Why this year’s budget would be less interesting

– Muhammad Nazreen
The Malaysian Insider
October 20, 2013

In the next few weeks, everybody is anticipating the key issues that may be highlighted in the 2014 budget. Malaysia’s mounting public debt is at an alarming rate. Recurring deficits over years due to government’s overspending would be a primary reason why is this year’s budget would be less populist. The BN government managed to secure its win during the 13th general election. So, we could expect less windfall subsidies and pay-offs to be distributed. However, the deteriorating condition of Malaysia’s economy might prompt the fact that it is timely for the government to introduce stern fiscal consolidation. Austerity measures are likely the main ingredients of the upcoming budget.

Here are some of the concerns.

a) Less people pay taxes

According to the Internal Revenue Board, only 1.8 million of 6.4 million registered individual taxpayers pay taxes. This means only 28% of individual taxpayers fulfil their obligations, while only 107,483 companies pay corporate income tax out of 508,150 registered taxpaying companies. This triggers profound concern for the government to generate extra revenue. Less enforcement from the authority contributes a significant factor.

b) Over-reliance on oil and gas industries

Major exploration of oil and gas resources helps the government to increase its revenue. Successful projects from various oil and gas sectors reduce the problem to the government from extracting sufficient revenues over decades. However, the bulk of dividends provided by the oil and gas industries particularly Petroliam Nasional (Petronas) which accounts for 35-40% of the government revenue is not resilient enough for the economy. Oil and gas is a non-renewable form of energy. Dependency on O&G industries will make the economy less healthy. Government should diversity its sources of revenue. It is timely for them to implement less regressive but progressive forms of taxation to generate extra income.

c) Wastage in government expenditure

Latest revelation from the 2012 Annual Auditor General Report have shown there were so much wastage involving small to big scale forms of procurement. One might be shocked when it unravels the fact that a clock that costs us less than RM300 per unit was paid for RM2400 for the similar type of clock. It shows rampant corruption involving rakyat’s money. Government has failed to implement strict measures to curb the wastages reflecting how unserious the government agency is in handling public procurement. It is estimated RM28 billion money was lost due to inefficiency of the government every year.

d) Fitch-ratingdownplayed Maysia’s credit performance from stable to negative

There are a few reasons that caused dwindling foreign interest in the local market. Recently, Fitch-rating agency downplayed Malaysia’s credit rating due to poor performance in the economy. One of the reasons highlighted was the persisting affirmative action introduced by the government that have largely benefitted a wrong targeted group. Since it was promulgated during 1970s, the economic disparities were still apparent and many Bumiputras are still lagging behind in terms of wealth ownership.

e) Rising house prices

I am pretty sure that many Malaysians felt the impulses due to the unforeseen circumstances. Since five years ago, house prices jumped to an irrational value. To meet the expectation, recent survey has shown that an individual with an accumulated household income RM5000/month only been able to buy a property in Klang Valley with minimum purchases of property value costs less than RM 450,000. Imagine how many houses with less than this value are currently available in Klang Valley? The answer is none!
Furthermore, only 6.4 million from the total 11 million registered workforce in Malaysia are eligible to pay income tax, that means less than a half of Malaysian can afford to buy any property in Klang Valley.

f) Mounting public-debt

Due to government overspending every year, the current economic condition is in turmoil. With the latest calculation on the public debts each year, it could go as far as RM 500 Billion and narrowly reaching a debt ceiling. However, we are not living in the United States where every single penny counts. In order of lack of compromises from the Senate, US government has declared a shutdown. That’s the bad thing about Malaysia. We live in a cowboy state where rule of law isn’t properly applied. They can increase the debt ceiling to curb the condition without public scrutiny.

So, what are the measures that would likely to be introduced by the government? Let’s wait and see. I anticipate that this budget is a conservative one and expect a tougher challenge from the opposition part. – October 20, 2013