It's the budget, sir!

Dr Dzulkefly Ahmad

October 14, 2011 If an “outcome-based budgeting” was the methodology used in the preparation of Prime Minister Najib Razak’s Budget 2012 as alleged, it doesn’t take a genius to surmise what the actual “outcome” the premier actually intended for. Coming close to the looming 13th general election (GE), his obsession of securing electoral support far surpassed the dire need of genuine economic reforms. Allocating a whooping RM48.1 billion of the RM232.8 billion national Budget, Najib has indeed committed 20 per cent of the entire budget to a slew of cash handouts, tax breaks and welfare spending to induce the “feel-good” factors he gravely is in need of to secure electoral victory. This writer argues that this budget is doubtless an election budget, much as Najib and his administration might deny otherwise. What would be the economic malaises than should have been addressed by Najib’s Budget 2012? What ought to be the “outcome” that would have place Najib in the good books of the World Bank and international rating agencies, all too eager to penalise sovereign states in the wake of the massive sovereign debt crisis bordering bankruptcy? To summarise, the budget should have reflected commitments and programmes aimed at addressing economic malaises, namely, i) fiscal deficit and debt, ii) inflation, iii) income and wealth disparity, iv) over-reliance on unskilled foreign workers, low-value-added enterprises, v) “middle-income” trap, vi) over-reliance on petroleum revenues, vii) crony capitalism, corruption, wastages and leakages in the delivery system. While much lip service has been paid to addressing fiscal deficit and the ballooning federal government debt, it remains unabated year in and out. Admittedly, deficits are not necessarily bad. Keynesian economics advocates that government runs budget deficit, aka counter-cyclical pump-priming, during the economic downturn (bust) and save during the boom time. Very unfortunately, however, this BN government has been “pump-priming” for the last 14 consecutive years. While neighbouring countries like Australia, Singapore, Thailand and even Indonesia have seen surplus budgets during the period between 2003-2008, Malaysia was running deficits even during the good times. Federal government debt has soared from RM200 billion in 2004 to RM456 billion in 2011. Najib tabled Malaysia’s biggest budget at RM232.8 billion, up 9.4 percent from the previous year, which again saw the 15th straight deficit budget. In sharp contrast Pakatan’s budget caps spending at RM220 billion. Worse still is Najib’s attempt at pulling wool over the rakyat’s eyes again with his growth numbers and projected fiscal deficit numbers. The projected growth of 5-6 per cent is arguably too optimistic. Pakatan’s early scepticism has now been amply vindicated when many investment analysts expressed their anxiety. With growth projection needing downward revision, so would be the projected fiscal deficit of 4.7 per cent of GDP. The BN government’s insistence is quite understandable. Najib was almost hysterical in defending his numbers. On record, Maybank Investment Bank Berhad, CIMB Investment Bank Berhad, Affin Investment Bank Berhad and Bank of America Merrill Mynch were all projecting Malaysia’s GDP to grow around 4 per cent to 4.5 per cent this year, 2011, and at best between 3.5-4.2 per cent for 2012. With a very challenging external environment ahead and the G3 economies in dire straits, a lower growth rate is expected. Government revenue from personal and corporate taxes will surely be lower. The chance of repeating an unexpected increase in budget revenues seen in 2011 from an increase in the petroleum income tax (RM18 billion in 2010 to RM26 billion in 2011) and in corporate taxes (RM36 billion to RM44 billion) would be remote. Najib’s budget also evaded the thorny issue of streamlining tax structure — cutting personal and corporate taxes to boost country’s competitiveness in the region. His deafening silence on the GST was loud and clear. A 10 per cent real property gains tax (RPGT) for properties sold within two years of purchase will only net the government a maximum of RM100 million at most. Pakatan’s revenue projection stands at RM181 billion compared to RM186.9 billion for the actual budget, and has more reasonable growth projections of 4.2 per cent for 2012. This allows for the deficit in Pakatan’s budget to be reduced to 3.66 per cent of GDP (projected at RM918.6 billion using BN’s GDP). Pakatan’s budget seriously intends to raise revenue by extracting the full value of government concessions and permits. For example, raising the issue price of APs could raise an additional RM1.2 billion in revenue. Pakatan’s budget advocates “effective spending” by eliminating the current practices of wastefulness, misdirection and inefficiency which will subsequently generate for the rakyat 20 per cent more in benefits for the same amount spent. Substantively, Najib’s budget fails to continue addressing the yawning income divide and wealth disparity, much less on the topic of generating a higher income economy. Wages are low for our workforce in Malaysia. The bottom 40 per cent of households earn RM1,500 per month. Ninety per cent of Malaysians have zero savings and 14 per cent have no wealth — real estate, financial asset, investment and savings. Pakatan’s budget is committed to implementing policy initiatives aimed at raising income levels of households and skills of the workforce. A minimum wage of RM1,100 per month will be implemented together with a holistic labour reforms. This involves retraining and up-skilling, job search and relocation assistance and unemployment insurance. A minimum wage is the legally-enforced “floor wage” to ensure that all workers at the lowest level receive a human subsistence wage, while the rest will experience a consequential rise in pay. Pakatan’s budget will herald a new era by implementing wide-ranging policy and regulatory reforms to reduce cost of living, encourage SMEs and investment. Specifically, an open-tender policy for government procurement will reward the “know-how” instead of giving it to rent-seekers aka cronies with the “know-who”. Affirmative measures for Bumiputeras and other disadvantaged groups will focus on strengthening the capability of such groups to compete through education, training and financial support. An Unfair Public Contracts Act will be enacted to empower a review into the lop-sided concessions and agreements that are deemed to be against the public interest. All monopolies that erode the disposable income of ordinary Malaysians and result in high business cost would be restructured in 2012. The professionalism and glory of the civil service of the earlier decades will be restored to better serve all the rakyat, from the individuals to small traders, big conglomerates and even international investors. If Najib still fails to relate to the real task of a premier who is seeking a mandate for himself in the next GE, then it pays for Najib to take heed. His penchant for flip-flops, both in economic and political reforms, has become both pathological and extremely deplorable. It’s the economy (read budget), sir!