Malaysia should impose an operating expenditure cap to limit itself from spending an increase of no more than three percent a year to overcome its unsustainable fiscal situation, said Institute of Democracy and Economic Affairs (Ideas).

 

The government is under fire for purchasing a new jet for VIPs while at the same time cutting funding to aid agencies and introducing the Goods and Services Tax (GST) next month in a bid to slash its fiscal deficit.

 

“The growth rate of operating expenditures from 2001 to 2012 is clearly (above) sustainable rates.

 

“If Malaysia is serious about improving the fiscal situation and considering the implementation of expenditure rules, the growth of its operating expenditures should be kept below three percent,” Ideas fellow Sri Murniati said.

 

In a policy paper on investing oil and gas revenue for future generations released yesterday, she said Malaysia is in a bind because public debt is growing faster than gross domestic product (GDP).

 

State operating expenditure should sustainably grow within five to six percent a year, she said, but day-to-day spending grew at about double that at an average rate of 11 percent annually from 2001 to 2012.

 

The spending cap is not impossible given that the government is already trying to keep operating expenditure growth at 1.1 percent growth to keep the fiscal deficit at three percent.

 

Once the expenditure cap is place, she said, the government can look into setting up a deposit plan to contribute any budget surplus into the Kumpula Wang Amanah Negara (Kwan).

 

Set up as a natural resource fund in 1988, Kwan receives its revenue from depleting resources and contributions from businesses involved in these natural resources.

 

However, 25 years after it was founded, the accumulated amount in the fund was RM9.5 billion - far behind similar funds overseas which were established just a decade ago.

 

Petroleum fund

 

Timor Leste’s Petroleum Fund, which was founded in 2005, has US$13.5 billion (RM50 billion) as at August 2013, the paper noted. Timor Leste produces seven times less oil than Malaysia.

 

Unlike earlier petroleum fund proposals by opposition MPs, Ideas suggests that Malaysia’s petroleum revenue goes straight into the federal consolidated fund. Any surplus from that will go to Kwan.

Like petroleum fund in Timor Leste and Norway, which is seen as a global best practice, Kwan should answer to the Dewan Rakyat.

 

The Dewan Rakyat appoints Kwan’s supervisory council, receives annual reports and decides on withdrawal beyond a certain threshold.

 

Withdrawals from Kwan can be made to fund the budget, Ideas proposed, but it must be within a set return of investment.

 

It also urges that Kwan’s annual reports be made easily available to the public, like the Norway Pension Fund.