A Budget’s Responsibility
(A version of this was first published in theSun on 5th October 2012)
Over the past two weeks, several documents were unveiled for public scrutiny. Prime Minister Najib Razak tabled the 2013 Budget for debate in Parliament a week ago, and the Opposition Leader Anwar Ibrahim released the Pakatan Rakyat Shadow Budget 2013 two days earlier.
The budget debate in Parliament has been less than substantive, especially given the fact that no Cabinet ministers were in the chambers during Anwar’s response to the budget. One would expect the Prime Minister or a senior minister at least to have the sense of decorum to be present.
The budget is essentially the key financial document that indicates how much of national funds will be spent for the following year. Together with the Auditor General’s report – traditionally tabled at the same time as the budget but which has been delayed two weeks for the second time running – and the Economic Report, these three documents form the measure against which the public evaluates government performance.
For 2013, the federal government will spend RM251.6 billion, an increase of 2.3% from this year’s budget of RM246 billion (including the supplementary budget amount).
Fiscal Responsibility
One main challenge of a budget is to find the right balance between public spending and national savings. Although it is reported that we have accomplished a lower budget deficit of 4.7% of GDP in 2012, the country is running a budget deficit for the 16th consecutive year. More alarmingly, our public debt has grown to RM502.4 billion, 53.7% of GDP, which is the highest in our history and just below the statutory debt limit of 55%.
To exercise fiscal responsibility is to ensure revenue is more than sufficient to finance expenditure. But this in itself presents a conundrum. Because oil and gas income contributes more than one third of the federal government revenue, and these are non-renewable and unsustainable over the long term, alternative revenue streams ought to be solicited.
The generous 100%, 10-year tax holidays given to Tun Razak Exchange (TRX)-status companies and qualified companies in petroleum refinery activities would certainly not help to generate additional revenues.
Although not directly mentioned, Najib’s budget speech alludes to the introduction of the GST, where “the transition from income based taxation system to a more comprehensive and fair taxation system will eventually benefit the rakyat.” It is unclear as to when or how this will be executed, and more information would be welcome. It may not, however, be the best time to introduce a steep taxation scale given an unstable global economic outlook, which inevitably affects Malaysia.
On the note of transparency, the government has fallen into the practice of tabling exorbitant supplementary budgets during a separate parliamentary sitting. This means actual spending is always higher than the amount tabled during the budget speech each year, an unhealthy practice which should be done away with.
“People-Friendly”?
The term ‘people-friendly budget’ has been used almost annually, and this year has been no exception. Given that this is Najib’s final budget before the 13th General Election, there were certainly goodies for selected sectors. For instance, a 73.4% increase of development expenditure is allocated to ‘agriculture and rural development’. This comes with the knowledge that Barisan’s traditional supporters lie in the outskirts and smaller towns of Malaysia.
However, compare this with the significant reduction in development expenditure on ‘social services’, a fall of 18.5% compared with the year before. Of this, the government will spend RM6.49 billion worth of development expenditure on ‘education and training’ in 2013, 24.1% less than in 2012. Since the government is about to launch fresh programmes stated within the Malaysia Education Blueprint 2013-2025, one would have imagined an even higher increase of development expenditure on education in the coming year.
Much ado has also been made about the Bantuan Rakyat 1Malaysia 2.0 (BR1M), the one-off RM250 cash handout to “single unmarried individuals aged 21 and above and earning not more than RM2,000 a month”. The government will spend RM3 billion to finance this populist gesture. (The first instalment was double this amount, of RM500).
Although slated as helping to increase disposable income, one-off payments are hardly helpful over the long term. It is also symptomatic of the failure of existing mechanisms within the economy to increase currently suppressed wages and purchasing power. These measures are akin to giving out little pills to treat a growing cancer, without addressing the root problem.
Structural Reform
Although the budget indicates government’s financial spending, it is not the only document that governs public services and the economy. The 10th Malaysia 5-Year Plan (2011-2015), and the Third Industrial Master Plan (2006-2020) are sometimes forgotten amidst the rush of a budget. It has to also be considered in light of other plans such as the National Transformation Plan, the fourth Outline Perspective Plan (2011-2020), the Economic Transformation Programme (ETP) and Government Transformation Programme (GTP).
Against this context, it is disturbing to note that the budget speech does little to address the problem of structural economic problems, which this column has previously referred to. Here, the Pakatan budget provides some solutions, proposing the formation of an Anti-Trust Act and Unfair Public Contracts Act to break up monopolies and oligopolies, and dismantle cartels. These businesses have effectively stifled the growth of the private sector.
It is only through genuine competition that our economy will begin to once again blossom, opportunities given directly to honest, hardworking companies instead of through middle rent-seeking channels.
It is hoped that the federal government will urgently make the necessary changes to the economy’s structure. By addressing cronyism, corruption, wastage and leakage through the process of open tenders, transparent public procurement, and the breaking up unfair monopolies, this would allow for Malaysia’s economic competitiveness to improve, eventually increasing GDP, reducing government debt, and increasing personal incomes – all objectives of the budget that we look forward to achieving each year.
