Malaysian Economic Democratisation

(Extracts from DAP Alternative Budget 2010 launched on 7th October 2009)

4. Budget Objectives

To meet the challenges of improving Malaysian global economic competitiveness while addressing the growing rich-poor disparity in Malaysia and being mindful of the fiscal constraints and harnessing our oil resources effectively, the DAP Budget 2010 is themed “Malaysian Economic Democratisation”.

The goals of economic democratisation is to ensure that public funds and expenditure by the government will be more effectively and efficiently spent in accordance to the needs of the people, ensure that public projects are structured in mechanisms which will benefit the rakyat as opposed to politically-connected operators as well as enabling Malaysians to achieve greater economic freedom.

The process of “economic democratisation” will hence focus on 3 key thrusts, that are:

1. Economic Democratision – Fiscal Decentralisation

2. Rakyat First – Restructuring & Reallocation

3. Empowerment & Enablement – Capacity Building

4.1 Thrust I: Economic Democratisation – Fiscal Decentralisation

The Malaysian economy has increasingly become a bureaucratic behemoth dictated and run from the central federal government, with diminishing roles of the various state governments. Malaysian income and corporate tax revenues are all collected by the federal government and subsequently these revenues are reallocated to the various state government via constitutionally provided per capita grant, as well as other discretionary grant allocations.

The existing policy has resulted in major imbalances between the expenditure budget of the federal government vis-a-vis the respective state governments. For example, in 1990, the combined state expenditure budgets added to 25% of the overall Federal government expenditure. This proportion has declined substantially over the past 20 years to less than 9% in 2007.

Such centralised and discretionary policy decision making may also result in imbalances between the various state governments. For example, the allocation to respective states is based solely on the whims and fancies of the central government which will result in certain states enjoying unequitably larger allocations, while other states enjoy subtantially less from their fair share.

As a result, economic and government policy implementation has become substantially less efficient and effective due to the bureaucratic nature of transfers from the federal government to actual local development. Centralised planning has also the clear weakness of poor decisions arising from weak understanding of the local development needs and circumstances. For example, a highly centralised Transport Ministry will not be able to make informed and effective public transportation policies for each township and city across the entire country.

Therefore, in order to improve the government delivery system, its efficiencies and effectiveness of expenditure, the implementation of a wide-array of economic and developmental policies is best left to individual states to decide according to their own priorities, preferences and unique situations. Enlightened, accountable local government on-the-ground is best placed to determine and execute socio-economic strategies. Sectors which will enjoy increased fiscal decentralisation proposed here will include the transportation and internal security.

The DAP proposal for “economic democratisation” via increased fiscal decentralisation marks a tectonic shift in the Malaysian economic framework which a will trigger an explosive boost to economic efficiency and productivity due to greater effectiveness in per ringgit expenditure as well as higher multiplier effects for government expenditure on the economy.

Fiscal decentralisation will also ensure more balanced regional development as opposed to highly centralised development in selected regions such as the Klang Valley, and thus creating more developed and economically productive secondary cities through out the entire country.

To complement the move for economic democratisation via fiscal decentralisation, DAP will move for complementary local government elections with amendments to the federal constitution, and for sharing more fiscal power with state governments. This will ensure that the greater fiscal allocations to and the utilisation by the local authorities and state governments will remain fully transparent and accounted for by democratically elected and competent representatives.

4.2 Thrust II: Rakyat First – Restructuring & Reallocation

Years of weak and misdirected policies, as well as abuse by the existing government have resulted in institutionalised misallocation of Malaysia’s scare resources which has concentrated the benefits to the few who are politically connected, while marginalising the vast population where the help and resources are much required. Malaysia’s decades long fling with the New Economic Policy (NEP) which emphasizes almost exclusively on “race” at the expense of “needs” and “merit”, have resulted in major structural deficiencies in our economic system which penalises both the welfare of the people and the efficiency of our economy. On the other hand, the institutionalised misallocation has enriched the select few who are able to exploit the misguided NEP. A major concerted effort to restructure and reallocate our economy is hence required to ensure more balanced development between the rich and poor, as well as fostering greater economic efficiency and competitiveness.

As part of the restructuring and reallocation thrust, there will be dedicated efforts towards proper implementation of an efficient welfare system is required to help ensure those born into poverty are not trapped in a vicious cycle. The emphasis will strictly based on needs, and not on “race” as dictated in the NEP. Those specifically belonging to any race which are economically weaker as a whole will by definition receive the appropriate aid from the Government. On the other hand, those who are well-endowed and economically productive will not deserve assistance under welfare programmes regardless of race. The DAP strategy will include reallocation – direct handouts to the hard-core poor and elderly – and capacity building – improvements in education, transport and healthcare that will facilitate individuals working their way up the income ladder.

The DAP Budget 2010 also instills accountability and equitability in the distribution of the nation’s oil wealth. Malaysia has been blessed with rich petroleum resources which has generated huge income streams for the Malaysian government via the collection of income taxes, royalty, dividends and other taxes and fees. However, despite the lucrative returns from the oil and gas industry over the past decade, every single sen of earnings from this windfall has not only been spent, but with added debt on top. For 12 consecutive years, despite sky-rocketing global oil prices, Malaysia has no reserves or surplus to show from our oil wealth. The DAP seeks to restructure and reallocate our oil wealth, to ensure that it will be invested with the aim of creating a perpetual income stream that will flow even after the oil stops flowing through saving for the future economic downtime, strategic investment in building new capabilities such as renewable energy and green technology, as well as development of human capacities.

At the same time, DAP also seeks to restructure the lopsided concessions created since the 1990s under Mahathir’s “Malaysia, Inc” major privatisation programmes. These massive concessions which enriched a few, and drains the nation of its wealth, continue to strain the nation financially and compromise the country’s ability to compete effectively in the global marketplace. These contracts, especially ones concerning Independent Power Producers (IPPs), tolled highways and water concessions should never have been handed out to begin with, as politically-connected concessionaires have reaped grotesque amounts of profit at the expense
of hardworking, ordinary Malaysians.

4.3 Thrust III: Empowerment & Enablement – Economic Capacity Building

Finally, DAP receognises the development and retention of talent as a critical necessity for Malaysia to expand into high value industries. In addition, to restore Malaysia’s attractiveness as an investment destination, a range of concerted measures will be taken in the areas of education, healthcare, transportation, finance, technology, security, energy and environment in enhancing our regional and global competitiveness.

The weakening global competitiveness of Malaysia is real. The Government’s continued basking on past glories will only result in irreparable damage to our economy and national competitiveness. However, if we instill in our economy the spirit of resilience as well as the ethics of competition, hard work and innovation, Malaysia will be better positioned to reap the full potential of global economic growth. DAP seeks to revive the fierce competitive spirit of the Malaysian economy, complemented by increased competency, greater accountability and improved transparency.