Studying the Budget 2009 Proposals of the Barisan Nasional government gives one the impression that in the final meeting on the formulation of the proposals, the economists and planners in the government did not attend. It seems that the politicians alone decided this budget proposal. Studying it further, makes one wonder whether Malaysia is still a market economy where the PRIVATE SECTOR is the engine of growth.
Dubbed the “People’s Budget,” and it is all about spending, spending and spending more. Three main strategies of the budget is to ensure the well being of Malaysians, developing quality human capital and strengthening the nation’s resilience. It is hard to find any of the measures that really address the above three “long term” good of the economy except for a lot of temporary reliefs, which has long term cost implications.
The government dishes out generous allocations and cut back and abolish taxes that impact on the consumers; all with the hope of giving the Rakyat more money to spend, as “ the government understand their hardship.” Because the economists were not in the meeting, no one pointed out to the government that the cut proposed is not going to have much effect, as the income base of Malaysians is low. To be really effective is to substantially increase that income base to make the real gain in disposal income meaningful. In other words, Malaysia desperately needs investment into real capacity generation of the people and its businesses.
If we are still a market economy; the government must shift from talking the talk to walking the talk, by focusing to strengthen the competitiveness of the private sector. Moreover, few Rakyat understand that the spending come from “money borrowed from our children and grandchildren’s future, ” so we could still party with these bags of goodies. The budget deficit, into its 12th year ballooned to its highest in the 2009 budget which the government minister said will only be “one-time.” Stay tuned, many so called “one-time’ matters in Malaysia has a way of becoming a permanent fixture in our system in no time!
A lot of the cutback and stimulation prime pumping measures were a reaction to the contraction triggered by global inflation and the government’s mis-step in raising the fuel price to 41% earlier on June 5th. The government has expressed “shock” earlier that inflation could reach a 25 year-high of 8.5% and now frets that the system must be resuscitated to keep growth and stability. So we have the biggest budget 2009 of RM207.9billion; more than 1/3 the size of our GDP; with Federal government revenue expected to grow by 15.5% to RM161.6 billion but expenditure to grow faster by 20.5% to RM197.2billion; a big part of which comes from a 22.6% rise in operating expenditure of the government. One wonders with such generous provision; are we going to get better services in the government’s delivery system?
Investing in NEW Sources of Growth
One of the key concerns of the Malaysian economy is its lack of new sources of growth; and the people’s real income cannot be increased if the business sector is not finding a new lease of life. All over the world in functioning market economies; the private sector is the engine of growth and private investment, versus government investment must be encouraged and promoted to assure a sustainable growth and upgrade up the value chain. At a time where the economic structure needs to be transformed and shift towards less dependence on the commodities; the private sector is the answer for the way forward. The government at the most only provide the stimulus to make up the slag; and whatever the government invests in to keep macro-economic stability; it should wisely do so in investments into infrastructure or activities that increases the capacity building of the economy (such as better infrastructure including higher speed broadband; public transportation, education, research and development of intellectual assets). Budget 2008 did not invest in the CREATION of income growth; but in redistributing the country’s assets to encourage PRIVATE CONSUMPTION. While it is acceptable to provide a certain cushion to help private consumption, it is more important to direct resources to promote investment in income growth.
The Private Sector is the Engine of Growth, Stupid.
Measures to boost the confidence of the private sector and to make them more competitive are conspicuously absent in the 2008 budget proposals. Private investment in the country, The Edge reported in its Sept 1-7 issue, “ Private investment slow down this year, just when it had started to climb again after failing to account for less than 10% of GDP post the 1997 financial crisis, from more than 30% before. In other words, a lot of the growth in the economy before the financial crisis were from private investments; both domestic and foreign. Since the crisis; the confidence building has been slow; but it is going to dip again. Does it mean that government has given up on the private sector; both the foreign and domestic private business sector as they have still not gotten satisfactory answers on the competitive issues related to corruption, inefficiency and incompetence in the delivery system. The nation’s macro economic policy ignores the private sector at its own peril; as the private business sector; especially those that can create new sources of growth are important to diversify our economy. Prudent measures to make up include aligning the Malaysian corporate tax rate with those in the region (such as Singapore) and providing tax holidays, investment matching on new feasible new industries such as those in the alternative energy field, halal food production, domestic food security, feed production, waste treatment and organic fertilizer and food sector. Incentives to support the deployment of experts in these chosen fields will also help. The government has observed that private investment will fall short of its Ninth Malaysia Plan (9MP) targets (Private investment is estimated to expand by 8.5% in 2007 and 10.5% in 2008, falling short of the Ninth Malaysia Plan (9MP) target growth of 11.2% per annum during 2006-2010). Although foreign direct investment (FDI) into Malaysia has improved since 2001, it is still lagging behind regional peers. Malaysia attracted US$6bil FDI in 2006, low compared with China (US$78.1bil), Singapore (US$24.2bil), Indonesia (US$7.5bil) and Thailand (US$9.8bil).
Malaysian’s own business community is investing big time around the region; in China and elsewhere. Foreign investments are reassessing the region; given the escalating cost in China, many are looking to relocate. Budget 2009 again, is not sensitive to these trends and did not work to capture the opportunities arising from regional economic dynamics.
Doing MORE with LESS
Doing a good job doesn’t always involve a lot of money; this is 101 of business and economic management and the word is Efficiency and Effectiveness. Finally, attention is now given to the Public Transportation sector, which is welcomed. However we have to examine how to approach this sector in a most prudent and effective way. Public Transportation for example, is made up of a web of connectivity of bicycles, motorbikes, buses, trams and trains. A good public transportation system is multi-modal; and its effectiveness and efficiencies lies more in the design and management; not in choosing to build expensive flashy new technology modes such as the bullet trains. For examples, buses are preferred to LRT, we need a web of connectivity; bicycle and motorbike lanes; mini buses that serves as feeders; Rapid buses with dedicated bus lanes that circulate between key points of high population areas and LRT in areas that has the density to make it profitable. The government needs to present a comprehensive Master plan on public transportation; not only for the Klang Valley, but for the whole country. Under the Master plan, there should be opportunities for the private sector to participate; given the private sector is more efficient and the public sector need not be burdened with these huge investments.
A public transportation is and should not be just there to service the locals only. It is a wealth creation infrastructure. Connecting them well should promote the flow of people, goods, investment and business from within and from without the city or region. Many Malaysian towns have been left behind because of the expiry of the boom of certain industrial sector; Ipoh and the tin mining industry; Seremban and the electronics industry; Melaka and trade; and many other examples. These settlements have their local colour, history and an infrastructure that is already in place. The Federal government must work with the state government on plans to rejuvenate these towns and bring connectivity to them via a comprehensive national pubic transportation web. Imagine if Melaka is only 40 minute away from Singapore by train, Ipoh is 1.5 hours and Alor Star is 1.5 hours away from Kuala Lumpur; the ease of getting to these places will ensure a human traffic flow that will bring back life and vibrancy to these cities. All over the developed world; redevelopment and revival of old towns and cities are key priorities of both national and state governments. Malaysia could use a page from the revival of Glasgow; a sleepy almost-forgotten town in the UK, now re-emerged as one of the leading European capital of culture.
The returns from the so-called high-impact projects, including the Iskandar Development Region (IDR) and Northern Corridor Economic Region (NCER) are uncertain. The nation needs to be prudent to fully maximize it s resources to prepare for rainy days ahead.
Don’t spend our Children and Grandchildren’s Future Away
The budget proposal will see the deficit balloon to 4.8% of GDP or RM34.5billion in 2009 from 3.2% in 2008. This is the 12th year we will have the budget deficit, cumulative budget deficit and government borrowings from the domestic economy amounting to USD72.3b or some 42.4% of GDP at the end of March. how much longer can we go on like this. Although the funding for the deficit are largely sourced from domestic borrowings through the issuance of Malaysian Government Securities, there is a high opportunity cost to these funds. Domestic savings should be deployed in the capacity building of the country to earn future income, making the country more productive and relevant for the future.
Moreover the government’s revenue is heavily dependent on the revenue from oil and gas; and from taxes derived from import taxes and excise duties of cars. One of the key flaws of Keynesian economics is to open the prime-pumping machine, and not to stretch the potential of the productive forces; human and capital included. If people are conditioned to do more with less; they will become more productive and create more value; rather than keep borrowing from the future to fund present consumption.
Improving Governance
Spending billions away in a wasteful manner is criminial and irresponsible. Specific Key Performance Indexes must be set up to track the government’s management of the economy. Too many examples and incidences from the past and present have been reported on the funds disbursed without any productive construction of the projects; and no one needs to be accountable. These must stop. We call for the tabling of a FISCAL RESPONSIBILITY ACT that carries lifelong responsibility of the Prime Minister and his cabinet and all those Member of Parliament that voted in support of the budget. Should there be any under performance or poor performance, the future generation can still hold these people responsible for their misdeeds. Such lifelong responsibility is now being practiced in China and South Korea to prevent corruption and irresponsible fiscal activities. Malaysia must begin to seriously impose accountability on its public officials.
modified from: Foong Wai Fong
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