The Malaysian Insider
January 26, 2016
By Tan Sri Ramon Navaratnam
The recalibrated or revised Budget 2016 that the prime minister will present on January 28 has to be more pragmatic and realistic.
Then it will reduce the trust deficit and raise our international credibility and public confidence in our economic management.
The purpose of recalibration is basically to keep down our budget deficit, given the relatively new world economic slowdown and the unexpected lower petroleum prices.
Hence the budget operating and development expenditures need to be reduced, particularly since the raising of new taxes is not feasible or acceptable at this time.
We also cannot borrow much more. We could thus be caught in a bind.
So we need to recalibrate the budget quickly.
Budget's operating expenditure
Although the budget's operating expenditures will be difficult to cut, it will nevertheless be necessary to do so without cutting too close to the bones.
Admittedly, charged expenditures like the pensions, statutory grants to state governments and debt obligations have to be met under the law.
Hence there are serious limitations to reduce operating expenditure, unless civil service recruitment is frozen and inefficient staff are retrenched.
But these would be drastic measures to take, given the civil service tradition to keep themselves intact in their careers. In any case these radical moves may not be necessary at this stage in our economic slowdown.
What can the revised budget do to reduce operating expenditures?
In order to be fair and reasonable, the budget reductions have to be based on some cutting criteria such as to:
1. Phase out counter-productive agencies, staff and little Napoleons. They are those who are generally known to be promoting and spewing poisonous racial and religious hate.
2. Review and reduce inefficient agencies and staff that have shown considerable weaknesses in the delivery of goods and services to the rakyat. The key production indicators developed by Pemandu could now be used to advantage.
3. Save the huge public expenditure wastage that has been so well revealed by the auditor-general's reports. We have to improve systems and punish all those who deliberately waste taxpayers' hard earned contributions to the treasury.
4. Corruption has been rife for a long time. It has increased the budget deficit considerably. Yet our corruption perception index is continuing to be unacceptably poor. Hence we could strengthen the MACC with better laws to fight money politics, with a much stronger political will – can't we?
We have to more seriously combat corruption, lest we sound insincere and rhetorical and then undermine our confidence to overcome this evil menace.
5. Non-essential expenditures should be wiped out. Our leaders are often feted wherever they go on official visits. For goodness' sake, we don't need all this song and dance and huge kenduries. Be more frugal and cost conscious and optimise on the tax collected and use the taxes to benefit the poor in more sustainable and productive development.
Development expenditure has also to be reduced.
The 2016 development expenditures are more easily phased out or even cut back and new allocations could be constrained.
However we have to be careful that the rakyat and the poor and the low-income groups in both the rural and urban areas are not adversely affected.
This is a very sensitive matter and needs careful management, to protect the poor with greater empathy and care, especially at this time of rising inflation.
Criteria to cut development expenditure
Nevertheless, if the trust deficit is to be reduced and the budget's integrity maintained, the development budget has to be reduced. But the rigid insistence by some international rating agencies to stick to set budget deficits to GDP ratios need not be scrupulously followed, as if the ratios are cast in stone.
A little more leeway and some reasonable flexibility would, I believe, be tolerated, as long as there are genuine government efforts taken to better manage both the operating and development budget restraints.
The criteria to cut development expenditures should also be fair and reasonable to the rating agencies and investors and especially our own people.
The criteria to cut development expenditures could be as follows:
1. Projects that have long-term gestation periods and are huge can be phased out. They would be inter alia, some of our infrastructure, energy, transport projects. Some delays in project implementation would be understandable.
2. Projects with high foreign exchange costs could be easily delayed until the ringgit stabilises and improves. Otherwise we will pay unduly higher import prices.
3. Low priority projects that have some prestigious elements can be curtailed in the public interests.
Proposed private sector role?
The government expenditure cut backs will no doubt slow down economic growth, in preference to budgetary and financial stability. This is only right and proper to protect the budget integrity and economic sustainability.
But the economic slack can be taken up by the domestic and foreign investors, in both the operating and development expenditures. Thus the revised budget could provide more incentives for the private sector to invest more in Malaysia instead of our capital flowing out to other countries. I previously suggested the formation of incentivised 1Malaysia joint companies that are multiracial.
Herein lies our socioeconomic challenges. Can we sustain strong economic growth and strengthen our social development, through the enhancement of employment opportunities, higher wages and better income distribution?
Yes we can, if we encourage the private sector to perform well, but for the benefit of our people.
TPPA and AEC
This where the revised budget should take urgent measures to reform our economy. The budget should enable our economy to be more competitive, more liberal and more meritocratic, like the many developing countries that have already overtaken us.
We should be more positive and progressive over the Trans-Pacific Partnership Agreement and the Asean Economic Community.
The revised budget should set the scene for Malaysians to be able to have a head start in expanding there businesses in the TPPA and AEM.
It is hoped that the re-calibrated Budget 2016 will be realistic and yet dynamic, to overcome the serious challenges that we face in the uncertain and turbulent world economy.
Only the innovative and competitive will survive and prosper. I believe that with the right re-calibrated Budget 2016 – we shall overcome!
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