Date: 23 August 2012
THE 2013 Budget which will be unveiled on Sept 28 should aim to show that it can sustain the current good economic growth rates on a longer term basis.
The latest estimates released by Bank Negara indicate that the Malaysian economy grew by a creditable 5.4% in the last quarter and a revised figure of 4.9% for the fi rst quarter of this year, compared to the earlier estimate of a lower 4.6%.
This is an impressive performance given the low, slow and even declining growth rates in the US, Europe, Japan and most parts of the world.
Even the conservative London Financial Times writer Jeremy Grant could not help hide his surprise at Malaysia’s resilience so far.
But we should not be carried away by this favourable assessment of our economy.
Neither should we take this steady growth for granted and worse still we should not become complacent and cavalier.
This is because there are serious undercurrents and global economic threats lurking all over while we also have our own critical internal socio economic and political concerns to contend with.
SUSTAINING GROWTH: The 2013 Budget should incorporate measures to protect and ensure Malaysia’s longterm economic viability
Thus the next half of this year and further ahead can be fraught with dangers brought about by a whole range of socio economic weaknesses that we need to overcome with a firm political, in order to remain strong and resilient.
Hence our 2013 Budget has to be well planned to play a more strategic structural role in sustaining our short term economic gains, that can fritter away, if taken for granted.
The Budget has to strengthen the “economic transformation” to ensure longer terms structural growth and better income distribution that will be truly sustainable.
For instance, we cannot ignore the facts that it is the government’s accelerated spending in recent times that have pushed up public consumption and public investment.
The salary increases and continuing high subsidies and cash grants and handouts have no doubt boosted the economic growth rates.
The government’s economic transformation projects and Programmes have also stimulated economic growth, together with private sector partnerships and financing.
This is all good for the economy but it begs the question as to how long this public sector initiatives can be realistically sustained?
We should not forget that Malaysia’s non-petroleum exports can now decline with lower demand from declining foreign economies.
At the same time, Malaysia’s essential imports will have to continue and this trend can adversely impact the balance of payments.
More importantly, the budget revenues could be adversely affected by lower exports.
If then government expenditures, especially in the operating budget, keep rising, then the Budget deficits will worsen.
The oft-postponed Goods and Services Tax (GST) could be introduced on a small scale to begin to collect more taxes from the expensive items consumed by the higher income groups.
Budget 2013 has to be more fiscally responsible to restrain any worsening of the budget deficits. Big ticket projects that have lower priority now can be slowed down.
The savings thus incurred could be diverted to finance small projects and programmes for the bottom 40% income groups and the small-medium industries, to meet the higher priority basic needs of the poor and less privileged rakyat.
The ability of the budget strategy to deal with its long-drawn budget deficits will determine its ability to control the rising budget debt, both domestic and foreign.
Both the budget deficits and public debt, including government liabilities, are still manageable.
However, there is the danger that the Malaysian economy may be soon approaching the tipping point if the government does not do much more to restrain its unhealthy deterioration in its budget deficits and debts.
We must also realise we have other structural problems like large and consistent private capital outflows, and the widening income gaps between the rich and the poor, and rising inflation and extensive corruption and the persistent fear of crime.
For all these adverse factors some international rating agencies have indicated their concern that our present comfortable ratings could be reviewed downwards.
That would cause us major problems if our ratings decline!
After all, the sick countries of Europe like Greece also got into grave trouble gradually, almost unnoticed initially.
Hence we have to learn valuable lessons from their mistakes.
We must take timely remedial action through Budget 2013 to protect and ensure our longer term economic viability and sustainability.
The 2013 Budget should therefore come out clearly to show that Malaysia current economic growth and resilience will be protected and sustained in the longer term.
TAN SRI RAMON NAVARATNAM is chairman Asli Centre of Public Policy Studies.
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