Tuesday, October 4, 2016

Budget: Time to be serious about reform

By Lim Teck Ghee

The most important thing in life is to stop saying 'I wish' and start saying 'I will.' Consider nothing impossible, then treat possibilities as probabilities.” (Charles Dickens in his 'David Copperfield')  
Budget day in Parliament is on 21 October, but already the requests for special treatment by organised capital and key lobby groups such as the real estate and housing industry, insurance, ICT industry and the tourism industry have started to avalanche. According to reports, more than 90 institutions have sent in their wish list.

We are also seeing similar wish lists put out by members of the public such as the demand from contract workers in the civil service that their positions be made permanent and pensionable. Others include greater income tax relief with calls for exemption up to MR10,000; the perennial lament for housing assistance for the bottom 40 per cent (B40) as well as middle 40 per cent of households (M40); as well as calls for enhancement of the 1Malaysia People's Aid Programme – BRIM.
All this comes at a time when the low oil and gas prices have depleted the government's coffers by an estimated RM30 billion according to Second Finance Minister Datuk Johari Abdul Ghani recently.

In partial response, we are seeing the government reiterate that it will put emphasis on alleviating the plight of the B40 group. This is the same populist song sung around budget time but this time with the low oil and gas prices projected to continue until next year at least, the discerning public will be watching whether the Government will exercise the fiscal prudence and spending discipline necessary to get through this challenging period.

Or will it, with its eye on the next election and the need for a distraction from the big black hole in the nation's financial standing excavated by the 1MDB financial mess, capitulate to pressure from the different interest groups and act as Father X'mas in dishing out early presents and goodies.

Cash may be king to the Minister of Finance and key to winning elections and staying in power. But there is a need to ensure that the cash is raised legitimately and transparently, and is spent effectively and prudently.

Beyond this mantra of fiscal responsibility especially necessary to avoid a rating downgrade as well as hit to our sovereign outlook, there is an even stronger case for biting the bullet on more radical fiscal reform than that our policy makers, the Government and the Opposition are normally accustomed to.

Road to fiscal reform
Here are three suggestions which can be added on to the ideas on how the Government may begin the long awaited journey of fiscal reform in the country:
1. Cut back on mega project expenditure
All projects – above a certain value – should be required to receive final approval from a joint committee of opposition and government members appointed to examine these projects and to authorise cuts.
It is scandalous that the Government has approved a budget of RM650 million for a so-called equivalent of London's Hype Park project for Kuala Lumpur. How many Taman Tugu projects are out there which have no or little value-added, have minimal impact on employment and GDP growth and have bloated pricing is anybody's guess, given the official secrecy that surrounds many of these projects. The least that can be done – if we cannot jettison them – is to use the kapak kecil or kapak besar on them.

2. Redo the Consumer Price Index (CPI)
It should be redone so that it is an accurate and definitive measure of the basket of goods and services that Malaysians spend on and enables government and the public to respond realistically to price movements, increases and inflation.
In 2008, Tan Sri Abdullah Ahmad Badawi, the country's Prime Minister and also Finance Minister, said that the government was reviewing its consumer price index amid criticisms that the country's key gauge for inflation is suppressed. According to him "There is a strong argument that it doesn't reflect the real situation on the ground. We are studying it very carefully, we don't want to make any mistake".

Two years later, nothing seems to have happened as the then Human Resources Minister Fong Chan Onn said that the index failed to reflect rising living costs. He also claimed that the CPI was being “skewed and suppressed.” As he noted in his blogsite. “The reported CPI in Malaysia has been increasing by about 3% per annum for the last three decades, while the world CPI has gone up 3,000 times over the same period.”

Now, especially after the imposition of GST, the CPI is even more in fantasy land with its politically-influenced manipulation.

Once the CPI – possibly the most vital of our national statistics with a bearing on virtually every aspect of economic life - is grounded in reality, then the government can have a better handle on how to manage the economy more honestly, fairly and efficiently.

3. Reform of GLCs
According to Asian Development Bank economist, J. Menon, Putrajaya could have raised the revenue to address the economic slowdown if it had included a programme to divest government-linked corporations in last year's budget. He noted that circumstances such as the plunge in government income made conditions “ripe” for Putrajaya to undertake radical reforms in the economy.
“One such reform would have been the acceleration of the divestment programme for GLCs, which would have provided a much needed windfall to depleted government coffers, while at the same time providing a timely boost to improving the domestic investment climate.” Instead, he noted that the government appears to be viewing GLCs as being part of the solution rather than being part of the problem.

Will this reform of GLCs now take place with this year's budget or is it also to be pushed further back into never-never land?

(Disclaimer: The opinions and comments expressed by the writers are theirs alone, and do not reflect the opinions of The Heat Malaysia.)
~ The Heat Malaysia

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