Malaysians still count on bolder economic reform

November 13, 2018

Author: Editorial Board, ANU

ww.eastasiaforum.org

READ ON: http://news.iium.edu.my/2016/04/10/book-review-a-new-malaysia-by-joaquim-huang/

The widely unanticipated ousting of Malaysia’s government in May not only left political analysts scrambling for explanations. It also had economists wondering what was in store for the economy.

The Najib Razak government had presided over relatively strong growth (5.9 per cent in 2017), low unemployment (around 3.5 per cent) and sound macroeconomic fundamentals. The eclectic group that gathered around former prime minister Mahathir and Pakatan Harapan (Alliance of Hope) to send the former government on its way had a less than stellar economic resume. Its campaign was mobilised around restoring good governance and unabashedly populist economics.

Finance Minister Lim Guan Eng –Emulate Tun Tan Siew Sin-Take Care of our money and please don’t sleep on the Job

The promise of a sounder revenue base was abandoned with the scrapping of the goods and services tax (GST). The future of economic reform and sound economic management looked distinctly uncertain. The government’s first move on the economic front saw it outsource consideration of pressing economic and other national issues to a Council of Eminent Persons. The Council consulted widely with key academic, business and government stakeholders in developing an agenda for economic reform and delivered a report to government in August.

Despite the promise of transparent governance, the contents of the Council’s report have remained confidential. Meanwhile Finance Minister Lim Guan Eng focused his early efforts on exposing the former government’s accumulation of debt and corrupt contracting, alongside abolishing the GST and reintroducing petrol subsidies — prudent if poorly sold policies of the Najib government. While there has been silence on economic reform, there’s been a hive of activity from the new government on the governance front.

Mahathir sent a clear message to ministers that elected officials and civil servants are expected to act in the people’s interests. The pursuit of former prime minister Najib and his associates on corruption charges, the separation of powers for key agencies, push back on the empire that had developed around the Prime Minister’s Department and promises to end the most egregious political appointments are among the promising early signs of large-scale governance reform. Economic governance is also set to benefit under the recently updated Eleventh Malaysia Plan priorities. It affirms commitments to improve fiscal frameworks, tackle corruption-affected tender processes, strengthen the competition regulator and enhance frontline service delivery. The 2019 Budget released on 2 November supports these reforms with specific measures and resources. Action and optimism surrounding getting institutions fixed has staved off criticism about the lack of action on economic reform.

The revised Plan and the government’s first Budget were expected to provide clarity about the new government’s medium-term economic reform agenda. Despite the short-term fiscal bind, the hope was that ambitions for economic reform would match those for governance.

As this week’s lead article by Stewart Nixon notes, the commitment to reform in key areas is underwhelming.

‘The Mid-Term Review provides a blueprint loaded with high-level aspirations that would represent an impressive reform agenda if translated into successful policies,’ says Nixon. ‘But aspects of the Review raise questions about the government’s real capacity to navigate medium-term risks. The 2020 balanced budget target has been abandoned and the budget deficit has widened to 3.7 per cent of GDP (with an aim to reduce this to 3 per cent of GDP by 2020), while public investment — most notably in major rail and pipeline projects — is set to contract.’

Malaysia has a low level of taxation revenue and public expenditure, but the government’s role in the economy is still pervasive. As Nixon observes, ‘The highly centralised top-down federation (that cripples local government initiative) and government ownership of more than half the local stock market ensure that the vast majority of economic activity is directly affected by the state.’ There is a worrying disconnect between government rhetoric recognising the need to act in these areas and policies under the Review and Budget that would achieve the opposite.

Perhaps the biggest drag on Malaysia’s economic performance and handicap to its breaking through the middle-income trap is flailing human capital development. Nixon writes, ‘It is therefore a positive that human capital retains high policy priority in Malaysia — commanding its own pillar in the Mid-Term Review and the highest share of budget expenditure.’ But while the government is pursuing worthwhile measures to address immediate skills mismatches, invest in school infrastructure and raise the quality of education, it still lacks a plan to address key shortcomings, including an outdated learning culture, centralised decision-making and politicisation.

As Nixon identifies, ‘The large program of policies favouring Malays and other indigenous groups (Bumiputera) in the Mid-Term Review is another possible economic destabiliser.’ The hope that Mahathir’s more representative government would bring an end to the country’s long-running and ill-targeted affirmative action program is still just a hope. The Review simply reaffirms the government’s commitment to continuing it while the budget extends discrimination into the digital arena. ‘Outdated and divisive policies serve to perpetuate negative perceptions of the majority Malays, deter investment and encourage the brain drain of discriminated-against minorities,’ says Nixon.

The challenge over time will be to build the tax base and put in place a transfer system that targets need and addresses universal problems of inclusiveness. Reforms that reduce pervasive federal government presence across the economy and influence in local governance are a high priority. Without these changes, tackling corruption-riddled systems of political patronage will be a job that’s never properly done.

The continuation and extension of pro-Bumiputera policies represents a disappointing failure to promote a more inclusive approach to ethnic relations. Fixing Malaysia’s floundering education system is also now a top priority.

If ever a government had the mandate and popularity to progress a bold reformist economic agenda in Malaysia it is now. Taking the leap to developed economy status rests on challenging reforms in areas of well-publicised and politicised weakness. Instead, the government’s first major economic policy announcements delivered mixed messages on debt reduction, unproductive handouts, minimalist tax tinkering and increased dependence on SOEs and their dividends.

Post-election uncertainties affecting investor confidence, the looming global trade wars and emerging-economy financial risks all call for more determined fiscal re-prioritisation and bolder structural reform to send a strong signal that the new government has the nous and determination to meet the people’s economic expectations.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.

 

 

Welcome to Malaysia’s Brave New World

November 5, 2018

by: John Berthelsen

https://www.asiasentinel.com/econ-business/malaysia-brave-new-world/

“Euphoria is dying off and bodies like Bersih, he continued, have started criticizing the new government. Many from civil society are keeping silent. “I suppose the saving grace is that Najib and his cohorts are gone. But that can’t console people forever.”_- J. Berthelsen

Six months into the rule of Malaysia’s new reform government, the bloom has started to fade as the Pakatan Harapan coalition attracts growing criticism while it seeks to find its feet against the political and economic debris left by the outgoing Barisan Nasional, driven from power on May 9 after six-plus decades in office.

The problems the government faces were starkly outlined on Nov. 1 by Finance Minister Lim Guan Eng in a marathon 14,000 word speech outlining the 2019 budget, in which he stated that the previous government, which he characterized as “kleptocratic,” had understated debt and liabilities by nearly 40 percent, rising to a stunning RM1.05 trillion (US$256.8 billion) in an effort to hide corruption, and that debts from the scandal-scarred 1Malaysia Development Bhd development fund could total as much as RM43.9 billion, not including RM7 billion in interest secretly paid on 1MDB debts using taxpayer money illegally.

To Malaysia’s credit, the frighteningly poisonous racial equation, in which ethnic Malays make up about half the population, the Chinese 23 percent and Indians 7 percent, with the rest split between expatriates and bumiputera tribes in East Malaysia, seems to have cooled markedly. The previous government’s attempt to use fundamentalists Islam to pound minorities has largely ceased although UMNO and the fundamentalist Parti Islam se-Malaysia continue to attempt to fan the flames. It remains to be seen what strains there are between the Chinese-dominated Democratic Action Party, Mahathir’s Parti Bersatu Pribumi, and Anwar Ibrahim’s moderate, urban Malay Parti Keadilan Rakyat – and what internal strains there are inside PKR.

The country is faced with a long series of monumental tasks – rebuilding a judiciary that was thoroughly corrupted by the previous government’s 61 years in power. The education system is a shamble, built on Malay privilege instead of academic achievement.  Lim called attention to educational shortcomings with a long series of measures allocating funds to lower-income students, upgrading failing schools and educational infrastructure, training and vocational education programs. Other sources say the government is being hamstrung to a certain extent by a civil service loyal to the previous government.

A series of murders including that in 2006 of Mongolian translator and party girl Altantuya Shaariibuu, AMBank founder Hussain Najadi and prosecutor Kevin Morais (pic above), all believed to be at the hands of high government officials, remain to be solved or even looked into.

The new government, caught by circumstances, has compounded its problems by campaigning against a deeply unpopular Goods and Services Tax (GST) implemented by the government of former Prime Minister Najib Razak, and then actually repealing it once in office, leaving a gigantic hole in government revenues.

‘–at the same time it has agreed to go along with Mahahir’s ill-conceived hobby horse, another national car project.

…That is despite 30-odd years of his previous ill-conceived hobby horse, the Proton national car, which cost the treasury billions of ringgit and billions more to consumers in lost opportunity costs from paying through the nose for heavily tariffed competitors. “- J. Berthelsen

It is seeking to fill the hole with a variety of piecemeal taxes – at the same time it has agreed to go along with Mahahir’s ill-conceived hobby horse, another national car project. That is despite 30-odd years of his previous ill-conceived hobby horse, the Proton national car, which cost the treasury billions of ringgit and billions more to consumers in lost opportunity costs from paying through the nose for heavily tariffed competitors.

“There was a lot of euphoria when Pakatan won the elections, but expectations were also very high,” said a prominent business source in Kuala Lumpur. “They have a small window. If they don’t deliver, that window will start closing.  But unfortunately, politicians will be politicians. They are inexperienced, and the euphoria is wearing off. So far, we have had no exciting government programs. New Malaysia is like Old Malaysia, minus Najib Razak and his 40 thieves.”

Najib and his wife Rosmah Mansor have both been arrested and are expected to go on trial next year. Hundreds of millions of dollars have been confiscated by Malaysian and US authorities although hundreds of millions more, perhaps billions, remain outside he government grasp.  Jewelry, handbags, watches, cash and other riches belonging to Rosmah that have been confiscated total at least US$273 million, putting her in a league even above Imelda Marcos, the wife of the late Philippine strongman Ferdinand Marcos, who held the public record for corruption. It remains to be seen if the Najibs surpass it.

The businessman’s assessment could be a bit pessimistic.  The government has abolished with capital punishment and the press appears to remain largely free despite reluctance on the part of the government to abolish a “fake news” bill pushed through at the last minute by the previous administration in an effort to muzzle pre-election critics.

But a sedition act used against the previous government’s foes remains on the books and has been used against critics. Civic organizations including Suaram have called attention to government inactions on a variety of rights issues. There is also concern on the part of the Coalition for Free and Fair Elections, known as Bersih, and others that MPs from the thoroughly disgraced United Malays National Organization are migrating to Parti Pribumi Bersatu Malaysia, headed by once and current Prime Minister Mahathir Mohamad, diluting the reformist zeal of the Pakatan Harapan coalition.  Although as many as 40 UMNO MPs are said to be contemplating such a move, Mahathir said they would be vetted individually and known crooks would be kept out.

But, said Kim Quek, a spokesman for opposition leader Anwar Ibrahim’s Parti Keadilan Rakyat in an email, “I foresee mounting tension when UMNO MPs slip into Bersatu, one after another quietly, causing endless suspicion…and mounting public disapproval.”

The headwinds outlined by Finance Minister Lim paint a pessimistic picture for both business and government. With the Trump administration cracking down on trade in Washington, DC, and the global economy beginning to slow, the budget, at a record RM314.6 billion, is forecast to run 3.7 percent of GDP in the red with economic growth expected to slow to 4.8 percent from 5.9 percent in 2017.  The ringgit, Malaysia’s currency, has fallen by 10 percent against the US dollar, in line with troubles across the world as interest rates rise in the United States, causing a flight out of emerging markets.

Lim, in his speech, set out a series of measures designed to help business and vowed to get government out of commerce, saying “clearly, government owned companies have been competing directly with private companies in non-strategic sectors. The outcome was the apparent ‘crowding out’ of private sector investments where private companies are unable to grow and compete.”

The private sector, he said, must lead, and the finance ministry is expected to establish a task force designed to evaluate and reduce duplication of functions,  a ray of hope that the country’s notorious rent-seeking government-linked companies, which funneled millions from inflated contracts to UMNO, could be cut back and its even more notorious cronyism could be reduced.

“Going forward, the government will focus its expenditure and investments only in strategic sectors and areas where the markets are unable to meet the needs of the people,” he said..

Nonetheless, business investment remains lackluster while the sector tries to figure out which way the government is going to go.

“Malaysia will undoubtedly be affected by the US-China trade war given that both these countries are among our top three trading partners,” Lim said in his budget speech. Exports remain a significant driver of the economy, particularly including electronics, oil and gas and palm oil.

Comeback kids: Like Dr M, other political figures have had second and even third acts during their careers, including (from left) Netanyahu, Abe, Berlusconi and Churchill    

Leadership remains somewhat unsettled, with Mahathir, at 93 the world’s oldest government leader, committed to staying for two years after the formation of the government. Anwar Ibrahim, now 71, has been waiting in the wing for decades, from the time when he was Mahathir’s chosen successor only to be fired and jailed after disagreements in 1998. Although he said he would study abroad and recover from his most recent imprisonment, he forced a by-election to return to parliament a few weeks ago, disconcerting some of his followers, who accused him of acting too quickly.

In the meantime, two of Anwar’s deputies – Mohamad Azmin Ali, the Minister of Economic Affairs, and Rafizi Ramli, the Parti Keadilan general secretary,  are staging their own internecine squabble to become deputy party leader with an eye to succeeding Anwar, raising concerns over party – and coalition – unity.  Pakatan Harapan remains a work in progress. Azmin is said to be aligned with Mahathir, Rafizi with Anwar.

That raises the spectre of Mahathir and Anwar continuing to try to do in each other despite public pledges of amity, including Mahathir campaigning for Anwar in the Port Dickson by-election that brought him back into the parliament.

“The Harapan guys thought that since they couldn’t get worse than Najib, people would continue to support them,” another source said. “They forget that there will always be alternatives; if not in the next five years, then in the next 10 maybe.  Inflation is creeping up; wages have not gone up; new taxes are being introduced and people still struggle to put food on the table. Business is slow; businessmen are not re-investing as they are unsure of this government’s policies.”

Award winning Journalist John Berthelsen

Euphoria is dying off and bodies like Bersih, he continued, have started criticizing the new government. Many from civil society are keeping silent. “I suppose the saving grace is that Najib and his cohorts are gone. But that can’t console people forever.”

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

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.

“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

by P. Gunasegaram

http://www.malaysiakini.com

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.

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.

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Reform For New Malaysia

October 13, 2018

Malaysia:  Reform for Transparent Governance

Improving parliamentary scrutiny helps the new government meet its election promises.

by Teck Chi Wong*

*A research assistant with the Tax and Transfer Policy Institute at the ANU, Teck Chi graduated from the ANU’s Crawford School of Public Policy and the University of Malaya, and was a former journalist and editor with Malaysiakini.

 

http://www.newmandala.org/better-governance-better-parliament/

Strengthening the Parliament and making the budget process more transparent are two promises made by the new Pakatan Harapan (PH) government in the run up to Malaysia’s 14^th general election (GE-14) in May. The former is listed in the manifesto as Promise 16, while the latter is Promise 29. Both reforms are interrelated and complementary to each other in ensuring a robust check-and-balance against the executive branch, which had been very dominant under the former Barisan Nasional (BN) government.

Recently, the new Speaker of the Dewan Rakyat (Lower House of Parliament) and former senior judge Mohamad Ariff Mohd Yusof (pic above) led a parliamentary delegation to Canberra to visit the Australian Parliament. By drawing from Australia’s experience in this area, the Malaysian Parliament can be strengthened through budget transparency reforms.

Parliaments play a key role in the budget process in many countries including Malaysia, with powers to approve or reject government budgets and oversee their implementation and outcomes. A robust parliament is essential in creating a robust budget process.

All government policies inevitably require some public resources for planning and implementation, and the budget process is an important medium for the Parliament to scrutinise policy decisions made by the Executive Branch and hold them accountable. It’s not unusual in Malaysia for opposition parliamentarians to use the budget debate to argue for a pay cut over ministers’ policy failures.

To make informed decisions, the Parliament also requires extensive information and it relies on government agencies with first-hand information. Without a transparent robust budget process supported by relevant budget information, parliaments cannot make informed decisions about budget allocations and uphold accountability effectively.

The Malaysian Parliament had been criticised as a rubber stamp for the executive branch in the previous government. While there are no global indicators on national legislative strength, indices on democracy can serve as a rough proxy, given that parliaments are central institutions in democracies. In the Economist Intelligence Unit’s Democracy Index, Malaysia is a ‘flawed democracy’, which despite holding regular elections, has significant weaknesses in its democracy. BN (and its predecessor the Alliance) held a two-thirds majority in Malaysia’s Parliament for most of its rule since independence (except the last two terms), and it was rare for government bills to be amended never mind defeated.

In terms of budget transparency, Malaysia is also in a sorry state. According to the latest Open Budget Survey 2017, the Malaysian public has only limited access to budget information and the country ranked 54 out of 113 countries, with a score of 46 out of 100. Although the Survey did not ask specifically about the information accessible by parliamentarians, it was likely no better than the public they represent. In Southeast Asia, Malaysia is trailing behind the Philippines (67 points), Indonesia (64 points), and Thailand (56 points), and only ahead of Cambodia (20 points), Vietnam (15 points) and Myanmar (7 points). Singapore, Brunei and Laos did not participate in the Survey.

Malaysia’s performance in two other pillars of budget accountability is likewise bad: the country received a score of 22 out 100 in public participation, and a score of 35 in institutional oversight. In particular, the Survey finds parliament providing weak oversight throughout the budget process. There is no pre-budget debate in Parliament and there are also no parliamentary committees to examine budget proposals. Malaysia also does not have an independent fiscal institution like Australia’s Parliamentary Budget Office (PBO), which is increasingly recognised as an important source of independent and nonpartisan information in the budget process.

With PH taking power in GE-14, many have seen this as an opportunity for remaking Malaysia, with reforming parliament frequently at the top of the agenda. While the issue of budget transparency isn’t prominently on the radar, we should appreciate its linkages with parliamentary reforms and promote it as an integral part of the movement to strengthen the Parliament.

Two particular reform directions stand out from the discussion above: more information should be made available, and the Parliament has to beef up its oversight capabilities. In this respect, there are things that Malaysia can learn from the Australian budget process. Both countries share the same institutional roots in the British Westminster system, but Australia is far ahead in terms of budget transparency. In the Open Budget Survey 2017, it ranked 12 and received a score of 72. Australia also has a vibrant budget oversight institutional setting, particularly the Senate Estimates, which examine the annual budget in detail.

Australia has been a pioneer in pursuing budget transparency reforms since the 1990s. There are two pillars of budget transparency in its modern budget process: the Charter of Budget Honesty and the PBO. Both level the information playing field between the Executive Branch and the Parliament.

Enacted in 1998 to improve fiscal policy outcomes, the Charter of Budget Honesty has been crucial in making more budget information is accessible by the public, and also parliamentarians who represent them. The Charter requires a number of documents to be published for ‘facilitating public scrutiny of fiscal policy and performance’. For example, the government js required to produce a Mid-Year Economic and Fiscal Outlook (MYEFO) report, which provides an update to the annual budget halfway through the year, and reports any events or changes that may affect the budget’s trajectory. The government must also produce an Intergenerational Report every five years, which provides a long-term aspect to budget forecasting. Such documents are currently not available in Malaysia, thus limiting the information base its Parliament can use in scrutinizing the executive branch.

On the other hand, the PBO, established in 2012, plays an important role in breaking the government’s monopoly on having access to advice on the financial implications of proposed policies. The establishment of this institution allows parliamentarians to build their own policy proposals with proper costing, using the same rules and conventions as the government’s, thus allowing deliberations on a same footing. The PBO has proven to be a great resource for opposition parliamentarians. For example, in 2016-17, over 1,600 policy costings were prepared. This has contributed to improving the vibrancy of Australian parliamentary debate, with back benchers and opposition parliamentarians in a better position to carve out more solid policy alternatives to the government.

In Malaysia, this policy costing service is available only to the government. The lack of proper costings of policy proposals have been an excuse used by past governments to dismiss the opposition’s policy proposals without addressing their merits. Even the new Pakatan Harapan government has used this as a reason to justify their failure of delivering some of the election pledges. An independent fiscal institution like the PBO would rectify the problem.

The Senate Estimates process is another key feature of Australian budget scrutiny, which should be relevant to Malaysia. Established in 1970 to replace the ‘committee of the whole’ process, Senate Estimates have since become an annual ritual of the budget process, where ministers and officials are called to attend public hearings to assist Senate standing committees in considering departmental budgets. The Estimates inquiries are conducted twice a year, the first when the main supply bills are introduced into parliament, and the second when additional supply bills are tabled. They allow Senate standing committees to consider departments’ spending in a detailed manner, which would otherwise be cumbersome for the Senate to address as the committee of the whole.

 

The new government can and should take the opportunity to rehabilitate Malaysia’s battered While the purpose of the Estimates process is to help the Senate make informed decisions about the budget, its importance goes beyond that. Given that the Estimates are conducted in the form of public hearings, and officials, instead of just ministers, can be called to testify, they provide senators an unparalleled opportunity to seek information on the operations of government. They are also part of the parliamentary scrutiny of the performance of the executive branch, as ministers and officials are required to explain not only what had happened, but also why. This is where accountability is most directly manifested.

In its GE-14 manifesto, Pakatan Harapan pledged that parliamentary select committees will be established to monitor every ministry, with the power to call ministers and senior officials to testify. As illustrated by the Australian experience, the budget process serves as a good medium for these committees to hold the Executive Branch accountable for its policies, given that their funding is in play. And this is part of the recommendations by the Open Budget Survey 2017 Malaysia country report, in which it urges Malaysia to prioritize the establishment of parliamentary select committees that can examine the annual Budget.

The Malaysian Budget is where taxing and spending decisions are made, and Parliament plays a central role in the process. By improving the budget process, Parliament is also strengthened, and vice-versa.

CEP’s Dr. Jomo Kwame Sundaram–A Life of Public Service

September 24, 2018

The Council of Eminent Persons (CEP), sometimes described as the Council of Elders, was set up to advice the Prime Minister Dr Mahathir Mohamad’s new Pakatan Harapan government.

However, the CEP has also attracted a fair amount of controversy, including criticisms from within Harapan about the council’s role and powers.

One of the council’s members, economist Jomo Kwame Sundaram, addresses those criticisms in a question-and-answer format.

Question: You have been quite quiet since you were appointed to the CEP.

Jomo: Yes. Given all the speculation and tendentious publicity, I did not feel it was helpful to provide more fuel to the fire. As you know, myths about the CEP thrived, and all manner of things were attributed to the CEP, often wrongly.

There were also things we did in our individual capacities, which were being attributed to the CEP. As a result, the initial goodwill, credibility and legitimacy the CEP enjoyed were undermined, and instead of being an asset to the government, especially the PM, we became the butt of many criticisms, including from within the Harapan coalition, largely due to misunderstandings and misperceptions.

I think I speak for all CEP members that if the PM needs our services, we will gladly serve in our individual capacities, and hopefully, become less of a liability to him.

Why are you reported to be against publication of the CEP report?

The issue is complex and nuanced. First, producing a single report for publication was not in the PM’s appointment letter or announcement.

Undoubtedly, some other bodies in the past, viewed by many as precedents, did produce reports after working for much longer periods, but some did not. For example, Tun Razak’s National Consultative Council after May 1969 did not do so.

Our brief was to help the PM, and the new government, with some immediate tasks at hand, especially the PH manifesto pledges for the first 100 days. To do that well, we tried to offer advice as soon as possible for him to consider and act upon, which is different from producing a report after 100 days.

But a report has been submitted to the PM?

While CEP members were agreed on most matters, there were also some disagreements, for example, on government-linked companies. As is known, some of us disagreed on privatisation policy decades ago, which has a bearing on contemporary debates.

It may be impossible to resolve some such differences, even after further discussion. In such situations, what does one do? Remain silent, or publish the chair’s view, as long as that is made clear.

The CEP chairperson has come under particular criticism from certain quarters.

Former CEP Chairman Tun Daim Zainuddin–The Silent Man of Action

I am not sure what you are referring to, but his longstanding relationship to the PM was undoubtedly crucial to the CEP’s establishment and functioning, and the object of criticism by his or the PM’s detractors.

There were also many criticisms of his trip to China, but again, such criticisms were undeserved, in my view. Governments dispatch special envoys all the time to deal with sensitive matters discreetly.

But you were a critic of the earlier Mahathir administration.

Indeed, I was critical of some aspects, but if you read what I wrote, my criticisms were always intended to improve government policy, and I also shared his aspirations for the country, especially development, industrialisation, Wawasan 2020, economic nationalism, nation-building, the so-called Asian financial crisis.

The CEP has not been meeting after the 100 days, but yet a report has just been submitted to the PM.

While we have not met or reviewed draft reports since, our chair has been helping the MACC on certain urban land abuses, as he should. Remember he has vast experience in such matters for half a century, even before he was involved with UDA, the Urban Development Authority.

Some CEP meetings were like master classes where I personally learnt more than I could ever hope to learn from reading.

So, are you for or against publication of the report?

It is really up to the PM. There are many options, including partial publication. Remember there are some highly sensitive matters, in terms of official secrecy as well as other matters which may be sensitive in terms of market behaviour, international diplomacy or even legal procedure.

As someone who has been critical of the abuse of secrecy in the past, I must also acknowledge that there are legitimately sensitive matters, and full transparency may not always be in the public interest.

If the CEP had a different proposal on some issue from the one eventually adopted by the Harapan government, what is the point of publicizing such differences with the government of the day after the fact? It is likely to be used by detractors for their own purposes rather than for better purposes.

Also, as you know, two committees were set up. The Institutional Reform Committee prepared a long report with a view to publication, and the PM may wish to publish it. The other one on 1MDB has contributed to expediting investigation and action, but I doubt their recommendations were intended for publication.

So, you will have nothing to show for your 100 CEP days?

Serving the national and public interest was our priority, not publicity or publications.

What are you doing a month after the CEP’s 100 days ended?

No longer an elder, I already feel younger.Many people expect me to write about the CEP, its work and its recommendations. I have no such plans, but am very busy with earlier unfinished and postponed work as well as new work to help the new administration, preferably under the radar.