The Malay Dilemma revisited


December 17, 2018

The Malay Dilemma revisited

 by Dennis Ignatius

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In what may well be a prelude to a significant policy shift, Prime Minister Dr. Mahathir Mohamad has taken to warning Malays that they are being left behind, that they are not on par with other races, that they are increasingly confined to the urban fringes where infrastructure is poor.

With rhetorical flourish, he even confessed to an audience at UiTM recently of being ashamed that “in our own country we are left behind….” It is an idea straight out of his ‘Malay Dilemma’ thesis.

Left behind?

But left behind? Is Mahathir really serious?

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www. freemalaysiatoday.com
The narrative that Malays are being left behind is, for the most part, simply a political construct that is being promoted to justify the continuation of race-based policies that essentially favour the elites at the expense of the poor and serve the interest of Malay power structures.”–Dennis Ignatius

Go into any government department or university, go to a cabinet meeting or to parliament, go to Mindef or Bukit Aman, go into the nation’s corporate boardrooms or banks, go to Damansara Heights, and you’ll find the Malays firmly entrenched there, and rightfully so, as homeowners, entrepreneurs, bankers, scientists, doctors, vice-chancellors, professors, engineers, architects, civil servants, etc. They are holding their own very well and are second to none.

If anything, it is the non-Malays who are falling further and further behind in many of these sectors as a result of skewered government policies.

Even the notion of urban racial disparity that Mahathir has used to justify not having local council elections, was disproved a long time ago. According to 2010 census data, Malays are in the majority in all but a few urban centres. In Kuala Lumpur, for example, the Malay population in 2010 stood at 49.5%, outnumbering the Chinese population, which stood at 43.2%. It is much higher than that now.

Simply put, a lot of these race-based assumptions may have been true twenty or thirty years ago but not anymore; yet they continue to be bandied around as fact and used as a basis to formulate policies.

Who is to blame?

And if Malay urban areas lack infrastructure, shouldn’t city administrators be taken to task for their failure to serve all the residents of the city? It makes no sense at all to somehow blame others for the unequal distribution of facilities and opportunities when the administration is itself overwhelmingly in Malay hands. Perhaps, if our politicians and city administrators were not so busy exploiting their own positions for personal gain, the poorer areas of our cities might get the attention they rightly deserve.

It is, in fact, mind-boggling that so many Malay politicians continually harp on how poorly the Malays are doing when all the power to correct the situation has been in their hands for more than 60 years. Instead of fear mongering and race-baiting, they should look at their own performance and their own policies and figure out how to do a better job of governing the nation to the benefit of all its citizens.

A political construct

The narrative that Malays are being left behind is, for the most part, simply a political construct that is being promoted to justify the continuation of race-based policies that essentially favour the elites at the expense of the poor and serve the interest of Malay power structures.

Of course, there are many Malaysians who need help – farmers, fishermen, rural and urban poor; no one will grudge them greater support and assistance. But let’s have a targeted needs-based approach that really works, that will make a real difference. A needs-based approach will do more to uplift the disadvantaged Malays (as well as others) than many of the current policies that only benefit the crony-elites.

Building a culture of confidence

Instead of perpetuating a siege mentality – that the Malays are about to be overwhelmed by other communities – the government should celebrate the tremendous advances that the Malay community has made in the years since independence and how Malays have taken their place as leaders and change-agents in every area of national life.

Creating a culture of suspicion, fear and envy of other communities might be expedient in the short-term but it is ultimately fatal to our nation’s progress. Surely that’s one of the most important lessons we must learn from the past 60 yeas of UMNO’s racist policies.

The views expressed are those of the author and do not necessarily reflect those of FMT.

 

Message to Pakatan Harapan Politicians–Stop the Blame Game


November 16,2018

Message to Pakatan Harapan Politicians–Stop the Blame Game

by S.Thayaparan@www.malaysiakini.com

“It is much more important to kill bad bills than to pass good ones.”
– Calvin Coolidge, former US President

COMMENT | Now-retired Council of Eminent Persons (CEP) chairperson Daim Zainuddin’s rejoinder to the Pakatan Harapan government to stop playing the blame game is one of the more honest moments the establishment has had since gaining power on May 9.

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“It has got to a point where every time the new government is waffling, demurring or flat-out reneging on their campaign promises or proposing unpopular policies, they blame the former UMNO regime.”

The minority (voters) who voted the previous government out do indeed know why they are happy to see the fall of UMNO, but for the majority Malays who voted for UMNO and PAS, all they see is the new administration blaming those whom they voted for.

They read about partisans who mock the UMNO  base, even though the Malay power structures in Harapan are desperate to shore up Malay support with the elected reps from the disgraced Najib regime.

Part of this is because of the platform that Harapan ran on. Before joining Harapan, Prime Minister Dr. Mahathir Mohamad, in various interviews, claimed that the primary goal was to remove a kleptocrat and that there were other “issues” that he could work with the coalition on, but which were secondary.

When he formally joined Harapan, he had to sublimate his own baggage of autocratic tendencies to work out a compromise with brokers in the coalition, that included a host of issues that were related to reforming the system.

He had to do this because his Bersatu was literally a newborn, while the other partners in the coalition, excluding Amanah, already had an established  base with ideas of institutional reforms which would truly save Malaysia. The formation of Bersatu itself was one of racial necessity, or at least this was the coalition’s party line.

Remember, it was not as if systemic corruption was unheard of in Malaysia. It is pointless dragging up the polemics of the then opposition when it came to the corruption and abuse of power during Mahathir’s regime.

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The fact is that Najib’s regime corruption was so blatant, the regime’s attempt to stifle dissent so heavy-handed and its attempts to shore up Malay-Muslim support so detrimental to non-Malay interests, that a sufficiently diverse minority was moved to replace UMNO-BN.

When Daim says that Harapan needs to fulfil its election manifesto, the reality is that the current Prime Minister has admitted that the campaign manifesto is a fiction based on the belief that the coalition could not win this election. In other words, it was a “say anything” manifesto.

This, of course, was met with blowback from other Harapan coalition members, but the cynicism of the old maverick’s statement is the kind of realpolitik that he and his kind of politicians have trafficked for decades.

Blaming a kleptocrat is easy. The real problem starts when the Harapan regime has to differentiate itself from the UMNO regime. This is where the trouble starts. It started when Harapan began waffling about removing certain laws.

Indeed, anecdotally speaking, there are more Harapan political operatives, Malay and non-Malay, who want election promises kept – or so they tell me – than the politburo of Harapan, which has never failed to find an opportunity to blame the former regime for Harapan’s lack of political will to carry out eforms

This is not that straw man argument about giving the coalition more time. There are already apologists who claim that the 100-day promises are a burden too heavy to carry. This is about outright not fulfilling promises and cynically expecting the base to support such decisions.

The shackles of reforms

And this is the problem right here. We are dealing with politicians whose currency is autocracy and a supplicating base, which was the norm for decades. These so-called reforms in the Harapan manifesto are in reality shackles for politicians who are used to dealing with the public, not as servants of the state, but rather as potentates to be followed.

Part of this is partisan politics, of course. These days, Mahathir has a loyal following in the Harapan political elite and amongst a certain segment of the Harapan base.

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He gets to accept someone like Mustapa Mohamed – better known as Tok Pa – into Bersatu, claiming that the criteria for such entry was that Tok Pa had been cowed when it came to standing up to Najib. One assumes, I suppose, that his cowardice evaporates before the majesty of Mahathir and he will suddenly discover the strength to fight for his constituents now that he is in Bersatu.

When Cynthia Gabriel of the Governance, Integrity, Accountability and Transparency (Giat) coalition threatens to name and shame establishment politicians who do not declare their full assets and not just their incomes, she is vilified on social media.

Gabriel is just doing her job like she was when she was speaking truth to UMNO power, but now, she is vilified. One Harapan political operative even emailed me asking where “she gets her funding from.”

Before May 9, when Gabriel had said the same when she was raging against UMNO hegemony, Harapan partisans were ready to canonise her. This same political operative was worrying about her safety.

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As for what she thinks of her job, Gabriel said it all here, when she accepted the US-based National Endowment for Democracy’s (NED) 2017 Democracy Award: “This is not something (in which) we can just say ‘enough’, or it’s time to shirk away and do nothing about it. It is important to stay the course, fight the good fight, it is important to seek the truth.”

You see, what is important is not just removing the kleptocrat. What differentiated Harapan from UMNO-BN was those promises in the manifesto which curtailed executive power, restored individual freedoms, reformed public institutions, and, most importantly, curtailed the power of the state security apparatus to hamper all of the above.

I mean, for a time there was talk of hate speech laws. This from a coalition which was targeted by the Umno state using instruments of the state for speaking truth to power. At a time when the Harapan government were waffling on repealing laws which limited our freedoms, there was actually talk of creating new laws which did the same.

Then, of course, Mahathir says this for justifying the retention of the Official Secrets Act 1972: “The law is not perfect. It is open to abuse, but you hope to find people who will not break the law, who will obey the rule of law. That is what is important.

“The last government did not follow the rule of law. They did what they liked with the law. The main thing is to find a government that will not break the laws.”

Does anyone really think that we have found a government which does not break laws?


S THAYAPARAN is Commander (Rtd) of the Royal Malaysian Navy.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

 

Reclaiming Community


November 15, 2018

Reclaiming Community

children school bus

by

Stable families, good jobs, strong schools, abundant and safe public spaces, and pride in local cultures and history – these are the essential elements of prosperous societies. Neither global markets nor the nation-state can adequately supply them, and sometimes markets and states undermine them.

CAMBRIDGE – Economics teaches that the measure of an individual’s wellbeing is the quantity and variety of goods he or she can consume. Consumption possibilities are in turn maximized by providing firms with the freedom they need to take advantage of new technologies, the division of labor, economies of scale, and mobility. Consumption is the goal; production is the means to it. Markets, rather than communities, are the unit and object of analysis.

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Harvard’s Dr. Dani Rodrik

No one can deny that this consumer- and market-centric vision of the economy has produced plenty of fruit. The dazzling array of consumer goods available in the megastores or Apple outlets of any major city in the world would have been unimaginable as recently as a generation ago.

But clearly something has gone wrong in the meantime. The economic and social divisions within our societies have provoked a broad backlash in a wide range of settings – from the United States, Italy, and Germany in the developed world to developing countries such as the Philippines and Brazil. This political turmoil suggests that economists’ priorities may not have been entirely appropriate.

Image result for Frothcoming book by  Raghuram Rajan

The “third pillar” of the title is the community we live in. Economists all too often understand their field as the relationship between markets and the state, and they leave squishy social issues for other people. That’s not just myopic, Rajan argues; it’s dangerous. All economics is actually socioeconomics – all markets are embedded in a web of human relations, values and norms. As he shows, throughout history, technological phase shifts have ripped the market out of those old webs and led to violent backlashes, and to what we now call populism. Eventually, a new equilibrium is reached, but it can be ugly and messy, especially if done wrong.–The Third Pillar– R. Rajan

Two books, one forthcoming from Raghuram Rajan and another published this month by Oren Cass, revisit our economistic worldview and argue that we should instead put the health of our local communities front and center. Stable families, good jobs, strong schools, abundant and safe public spaces, and pride in local cultures and history – these are the essential elements of prosperous societies. Neither global markets nor the nation-state can adequately supply them, and sometimes markets and states undermine them.

The authors come from different vantage points. Rajan is an economist at the University of Chicago and a former governor of the Reserve Bank of India. Cass is at the right-of-center Manhattan Institute for Policy Research and was domestic policy director for Republican Mitt Romney’s presidential campaign. You would not necessarily expect either a Chicago economist or a moderate Republican to treat markets and hyper-globalization with skepticism. But both are disturbed by what they see as the effects on communities.

Rajan calls community the “third pillar” of prosperity, as important as the other two pillars – the state and market. No less than excessive centralized state power, he writes, unmanaged globalization can tear apart the fabric of local communities.

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Cass is explicit that US trade and immigration policy should focus on American workers first and foremost. This means ensuring that local labor markets are healthy and that there are plenty of goods jobs at decent wages. Both authors emphasize the gains from trade and reject US President Donald Trump’s protectionism. But they agree we may have gone too far into hyper-globalization and paid insufficient attention to the costs for communities.

When a local factory closes because a firm has decided to outsource to a supplier across the border, more is lost than the hundreds (or thousands) of jobs that move abroad. The impact is multiplied through reduced spending on local goods and services, which means workers and employers across the entire local economy feel the hit. The local government’s tax revenues fall as well, so there is less money to spend on education and other public amenities. Anomie, family breakdown, opioid addiction, and other social ills often follow.

Economists’ usual answer is to call for “greater labor market flexibiliy”: workers should simply leave depressed areas and seek jobs elsewhere. But as Cass reminds us, geographical mobility has to be coupled with “the opportunity to stay.” Even during times of significant migration, the bulk of local populations stayed put and needed good jobs and solid communities

Alternatively, economists might recommend compensating the losers from economic change, through social transfers and other benefits. Leaving aside the feasibility of such transfers, it is doubtful that they are the solution. Joblessness will undermine individual and community wellbeing even if consumption levels are propped up through cash grants.

Ultimately, it is only through the creation and expansion of well-paying jobs that local communities can be made vital. Cass’s proposal is to encourage employment through wage subsidies. Rajan emphasizes the role of local leaders who can mobilize community assets, generate social engagement on the part of local residents, and create a new image – all in the context of more supportive state policies and managed globalization.

Other economists have advocated regionally targeted manufacturing extension programs, fostering partnerships between local employers and universities. Yet others recommend local public spending, such as on job training programs for small and medium-sized enterprises.

We do not have a good fix on what works best, and a fair amount of policy experimentation will be needed to make progress. But the urgency of action is heightened by the fact that ongoing technological trends threaten to exacerbate communities’ existing problems. New digital technologies tend to exhibit scale economies and network effects, which produce concentration rather than localization of production. Instead of diffusing gains, they create winner-take-all markets. The globalization of production networks magnifies such effects further.How we balance these forces with the needs of communities will shape not only our economic fortunes, but also our social and political environment. As Cass and Rajan show, it is a problem that economists should no longer ignore.

ttps://www.project-syndicate.org/commentary/economists-focus-on-markets-too-narrow-by-dani-rodrik-2018-11

*Dani Rodrik is Professor of International Political Economy at Harvard University’s John F. Kennedy School of Government. He is the author of The Globalization Paradox: Democracy and the Future of the World Economy, Economics Rules: The Rights and Wrongs of the Dismal Science, and, most recently, Straight Talk on Trade: Ideas for a Sane World Economy.

Blame the Economists?


November 7, 2018

Blame the Economists?

by
economists

Ever since the 2008 financial crash and subsequent recession, economists have been pilloried for failing to foresee the crisis, and for not convincing policymakers of what needed to be done to address it. But the upheavals of the past decade were more a product of historical contingency than technocratic failure.

 

BERKELEY – Now that we are witnessing what looks like the historic decline of the West, it is worth asking what role economists might have played in the disasters of the past decade.

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From the end of World War II until 2007, Western political leaders at least acted as if they were interested in achieving full employment, price stability, an acceptably fair distribution of income and wealth, and an open international order in which all countries would benefit from trade and finance. True, these goals were always in tension, such that we sometimes put growth incentives before income equality, and openness before the interests of specific workers or industries. Nevertheless, the general thrust of policymaking was toward all four objectives.

Then came 2008, when everything changed. The goal of full employment dropped off Western leaders’ radar, even though there was neither a threat of inflation nor additional benefits to be gained from increased openness. Likewise, the goal of creating an international order that serves everyone was summarily abandoned. Both objectives were sacrificed in the interest of restoring the fortunes of the super-rich, perhaps with a distant hope that the wealth would “trickle down” someday.

At the macro level, the story of the post-2008 decade is almost always understood as a failure of economic analysis and communication. We economists supposedly failed to convey to politicians and bureaucrats what needed to be done, because we hadn’t analyzed the situation fully and properly in real time.

Some economists, like Carmen M. Reinhart and Kenneth Rogoff of Harvard University, saw the dangers of the financial crisis, but greatly exaggerated the risks of public spending to boost employment in its aftermath. Others, like me, understood that expansionary monetary policies would not be enough; but, because we had looked at global imbalances the wrong way, we missed the principal source of risk – US financial mis-regulation.

Still others, like then-US Federal Reserve Chairman Ben Bernanke, understood the importance of keeping interest rates low, but overestimated the effectiveness of additional monetary-policy tools such as quantitative easing. The moral of the story is that if only we economists had spoken up sooner, been more convincing on the issues where we were right, and recognized where we were wrong, the situation today would be considerably better.

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The fact that Obama failed to take aggressive action, despite having recognized the need for it beforehand, is a testament to Tooze’s central argument. Professional economists could not convince those in power of what needed to be done, because those in power were operating in a context of political breakdown and lost American credibility. With policy making having been subjected to the malign influence of a rising plutocracy, economists calling for “bold persistent experimentation” were swimming against the tide – even though well-founded economic theories justified precisely that course of action.—

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The Columbia University historian Adam Tooze has little use for this narrative. In his new history of the post-2007 era, Crashed: How a Decade of Financial Crises Changed the World, he shows that the economic history of the past ten years has been driven more by deep historical currents than by technocrats’ errors of analysis and communication.

Specifically, in the years before the crisis, financial deregulation and tax cuts for the rich had been driving government deficits and debt ever higher, while further increasing inequality. Making matters worse, George W. Bush’s administration decided to wage an ill-advised war against Iraq, effectively squandering America’s credibility to lead the North Atlantic through the crisis years.

It was also during this time that the Republican Party began to suffer a nervous breakdown. As if Bush’s lack of qualifications and former Vice President Dick Cheney’s war-mongering weren’t bad enough, the party doubled down on its cynicism. In 2008, Republicans rallied behind the late Senator John McCain’s running mate, Sarah Palin, a folksy demagogue who was even less suited for office than Bush or Cheney; and in 2010, the party was essentially hijacked by the populist Tea Party.

After the 2008 crash and the so-called Great Recession, years of tepid growth laid the groundwork for a political upheaval in 2016. While Republicans embraced a brutish, race-baiting reality-TV star, many Democrats swooned for a self-declared socialist senator with scarcely any legislative achievements to his name. “This denouement,” Tooze writes, “might have seemed a little cartoonish,” as if life was imitating the art of the HBO series “Veep.”

Of course, we have yet to mention a key figure. Between the financial crisis of 2008 and the political crisis of 2016 came the presidency of Barack Obama. In 2004, when he was still a rising star in the Senate, Obama had warned that failing to build a “purple America” that supports the working and middle classes would lead to nativism and political breakdown.

Yet, after the crash, the Obama administration had little stomach for the medicine that former President Franklin D. Roosevelt had prescribed to address problems of such magnitude. “The country needs…bold persistent experimentation,” Roosevelt said in 1932, at the height of the Great Depression. “It is common sense to take a method and try it; if it fails, admit it frankly and try another. But above all, try something.”

The fact that Obama failed to take aggressive action, despite having recognized the need for it beforehand, is a testament to Tooze’s central argument. Professional economists could not convince those in power of what needed to be done, because those in power were operating in a context of political breakdown and lost American credibility. With policymaking having been subjected to the malign influence of a rising plutocracy, economists calling for “bold persistent experimentation” were swimming against the tide – even though well-founded economic theories justified precisely that course of action.

Still, I do not find Tooze’s arguments to be as strong as he thinks they are. We economists and our theories did make a big difference. With the exception of Greece, advanced economies experienced nothing like a rerun of the Great Depression, which was a very real possibility at the height of the crisis. Had we been smarter, more articulate, and less divided and distracted by red herrings, we might have made a bigger difference. But that doesn’t mean we made no difference at all.

J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

Budget 2019:Tough Times Ahead for Malaysia


Budget 2019:Tough Times Ahead for Malaysia–The Price of UMNO’s Fiscal Indiscipline

Domestic Demand to grow at 5 and 4.8pct in 2018 and 2019

by Bernama@www.malaysiakini.com

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BUDGET 2019 | Domestic demand growth is expected to remain resilient at five percent and 4.8 percent this year and in 2019 respectively, steered by sustained private sector expenditure.

READ THIS:

https://www.malaysiakini.com/news/450171

According to the Economic Outlook 2019 report released by the Ministry of Finance today, private sector growth expenditure is expected at 6.5 percent this year and 6.4 percent in 2019, constituting about 72 percent of the Gross Domestic Product (GDP).

Meanwhile, the report said public sector expenditure is anticipated to further decline to 0.9 percent in 2019, after recording a marginal growth of 0.1 percent this year, mainly due to lower investment by public corporations.

“Private consumption will remain the major growth determinant, expanding by 7.2 percent and supported by a stable labour market, benign inflation and conducive financing conditions.

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“Other factors such as the zerorisation of the Goods and Services Tax, subsidised pump prices, the general elections, FIFA World Cup season, and termination of toll collection on two highways, provide further impetus to household spending,” the report said.

Private investment, the report said, is expected to grow 4.5 percent this year, accounting for 17.3 percent of GDP with capital outlays concentrated in the services and manufacturing sectors.

It is expected to post a higher growth of five percent next year, attributed to capital spending in technology-intensive manufacturing and services sectors, it added.

According to the report, as Malaysia moves towards digital technologies and the Industrial Revolution 4.0, investment will focus on catalytic industries.

These include the Internet of Things (IoT), software, advanced electronics, smart machinery, automation and robotics, automated guided vehicle, aerospace and medical devices.

On the other hand, public consumption is anticipated to expand marginally by one percent this year, in line with the continuous efforts by the government to rationalise and optimise expenditure without compromising the quality of public service delivery.

In 2019, the report said, public consumption is expected to expand 1.8 percent on account of higher spending on emoluments as well as supplies and services.

As for public investment, it is expected to decline 1.5 percent and 5.4 percent in 2018 and 2019 respectively, mainly weighed down by public corporations’ lower capital spending.

Nevertheless, sustained federal government capital formation is expected to continue to support overall growth of public investment. Despite lower capital spending by public corporations, some of the ongoing projects are expected to continue in the oil and gas industry.

The report said capital spending in the utilities and transport segments is projected to continue to expand capacity and upgrade services.

Meanwhile, federal government development expenditure will be channelled mainly to upgrade and improve transport, infrastructure and public amenities, as well as enhance the quality of education and training.

“In line with steady economic growth, Gross National Income (GNI) in current prices is expected to grow 5.6 percent in 2018 to RM1.4 trillion, while gross national savings (GNS) is anticipated to increase marginally by 0.4 percent to RM387.8 billion with the private sector accounting for 82 percent of total savings.

“With the level of GNS continuing to exceed total investment, the savings-investment gap is expected to record a surplus between 2.5 percent and three percent of GNI, enabling Malaysia to continue to finance its growth primarily from domestic sources.

‘’Growth momentum in GNI is also expected to continue next year expanding 7.1 percent to RM1.5 trillion, with the private sector accounting for 86.9 percent of total savings, while GNS is anticipated to grow 3.4 percent,” the report noted.

Total investment is projected to increase five percent to RM366.8 billion, leading to lower savings-investment surplus, ranging between two percent and three percent of GNI.

Malaysia: Pakatan’s First Budget will be a tough one


October 19, 2018

Malaysia: Pakatan’s First Budget will be a tough one

by P. Gunasegaram

http://www.malaysiakini.com

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Malaysia’s Finance Minister Guan Eng

QUESTION TIME | Pakatan Harapan’s first budget to be announced on November 2 is going to be a terribly tough one because there are not going to be many sources of extra revenue nor many avenues for cost-cutting.

There is a reason why the Harapan government does not have enough money – and it isn’t debt that they claim they didn’t know about until they came to power. The real answer is the scrapping of the goods and services tax.

The cash crunch that resulted from the abolition of the GST in favour of the inferior sales and service tax will result in a yearly tax revenue loss of a massive RM22 billion initially, rising as the economy expands. Add to this the cost of fuel subsidies of RM3 billion, and the yearly shortfall is RM25 billion at least.

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That is the kind of yearly gap in revenue that Putrajaya faces. Using projected 2018 figures, according to 2018 Economic Report, the RM25 billion loss of revenue represents 10.7 percent of the projected operating expenditure of RM234.3 billion for 2018.

No tax that the government imposes will come anywhere close to breaching the RM25 billion gap. If it were to impose substantial taxes to recover this money, it will result in hardship to the people along with rising prices – which Harapan said it intended to contain with the abolition of GST in the first place.

A wrong move

The truth is, the abolition  of the GST was a terribly wrong move, and has needlessly strait jacketed the Harapan government and led to a deterioration of its financial position.

As I have said before, it should not even have been a campaign promise as the consumption tax was no longer contributing to higher prices, having been implemented with considerable difficulty back in April 2015.

Also, the GST affected the poor very little because there was a very large list of exemptions which ensured that the prices of essentials would not rise as a result. It is a tax on consumption, and therefore those who consume more (the rich) will pay more, catching in the tax net those who evade income tax. Also, GST records can be used to investigate tax evasions.

If there was one manifesto promise that Harapan broke, it should have been the abolition of GST. That would have ensured that the government finances are in good shape as reforms are being implemented – which could even have included more targeted benefits for the low-income group.

The main reason for higher prices was currency depreciation, a problem that continues to plague us despite the removal of a kleptocratic government. In fact, abolishing the GST may have contributed to currency weakness because analysts and funds view the revenue shortfall as negative in terms of the financial condition of the country.

Finance Minister Lim Guan Eng actually said last month that the ringgit strengthened relative to most countries, despite the transfer of power and weak external demand, but the period he used was incorrect – beginning with end-2017. He should have used May 9, the date of the election.

The table below shows how the ringgit performed relative to the currencies of the Asean-5 from May 9 to yesterday.

The table clearly indicates that the Malaysian currency significantly under performed all the ASEAN-5 countries – barring Indonesia, which has considerable economic problems of its own.

Tightened belts?

Hopefully, the new government and Finance Minister can demonstrate through the budget that they have a proper grasp of the issues at hand and how to handle it to reverse the currency trend.

It won’t be easy. While Lim has argued that the national debt exceeds RM1 trillion – and this has become wrongly used as the debt figure now – it is not. The debt as revealed in the 2018 in Accountant General’s Report for 2017 is still RM687 billion, and increases to over RM1 trillion only if contingent liabilities and guarantees are included, as I have previously explained.

Even if some of the contingent liabilities and/or guarantees have materialised as debt and are not classified as such, the interest on them will still have to be paid. Therefore, there will be little material increase in the overall costs of interest, even if they are reclassified into debt. The problem remains the RM25 billion shortfall.

Some potential positives include increased oil prices and more dividends from government companies, but these are likely to be well under RM10 billion incrementally.

An examination of government costs shows that salaries, retirement benefits and debt service charges account for 57.6 percent of total operating costs of RM234.3 billion. These can’t be cut.

There is more room to cut ‘supplies and services’, and ‘subsidies and social assistance’ accounting for a total of RM60.2 billion, or 25.7 percent of total operating expenditure, but the cuts will have to be pretty sharp. Also, this will probably take away targeted aid to the poor if cash grants under the old BR1M are cancelled.

Harapan is finding out too late that they left themselves too little wriggle room when they abolished GST. Unless they reinstate it – and they aren’t likely to do that because it will be an admission of a major blunder – they have to find other ways to raise revenue or cut costs.

Since the best, broad-based, value-added tax which goes by the name of GST here and implemented in over 160 countries around the world seems no longer available to them, and revenue-raising measures are limited, tightening the belt and prudent cost-cutting may be the order of the day.

If they do a good job of it, and come with a plan of also stimulating the economy to put growth on an upward trajectory again, analysts, fund managers, and most of all Malaysians, will show more faith in them and start putting money into the country.

It would also help to put the ringgit back on an upward path and suppress rising prices, or even lower them over the longer term. That entails honesty, openness, consultation, competency and a willingness to put the country and people above all. Malaysians expect no less from the new government.


P GUNASEGARAM is disappointed that the new government has not always been honest and open. Email: t.p.guna@gmail.com.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.