COMMENT | We are all filled with cautious expectations for Budget 2019. It will be announced with the budget speech that will be presented in Parliament on Nov 2. It will be the first budget of the new Pakatan Harapan government after 61 years of BN rule.
The people, naturally, are asking whether there will be a difference in budget policies or practices or will we have more of the same. As the prime minister announced in the recent 11th Malaysia Plan Mid-Term Review, there will be a greater priority given to good governance.
This is encouraging - but how will we achieve better governance in the new Budget 2019 and beyond? Will we have more integrity, better priority public services for the bottom 40 percent of our income groups, less income disparity and more efficiency and fairness in public spending? Will our new taxes be more equitable and caring for the poor?
One thing is for sure - we cannot expect too much, if at all, of the traditional goodies in the budget this time. In fact, we may have to brace ourselves for more taxes and we will have to face the prospects of some expenditure cutbacks. But please do not hurt the Bottom 80 percent of the population. I see a gloomy budget for 2019 - and a little beyond. Why is this so?
The environment is dull
The international economy is slowing down by all accounts. The overall global cyclical decline is here. The damaging consequences of the Brexit (the British exit from the EU) are already present. Now the threatening dampening effects of the possible trade war between the two economic giants, the US and China, is also going to undermine the global economic outlook.
This will take place sooner rather than later unless these top economies settle their unnecessarily hostile positions soon. Domestically, the atmosphere has been sluggish too. This is partly due to the international slowdown and, of course, the fiscal and financial mismanagement in the recent past.
Budget expenditures were badly eroded by corruption, leakages, wastage and inefficiencies. The true value for our rising expenditures and expanding national debt and our high infrastructure investments were not fully realised. This was because of weak and distorted purchasing policies and the lack of adherence to proper open tendering and contract management procedures.
Perceptions of weak institutions like the huge civil service, low education standards and the relative lack of independence of the judiciary, the election commission and inter alia, the police also added to the economic burdens and financial stress.
What then could be our macro or overall strategy?
Budget 2019 has to be consolidated and mildly expansionary. Hopefully, it will not be contractional as our slowdown could be aggravated. Neither can the budget be too expansionary. Hence we have to keep the budget on an even keel and that is a very big challenge!
An economic growth rate at about 4.6 percent for 2019 is acceptable. We can't expect too much more without facing more strain. Inflation could be maintained at a low level of about two-three percent if we can keep the budget deficit within three percent of the GDP. It’s not a sacrosanct target and we can be a bit more flexible and relaxed.
Income disparity has to be reduced as part of our longer-term strategy. We can aim for this goal by focusing on providing the basic needs of the Bottom 40 percent (B40 ) and the Middle 40 percent (M40) of the population.
So what can we expect?
Firstly, don't expect too much tax cuts or relief, since the budget this year simply cannot afford it. Hopefully, though, it is expected the budget will impose new and higher taxes on the wealthy and the well-to-do!
Don’t tax the poor. Instead, give them some tax incentives to be more productive and to encourage them to save for their rainy days as we now have many of these days! Please give a higher minimum or living wage.
Provide more tax incentives to corporate foundations to undertake more investments in corporate social responsibilities.
Encourage the private sector to establish more tax exemption foundations to participate in the education, health, environmental protection and tourism sectors. There have to be more attractive policies to get the private sector to more fully participate in economic growth and income distribution rather than depending on the government to do so.
The budget could raise more taxes such as wealth taxes, estate duties, carbon taxes and sin taxes like tobacco and alcohol. We could increase tax charges on public services like road and motor car taxes to reduce pollution and nasty traffic jams
Expenditure budget reductions have serious limitations
How can we cut the salaries of the 1.6 million civil servants unless we dismiss many more? But it’s not easy to reduce the number of civil servants unless they are on short service contracts. We can, however, reduce the recruitment of more civil servants and get those presently employed to be more productive. But that needs tough leadership from the chief secretary down to secretary and director-generals.
Furthermore, many civil servants are now politicised. So it’s not easy to trim the civil service and the salaries which are now relatively comfortable.
Charged expenditure like the constitutionally guaranteed budget grants to the state governments such as capitation grants and road grants cannot be cut. Federal government debts have also to be settled. Now we have large amounts of guaranteed loans, much of it incurred by government-linked companies and statutory bodies. They are our sovereign debt and must be settled.
Pensions have to be settled too. But sadly the pensioners have long complained that they have not been paid past revisions as promised. How can we ignore and neglect the thousands of government pensioners who sacrificed so much to serve the government and society for so long?
Unfortunately, there have been those who think that the promise of higher pensions can be delayed further so that the pensioners will die off in time and the pension revision promises made to them can also be resolved by the death of these pensioners. Those would-be cruel thoughts are not worthy of any government or society. So please settle the debt to the pensioners
Borrowing much more is out of the question for now especially after all the protesting against the one TRILLION ringgit national debt incurred in the past. However, some borrowing can still take place as the debt /GDP ratio is still not unduly high at about 50-80 percent of the GDP depending on the definitions of debt.
The IMF, World Bank and rating agencies have not jumped up in protest at our debt figure. Hence we should not be over-anxious about the present serious debt problem as the debt/GDP ratio is not critical as yet.
Budget 2019 to restructure the economy?
We expect Budget 2019 to restructure the socio-economic and financial policies. It must be designed to meet the basic needs of our society. Budget policies must be “needs-based” on not “raced-based”. The Council of Eminent Persons' (CEP) recommendations will hopefully be made public and be fully incorporated in the Budget 2019 proposals where appropriate.
The NEP has served its purpose relatively well but it must be modified into the much more acceptable New Economic Model which is fairer to all Malaysians. Too much protectionism will reduce national efficiency, promote mediocrity and not meritocracy and will undermine national unity.
Thus, we should not be caught in the middle-income trap and progress only slowly - if at all. We should do much better.
Strengthen ringgit and balance of payments
The brain drain and capital outflows should be slowed down for us to succeed further and faster. If the private sector is not treated more equitably and if more preference is shown to the GLCs, then the public sector and the budget and the five-year plans will have to bear the brunt of additional necessary and essential investment which can further strain the budget.
The private sector's role in our economic development will have to be expanded and be shared reasonably with both bumiputera and non-bumiputera participation to achieve a balanced and stable development.
To this end, suitable tax incentives can be introduced in the budget to stimulate better multiracial investment, economic growth and income distribution.
All the new reforms on good governance, better human rights and especially more pro-B40 policies have to be given greater priority in Budget 2019 and in its implementation. Corruption and budget expenditure leakages should also be more aggressively tackled to raise confidence in the new government’s capacity to govern effectively.
Malaysia’s economic fundamentals are still quite strong. Hence, Budget 2019 should not be too tight. But we need to consolidate our budget to remain strong and sustainable. We have to use the Budget 2019 to make a difference from the old regime. We must restructure the economy to make it more competitive and meritocratic and fairer to all Malaysians.
National unity and racial and religious harmony must be reflected in our budget and economic planning to move forward with confidence and pride in our New Malaysia.
RAMON NAVARATNAM is chairperson, Asli Centre for Public Policy Studies.
The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.