The 2012 state budgets of Penang and Selangor would speak of brilliant financial performance from both states, an affirmation that Pakatan Rakyat governments have done well in managing their states. This is a case study for what a Pakatan federal government would achieve.
What do the state budgets of Penang and Selangor tell us?
With power going to different parties and coalitions after March 8, 2008, policy competition became a thing to watch. This was one of the major gains for Malaysia as a democracy. Now, three-and-a-half years down the road, enough time has passed for us to do some comparisons. What better way than to compare budgets?
We are living in times beset by talk of financial difficulties all over the world.
The Eurozone crisis continues to unfold with the economies of Spain, Greece and soon Italy spiralling steadily downward, while the US’s massive budget deficit threatens to have far-reaching implications for other economies. How efficiently public finances are managed will determine how stable governments can stay in each of these nations. It is a tough battle to fight, balancing harsh austerity measures yet retaining enough popularity to stay in power.
Malaysia is no different, and Minister in the Prime Minister’s Department Idris Jala had warned in 2010 that we were heading for bankruptcy if subsidies were not removed eventually. Although there is some internal dispute on actual figures, all would agree that Malaysia’s budget deficit (14 years of consecutive deficit) needs reducing. Whether or not this can be achieved is a different question, given the government’s track record.
Whilst the national budget was being debated, yet another level of budgets was passed recently: the state governments’. The Pakatan Rakyat (Pakatan) coalition is often harshly critical of the Barisan Nasional’s inability to manage the country’s wealth, and so it is of interest to examine the performance of Pakatan-led states.
This article focuses on selected aspects of the state budgets of Penang and Selangor to gain some insight into how the governments there are doing.
Tabling the budget each year is as good a time as any to reflect upon the year’s achievements. The first trend that is evident here is that in both states the emphasis was on the performance of financial management. Both had budget themes along these lines: the Penang Chief Minister’s budget speech contained phrases such as “thrifty expenditure”, “reducing state debt, increasing revenue” and “financial management based on CAT (competency, accountability, transparency)”; while the Selangor Menteri Besar’s was peppered with “state revenues for the people”, “better financial management” and so on.
Such highfalutin language may have been unnecessary; the results were able to speak for themselves. Penang, for instance, managed to reduce its state deficit from RM630.13mil in 2008 to RM29.66mil in 2011. This marks a reduction of 95.29% over a period of three years. This reduction was attributed first to the migration of water assets to Water Assets Management Berhad, and second to a strategic financial management practice – mainly with reference to its decision to implement an open tender system more than a year ago.
Similarly, Selangor registered its highest cash savings in 28 years—a total of RM1.2bil made up of RM946.65mil in cash reserves and the remaining in trust reserves. The data obtained from the Selangor state government is reflected in an impressive graph that clearly shows the reserves growing significantly since the coalition took over in 2008. This increase in reserves is attributed to better management of state resources, more efficient collection of overdue arrears and stricter use of state assets.
The second visible trend is that both governments have been increasingly dedicating financial resources to the democratisation process, which includes empowerment of communities and maintenance of transparency and accountability standards. Penang, for example, is in the process of forming its Penang Women’s Development Corporation to empower women through developmental and training programmes. It also initiated an Accountability Index for its civil servants, with an audit being carried out in January 2011 which ranked various government agencies accordingly.
Selangor introduced a “Selangorku Grant” for 2012, which includes allocations to various communities with a specific focus on empowerment. Some of these include a grant to empower women, to train and develop young entrepreneurs, to strengthen democracy, to contribute to culture and activism and for other vocational educational support. It is important to note that this philosophy is one that propels individuals to better themselves through the equipping of knowledge, training and skills development to enhance their capabilities. Nevertheless, both state budgets do still allocate certain sums to ensure social safety nets are provided to the lower income segments of society.
It is commendable that both governments have decided to spend state resources on empowering the citizenry through programmes that promote democratisation.
Finally, both state budget speeches seem to place a strong emphasis on developing their state economies on a higher-level plane, in recognition of the demand for high-quality performance-based services. One theme in the Selangor budget is to build a society that is knowledgeable. After all, the services sector contributed 57.4% to its state gross domestic product (GDP) in 2010. In Penang, the tourism sector is to play an increasingly important role, with plans to capitalise on its World Heritage status through a number of events (George Town World Heritage Festival is one), its food as an attraction and the Meetings, Incentives, Conventions and Exhibitions (MICE) industry. Penang attracted 18.3 million tourists between 2008 and 2010.
The two states in which the country’s major industries, offices and factories are located seem to be moving forward with a steady momentum. There are certainly success stories to speak of, chief of which is better efficiency in public financial management.
Then there are the budget figures themselves: Penang tabled a budget of RM740.53mil, an increase of 0.16% from RM638mil for 2011. Out of this total, RM599.6mil is for operational costs, and RM44.24mil is for development. However, this was a deficit budget of RM213.71mil, which Penang said would be funded by State Accumulated Savings. Selangor tabled a balanced budget of RM1.6bil, an increase of 11.89 % from RM1.43bil in 2011. Out of this, RM1bil is allocated for the operational budget (62.5%) and RM600mil for development (37.5%).
At the national level, things remain uncertain. The principle is simple enough: governments ought not to spend more than their revenues unless they have savings to turn to. Notwithstanding the political unpopularity of pulling out subsidies and implementing the Goods and Services Tax (GST) at this crucial pre-election period, it is surprising that the federal government has not yet emerged with an alternative solution that safeguards the interests of future generations. As long as the government continues spending heedlessly, long-term consequences are to be expected.
In the words of Idris Jala himself, “…If our economy grows less than four per cent… and we don’t cut our operating expenditure, if we borrow at 12.5%, if our annual debt rises to 12.5% and our revenue does not grow, then it (bankruptcy) will happen.” (The Malaysian Insider, November 1, 2011).
It is a healthy exercise for us Malaysians to compare and contrast the financial performance of different governments in matters of governance and in the management of public funds. This, after all, should be a determining factor in our evaluation of government.
