Budget 2013: What do we want and what can we afford?

— Ramon Navaratnam
The Malaysian Insider
Sep 25, 2012

SEPT 25 — Budget 2013, I am sure, will be one of the most difficult to design and to present to the people and Parliament come Budget Day this Friday Sept 28. I’ve done this many times before, so I think I would know!

This Budget is crucial for many reasons. Firstly, we are facing global economic decline and considerable uncertainty that can adversely affect our socioeconomic outlook. Secondly, the 13th General Elections are looming and voters want and think they can get more from this Budget. Thirdly, more so now, there is a major conflict between two perennial Budget issues — what people want and what can we afford.

Government is now faced with the exacting challenge of wanting to please the voters in an Election Budget and protecting the integrity of the Budget and indeed the sustainability of the economy itself. The Budget will thus have to strike a clever balance that will not easily please everyone — the people and the foreign financiers.

On the Macro front, we must take into account the rising concerns of the international Rating Agencies, the World Bank and the IMF which will be closely watching to see how we manage these conflicting demands on the Budget.

We can all merrily ask for more perks, tax concessions, subsidies and even more spending to make us all feel good and happy. But we have to think of the impact of more “giveaways” on the overall health of the economy. We have to remember our overriding need to control the widening Budget Deficit and the Debt Burden which have been rising rapidly and weighing down on the confidence in the economy in the longer term.

For instance the longer term implications of an unduly populous Budget that can lead to down grading of our financial rating by Fitch and/or Standard & Poor’s or even the IMF can be serious. Just as importantly foreign Investors would want to be assured that the economy is being well managed with greater prudence and fiscal discipline.

Hence, we have to aim to reduce the Budget Deficit and the Federal Budget Debt and the National Debt as well in this Budget 2013.

So, then how would Government also meet the rising expectations of the Rakyat especially in an Election Budget?

An important strategy of the Budget should seek to give greater priority to fight Inflation. Prices are rising for several reasons. When the supply of goods and services decreases, prices increase. So the Budget should break more bottlenecks in the supply chain of these goods and services. The Budget should remove more taxes and administrative constraints on small businesses. The economy should be further liberalised without imposing too many controls on land for cultivation of food and in granting licenses and approvals and quotas for small and medium businesses that are the backbone of our economy.

Budget expenditure should also be more stringently managed to get more real value for taxpayers’ money and the borrowings which have to be paid back with interest. Unemployment and unemployable graduates are becoming major problems. This is largely due to the poor and unsuitable kind of education we provide. Instead of churning many unemployable graduates from our public supported schools and universities, more Budget allocations for academic education should be diverted, to technical education to produce productive technicians who are more employable and who can even run their own business!

The Budget Strategy should adopt a Basic Human Needs approach. It should provide more funds for Housing, Transport, School expenses, reduced Utility Rates. The Budget could allocate more funds for 1 Malaysia Health Clinics, shops for low-priced clothing and a whole range of Basic Needs that are consumed by the poor and low-income groups from the lowest 40 per cent of our population.

The Budget could lessen the Subsidies that are now also enjoyed by the high-income groups. Surely the higher income groups like professionals and managers and big businessmen do not need petrol and other subsidies as well as scholarships for their children. Let the Budget look after the poor and encourage the rich to look after themselves. After all big business particularly foreign Investors and multinationals enjoy much more in terms of incentives and tax concessions.

But how do we finance these basic needs for the poor? The Budget has to ensure that we get more bang for the taxpayers’ buck! The taxpayers’ money has to be more efficiently spent through more genuine tendering of contracts, the drastic cut down in corruption, and the removal of inefficient contractors and developers. They short-change the Budget and worse still, the public. For example, houses can be less expensive if there are fewer “abandoned housing schemes”, caused by unscrupulous and unqualified contractors.

Tax evasion and avoidance can be reduced to increase Budget Savings, to narrow the deficit and debt. The General Sales Tax (GST) can be introduced so as to apply mainly to goods and services consumed by the rich and not the poor and low-income groups. The tax base can thus be widened to get more to pay taxes. Approved Permits should be scrapped and auctioned instead, to free the market, raise revenues and increase confidence in fighting wasteful protectionism.

Tax relief for the lower-income groups can be increased without too much adverse effects on the Budget Revenue. In any case, this is also the role of the Budget, to help promote better income distribution by raising the disposable income of the low-income groups. The Income Gaps are widening and the Government has to address this yawning problem more carefully, before it causes social problems as in many other restless societies.

The Development Expenditure could be reduced or slowed down, to reduce the Budget deficits and debt burden. This can be done as we did before, through a managed go slow on some low priority, non urgent and even “Prestige Projects” that can be phased out over a longer period, to protect the Budget’s integrity.

Finally, Budget 2013 can meet the challenges and conflicts that we face, if we give greater priority to meet the basic needs of the poor and low-income groups, raise our standards of discipline in revenue and expenditure management and thus go all out to obtain lower a Budget deficit and a reduced debt burden.

The Budget will then make us all feel good and at the same time enable our continued socioeconomic stability, and prosperity on a more sustainable basis in the longer term.

Happy Budget Day!