do?

You are therefore caught in a bind. As they say - you will be trapped between a rock and a hard place.

B. What would you do for your own budget planning?

You have few options and little choice. You can work more hours to get more overtime -if you can. You can cut down your spending, but only if you have been overspending. Or if you have some savings, you could draw them down, to spend on at least the bare essentials and conserve the balance, if your savings are high enough.

But if you have little or no savings, especially if you are in the bottom 40 percent income group, i.e. the poor and lower income earners - what indeed would you do? It would not be easy to borrow, as very few will lend to a low-income borrower, except perhaps the loan sharks. But it’s bad to borrow from these terrible and unforgiving loan sharks. So please don’t go to them.

The only way out for someone in financial straits is to cut your coat according to your cloth. Indeed we have to live within our means. We should not live beyond our means, at any time , if possible. Unless of course one is starving, but thankfully it’s rare in Malaysia.

C. The national budget is like your budget - what needs to be done is as follows.

1. The national budget revenues have been sharply reduced because of the lower prices of oil and gas, and our commodities. Fortunately, oil subsidies have been cut out, otherwise the budgetary strain would be greater. But then Bantuan Rakyat 1Malaysia (BR1M) handouts have cost the budget dearly.

Nevertheless the Goods and Services Tax (GST), although painful to the poor, has ironically provided some relief to the budgetary burden. So taxes can be raised to help out the budget. But it’s always difficult to raise more taxes, as people resist it ,especially the well-to-do.

Maybe the time has come now to consider introducing some graduated higher taxes at the top levels? We cannot have one’s cake and eat it. There has to be some give and take in budget planning, especially in the longer term.

2. The budget operating expenditures, like personal spending, are extremely tough to cut. This is because some expenditures like pensions, state grants, road grants, and inter alia, our national debt obligations, must be met, without question.

Then there are the salaries we have to pay to maintain the huge 1.4 million civil service. Can you cut their posts and salaries? Not really. Maybe some allowances and overtime can be reduced. But this expenditure cutting is kacang putih and small change and minimal. We must think in terms of major changes in our civil service structures. The government cannot be the employer of last resort. Many services could be privatised, if properly supervised?

In the meantime, the populations of students going to schools, and colleges and universities are rising. The patients visiting hospitals, welfare services keep increasing, as is the case with many crimes. Can we avoid providing these essential services or cut costs in these vital areas? Not much at all?

3. Development expenditures however can be reduced, but should not be cut back too much. These capital expenditures are for the building and expansion of schools, hospitals, ports, airports, dams, drainage and irrigation for our farmers and for flood controls, better air pollution systems, etc, etc.

Most of the development and infrastructure projects that we see around us are built from the development budget.

So how much development expenditures can we cut, without impeding economic growth, improving the accessibility and welfare of the poor and underprivileged?

D. What are the budget constraints?

1. The budget deficit has to be kept low. If we spend more, the budget deficit will break our safety margins of prudential management. Foreign investors and our potential lenders will become anxious if our budget deficits rise. Our fiscal credibility will then be adversely affected. We will then be less attractive to both domestic and foreign investors and our economic growth prospects, can be seriously undermined.

In short, the confidence in our capacity to effectively manage the economy can be shaken. It will then be very difficult to win back and restore confidence later on.

In this era of rapid globalisation, investment and lending can dissipate very quickly. Much as we claim that our fundamentals are strong, they are not a permanent feature.

Our ‘strong fundamentals’ are indeed weakening, as evidenced by our fast falling ringgit and other economic criteria that we do not highlight enough for fear of being accused of ‘economic sabotage’. This is unfortunate as we cannot politicise economics. The international market forces will show us up.

2. Our fundamentals relate comprehensively and holistically at macro level. They are not only confined to the narrow field economics, but the state and situation of our racial, religious and social and political well-being.

Fundamentals also cover the quality and strength and independence of our national institutions like the Judiciary, the police, safety and security, the Election Commission, the Malaysian Anti-Corruption Commission (MACC), and whether the standards and levels of our competition, meritocracy, etc, have been improving. We have to ask whether these institutions of the highest order.

Can we all honestly claim that these basic fundamentals have not weakened and will be strong, in the longer term? This is not being too hard on ourselves. It’s asking ourselves frankly what others quietly and politely want to know, before they visit us or invest more here.

Indeed, our economic growth and social and human rights and the environmental sustainability and political progress will depend on continuing to strongly sustain our overall national fundamentals.

E. Conclusion

So what can we expect of the Budget 2016?

Given the many constraints, domestically and externally, I expect Budget 2016 to be a ‘budget of consolidation’, with the following features:

i) Taxes will not be raised or changed significantly. Some tax concessions will hopefully be given to counter the burdens of rising prices caused largely by imported inflation, resulting from the falling ringgit and also the GST. The GST could have more exemptions for the goods and services consumed by the poor and low income groups.

ii) Operating expenditures will be trimmed here and there to cut costs. But this will have minimum impact because of union resistance and political risks.

iii) Development expenditures will be restrained and phased out over a longer period of implementation. Projects with large foreign contents will be scaled down or postponed and staggered. This has to be done to reduce the impact of imported inflation on development costs .

This move is also necessary to enable for the Budget to counter the adverse effects on the current account of the balance of payments, which are also weakening, due to higher import prices and lower export prices. Revisions to go back to the norm can be made when the ringgit recovers?

iv) Borrowing as a whole will have to be curtailed. Foreign borrowing in particular will cost us more because our bonds may be treated almost lowly, by some pessimistic bond traders and investors. We cannot also depend on the foreign rating agencies to protect and preserve our presently high ratings. The international rating agencies have to listen to the money market, from which it cannot be disconnected.

v) The Budget’s realisable assets or reserves are not high, as they have largely been utilised in the past.

Hence the bottom line is that, like we the rakyat, the government budget planners have major problems which are of course much bigger.

vi) One way out?

One way out for the government is to strengthen the policy and the implementation of the public private partnership (PPP ), in especially the development expenditures on infrastructure building and spending. This will reduce the high government spending due to some built-in inefficiencies like corruption, poor management of projects and some cronyism.

Under PPP, projects will have to be much better scrutinised to qualify for more private funding. This could reduce government expenditures, government debt and the kinds of wastage reported annually by the auditor-general, that is sadly but largely neglected, if not ignored.

vii) Finally, we wish the government budget planners all the best during these last few days before the Budget Day, when from what I personally have experienced are trying times filled with sleepless nights.

May the expected 2016 ‘budget of consolidation’ be one that is also fair and prudential and acceptable to consumers and investors - and especially to the bottom 40 percent income groups in our country.

There are real problems facing the economy - so don’t expect much in goodies.

RAMON NAVARATNAM is chairperson of Asli/Centre of Public Policy Studies.