Lim Kit Siang’s Take on Najib Razak’s So-Called Mother of All Budgets 2018


November 2, 2017

Lim Kit Siang’s Take on Najib Razak’s 2018 BudgetThe So-Called Mother of All Budgets

The Budget is a tool or instrument for presenting a statement about the state of the economy, its prospects, and policy announcements for improving governance. A well-crafted budget statement should be an objective and honest presentation meeting the goal of accountability.

Sadly, the budget he (Najib Razak) presented fails these basic tests. His speech of almost 12,000 words was more akin to a laundry list of giveaways, expenditure allocations both real and imagined, and vague statements about the economic consequences that would result.–Lim Kit Siang

http://www.malaysiakini.com

MP SPEAKS | Prime Minister Najib Razak described Budget 2018 being about “gifts, rewards and incentives.” It is a most mistaken view.

The Budget is a tool or instrument for presenting a statement about the state of the economy, its prospects, and policy announcements for improving governance. A well-crafted budget statement should be an objective and honest presentation meeting the goal of accountability.

Sadly, the budget he presented fails these basic tests. His speech of almost 12,000 words was more akin to a laundry list of giveaways, expenditure allocations both real and imagined, and vague statements about the economic consequences that would result.

The speech omitted any reference to urgently needed policy changes to restore the competitiveness of the economy that would enable the nation to escape the middle-income trap it finds itself in. The speech was silent about measures to correct the stagnation in real income, and address the looming danger associated with the mountain of debt – public, corporate and household.

The budget has been turned into an unabashed and irresponsible first salvo in the campaign for the 14th General Election. Page after page of the speech detailed expenditures and proposed allocations; no group was ignored in the largesse being extended.

Najib’s laundry list of giveaways, expenditure allocations both real and imagined, and vague statements.-2018 BUDGET

Little was said about how the proposed expenditures were designed to advance the overarching economic goals; no reference was made to how the addiction to deficit spending was to be overcome.

The projected deficit was itself a meaningless figure as the profligate spending in some measure would be financed outside of the budget, and nor did the PM in his speech or in the economic report provide details about the level of contingent liabilities or the new liabilities being assumed.

Electioneering

The PM chose to describe the budget as the “mother of all budgets”. Ironically, he was on target as this budget was an exercise in deception and was an unvarnished sales pitch seeking votes in the upcoming election.

Najib’s claim about “good news” needs to be taken with a large pinch of salt. The reality is that the news as reported in the budget statement is more in the nature of “fake news”. The budget framework is built upon dubious interpretation of statistical data in a highly selective manner.

The PM gloated over the growth numbers but was being selective. He failed to make any reference to issues of a structural nature raised by the World Bank and the International Monetary Fund (IMF) in particular in the latter’s Annual Article IV Consultations and reported on its website.

Economic growth rates

Najib also made much about the revised growth rates issued by the International Financial Institutions and attempted to claim credit. He omitted to indicate that the revisions pertained to almost all countries – Malaysia being one in the group.

The revised growth rates should not therefore be interpreted as an approval of the competence of the government in managing the economy. Growth rates are revised to be higher because of global economic developments, primarily resulting from changes in monetary policies by the US Federal Reserve Bank and its counterpart the European Central Bank, and the partial recovery in prices for oil and gas.

The PM has been selective in the use of data. This is best illustrated by his use of the year 2009 as the base for measuring change. There is no rational reason for this choice other than an attempt to glorify his own tenure of office. It is also pertinent to note that 2009 marked a global recession. The choice of this low base amplifies the recovery in the years since.

Najib, however, chooses to remain silent about the negative developments, for instance, in the losses in the country’s external reserves (from a peak of US$ 140.0 billion in 2012 to US$101.2 billion in Sept 2017; total reserves as a percentage of external debt fell from a high of 121.1 percent in 2007 to 47.2 percent in 2016 or the decline in the value of the ringgit from US$1 = RM 3.34 in 2007 to US$1= RM4.20 in September 2017. These are not indicative of “efficient governance and prudent discipline” as he claimed.

Putrajaya’s fiscal situation

For two decades the government has operated with a deficit; the reported federal government debt now approximates 55 percent. Additionally, the Putrajaya has concealed its borrowings and the true size of its debt by making government-linked companies and other quasi-government entities undertake borrowings to finance public sector projects under the guise of so-called public-private projects.

The government has, at the same time, accumulated large hidden contingent liabilities by extending guarantees for borrowings by GLCs and other entities.

The fiscal situation has been worsened by corruption, mismanagement and other abuses including non-competitive acquisition of goods and services. The absence of competitive bidding results in price distorted costs. Tax revenues have been eroded by way of so-called “incentives” extended to government cronies without resulting in any discernable rise in private investment.

NEM goals

The reference in the speech to the New Economic Model (NEM) is more in the nature of a throwaway remark.

Certain clear-cut goals and policies adopted at the launch of the NEM have fallen by the way side. It should be recalled that there was a commitment to pursue further privatisation of the government’s non-financial public enterprises and reduce the government’s holdings in the GLCs which in reality function as state-owned enterprises.

It is significant that the speech contained no reference to the pursuit of these stated goals.

The findings from a recent highly professional study led by Terence Gomez has highlighted the dominant role played by GLCs in almost all sectors of the Malaysian economy, from aviation, banking, manufacturing, plantations to various modes of transportation.

In 2013, a total of 455 companies (including subsidiaries) were classified as government-linked investment companies (GLICs). There were 35 publicly listed companies which were among the top 100 companies listed on the Bursa Malaysia. The latter account for an overwhelming percentage of the capitalisation of the exchange.

Without a doubt, the government’s footprint is large in the business and commercial sectors. The entities in question act as monopolies or privileged entities, thus stifling private enterprise. This has led to flagging private investment despite tax and other incentives.

Of late several entities (e.g., Mara, Felda, Tabung Haji) have become mired in financial scandals. There is little or no accountability by such entities.

Furthermore, it is strange indeed that while Malaysia as a upper middle income country seeks to attract FDI flows, yet government linked agencies are currently exporting capital. These endeavors taken represent contradictions. But, more troubling is the fact that they give rise to abuses and corrupt practices.

The claims of successes in employment creation merit comment. While indeed some 2.3 million jobs have been created in the past eight years, most of these have been low paying jobs with many filled by migrant workers.

Serious shortages of skilled workers exist; paradoxically the brain drain continues unabated. These labor market developments along with the stagnation in wages are indicative of a failed set of policies that are contributing to the loss of competitiveness and entrapment as a middle-income country.

The self-congratulatory remarks about export growth are yet another example of delusion. While the current level of exports are expressed in ringgit terms, the PM has chosen to ignore the fact that he is comparing values based on different exchange rates.

The comparison of international reserve levels is rather devious – this is the only comparison linked to 1997!

The reporting of an increase in income per capita from RM27,819 in 2010 to RM49,713 in 2017. This trend is contradicted by the World Bank as the following numbers show:

The significance of these numbers points the extent to which Malaysia is lagging in terms of achieving “high income” status which in 2016 was set as income levels in excess of US$12,235.

Indeed, taking account of the current level of GNI per capita, projected exchange and growth rates, it is patently clear that the much-touted goal of achieving “high income” status by 2020 is a fading dream.

Budget allocations

The budget allocations for 2018 are projected at RM280.25 billion, an increase of RM20 billion, with RM234.25 billion for operating expenditure and some RM46 billion for development.

While further details are highlighted, Najib chose to be silent about a large item, namely debt service which amounts to 11 percent of the operating expenditure. The increased allocations are largely to restore cuts that were imposed earlier in the year.

Revenue collection in 2018 is projected at RM240 billion, an increase of approximately nine percent from RM220 billion in 2017.

No details are given either about the sources of revenue, or the amounts reduced by way of tax cuts and exemptions. The projected growth lacks credibility given GDP growth rate, reductions in revenue attributable to the exemptions from GST granted for big ticket items alongside the reductions in income tax rates.

In brief, the rosy estimates of modest growth in expenditure coupled with unrealistic levels of revenue receipts follow a pattern. Revenue projections are pitched high whilst expenditures are restrained in the budget.

Thus, there are inevitable supplementary expenditure requests later in the year. These approaches in budgeting enable the government to put out massaged numbers for the deficit. These practices appear to be sharpened in the preparation of the 2018 Budget.

Lip service was paid about fiscal consolidation without mention of how the PM proposes to reduce debt levels. While he was upbeat about all manner of “progress”, no mention was made about the record concerning deficits. It is noteworthy that it is now more than 20 years since Malaysia enjoyed a budget in surplus.

Once again total debt along with contingent liabilities will rise in the year ahead. These will represent burdens passed on to future generations. With an ageing population, the burden will be all the greater. The nation’s long-term interests are being sacrificed for short term political gains.

The claim that this budget will chart the course for building the nation for the next 30 years is a farfetched assertion. This is all the more questionable considering the fact that the Budget hardly lays out any long- term policies and goals but is only concerned with the “here and now” issues assumed to be of interest to a highly jaded electorate.

Rewriting history

Most remarkable, however, is the PM’s assertion: “Since we declared Independence, we have been fortunate as our forefathers have governed and administered this country embedded with shariah requirements”. Najib appears to be rewriting history by ignoring the fact that the country adopted a secular constitution and up until recently shariah played no major role in administration.

To claim that for six decades a shariah framework has operated with the federal constitution playing a secondary role is an outright distortion of the facts. The formulation used by the PM ought to raise a red flag about his coalition’s intentions regarding the status of the Constitution.

While acknowledging that “the framework has not been written in any government documents, but its practices are reflected in all inter-related national philosophies and policies” Najib appears to be outlining a position that the government will adopt in the event it is returned to power. It is thus a signal of how the secular federal constitution will be further sidelined.

Trends in investment

The PM set out several targets dealing with investment and trade. The statistics about trends in investment were selective.

Once again by choosing a low bench mark year (2009), a year that recorded a global recession, and inflated targets for 2018, he attempted to project progress.

These statistics appear impressive in attributing performance of private investment. A closer review, however, paints a different picture.

Given that the GLCs dominate the private sector, and that they largely operate as SOEs, much of the “improvement” can be attributed to government initiatives handled by these entities.

The process permits the government to by-pass concerns about the debt ceiling and at the same time permit nefarious projects as evidenced by the 1MDB saga.

The trends in private investment are erratic as inappropriate policies and political uncertainties have impacted on private investment, both domestic and foreign. The failure to announce corrective policy measures will result in sluggish investment patterns along with continuing outward capital flows

Passing reference is made in the 2018 Budget to accelerating exports. However, no indication is given as to what policies will be introduced to develop capacities in new products and promoting industries involving new technologies for instance the use of artificial intelligence.

No mention is made about how the government proposes to deal with the withdrawal of the US government from the TPPA; the PM was silent about what posture it intends to take viz. other trading arrangements within ASEAN or with the EU and the China-led proposals for a regional trade arrangement.

The claim that “…for the first time in the history of the nation’s budget…” a large allocation “is provided to assist farmers, fishermen smallholders and rubber tappers” appears to be a most strange claim. Every Five-Year Plan, every budget over the past six decades has contained allocations for these groups; it is disingenuous indeed to make claims that are short on a factual base.

 

The mega rail transportation projects that have been announced raise multiple concerns. For a start, cost benefit and feasibility studies have not been disclosed, assuming these have been done.

It is worthy of note that the projects will be financed by loans from China; the terms of these loans have yet to be announced. Reports in the media appear to suggest that major parts of these projects will be assigned to China’s enterprises who will invite some Malaysian entities to collaborate.

Najib evaded the entire issue of port expansion using loan funds in the face of overcapacity in the nation’s major port, Port Klang, following the departure of a major user. Many of the other transportation projects highlighted in the speech will not be financed from the Federal budget.

The following quote from his speech is most remarkable – it projects self-glorification and is somewhat insulting of past holders of the office of Finance Minister:

“This Budget that has never been crafted so well, even during the last 22 years or the past 60 years of our own nation, and marked in history, making this Budget the Mother of All Budgets.”

Ironically, this Budget may indeed qualify as the “mother of all budgets” for reasons other than those offered by the PM. The speech represents an open attempt to create fake news in pursuit of gaining credibility with an electorate that is largely disenchanted by the workings of a government tarred by endless scandals, led by someone viewed as a kleptomaniac.

The current budget also qualifies as such for its extensive giveaways, without a realistic vision or any demand for sacrifices. It provides no coherent strategies to permit the nation to escape the middle-income trap.

Malaysia urgently needs a course correction if it is to regain dynamism to enable it to move forward on the road to greater prosperity.


LIM KIT SIANG is DAP Parliamentary Leader and MP for Gelang Patah.

 

Jomo: Whither the Malaysian economy ?


October 17, 2017

Jomo: Whither the Malaysian economy under Najib Razak?

http://www.malaysiakini.com

Image result for Finance Minister Najib Razak and the National Debt
Malaysia’s Worst Finance Minister Najib Razak–Fiscal Mess, Heavily in Debt and Lowest Reserves in Asia.

This interview with economist Jomo Kwame Sundaram, former Assistant Secretary-General for Economic Development at the United Nations, was conducted in August for publication in the run-up to the country’s next Budget for 2018 due to be announced next Friday.

Developed country status

Question: Malaysia is close to achieving developed country status and is growing at a reasonable pace. Why are you concerned then?

Jomo: Becoming a developed country involves much more than achieving high-income status. But even by reducing ‘developed country’ status to becoming a ‘high-income’ country, we are not quite there unless we resort to statistical manipulation, e.g., by using 2013 exchange rates, or by ignoring about a third of the labour force who are ‘undocumented’ foreign workers.

For example, the ringgit declined from RM3.2 against the US dollar in 2014 to almost RM4.5 before recovering to the current RM4.2! But then we continue to use the old exchange rate or purchasing power parity (PPP) to pretend that we are almost there. The only people we are cheating is ourselves.

Also, if we continue to grossly underestimate the number of foreign workers in the country, then the denominator for calculating per capita income goes down. Similarly, by excluding the lowest paid foreign workers, income inequality has been declining when their inclusion may give a different picture. Thus, we can reach supposed high-income status more quickly if we pretend there are only one or two million foreign workers, when even the minister admitted last year to about 6.7 million!

Seven million, mainly undocumented foreign workers in Malaysia comes to over a third of the country’s total labour force. Many of them work and live in far worse conditions than the worst-off Malaysian workers. We are thus dependent on a huge underclass, largely foreign, whom we are in denial about.

New Economic Model

What do you think of Prime Minister Najib Razak’s New Economic Model?

Jomo: Let us be clear about this. The New Economic Model, or NEM, is really a wish-list of economic reforms desired from an essentially neo-liberal perspective. That does not mean it is all good or all bad. It contains some desirable reforms, long overdue due to the accumulation of excessive, sometimes contradictory regulations and policies.

 

Although the NEM made many promises and raised expectations, most observers would now agree that it has rung quite hollow in terms of implementation despite its promising rhetoric. As we all know, the NEM was dropped soon after it was announced for political reasons, and has never been the new policy framework it was expected to be.

Turning to actual policy initiatives, to the current administration’s credit, it accepted the minimum wage policy and BR1M (Bantuan Malaysia 1Malaysia) idea, both long demanded by civil society organisations, and supported by many, mainly opposition parties. The minimum wage policy has probably been far more important than BR1M in improving conditions for low-income earners.

Premature deindustrialisation

The contribution of manufacturing to growth and employment has been declining in this century. Yet, you seem to be nostalgic for industrialisation when the leadership wants to move to tertiary activities.

Jomo: Sadly, instead of acknowledging the problem, ‘premature deindustrialisation’ is being cited as proof of Malaysia being developed although services currently account for most job retrenchments.

Indeed, Malaysia has been deindustrialising far too early, even before developing diverse serious industrial capacities and capabilities beyond refining palm oil and so on. We have abandoned the past emphasis on industrialisation, but have not progressed sufficiently to more sophisticated, higher value-added industries.

In Japan, South Korea and China, policies to nurture industrialists and other entrepreneurs to become internationally competitive, enabled these countries to grow, industrialise and transform themselves very rapidly.

We are suffering great illusions if we think we can leapfrog the industrial stage and go straight to services. We should not try to emulate Hong Kong because we are a different type of economy. Even Singapore has not gone the Hong Kong way and continues to try to progress up the value chain in terms of industrial technology.

We need to stop blindly following policies espoused by international institutions. GST (Goods and Services Tax) is a variant of value-added taxation, long promoted by the IMF (International Monetary Fund). To accelerate progress, we need to develop better understanding of the Malaysian economy – of its real strengths and potential, rather than assuming that the current mantra in Washington is correct, let alone relevant.

Middle-income trap

According to the World Bank and others, Malaysia is stuck in a middle-income trap. The argument is that the NEM as well as financial services development are needed to get out of it.

Jomo: The idea of a ‘middle-income trap’ is due to Latin American and other countries uncritically following Washington Consensus prescriptions promoted by the Bank and the IMF. The promise is that following their prescriptions would lead to development.

Key elements of our own ‘middle-income trap’ are actually of our own making, e.g., by giving up so quickly on industrialisation. The prescriptions imagine we can somehow leap-frog to accelerate development without making needed reforms.

 

The NEM and current official development discourse emphasise modern services, especially financial services, for future growth. But why would investors want to come here rather than, say, Singapore? If they want lower costs, there are other locations.

To offer tax breaks or loopholes, or to make Malaysia a tax haven, the question again is why come here rather than Singapore.

And how much has the national economy really benefited from the Labuan International Offshore Financial Centre? Do we need to keep making the same errors?

Looking at other international financial centres, it is not clear that it will be a net plus for the country, and provide the basis for sustainable development suitable for an economy like ours. Remember, we are no Hong Kong.

Historically, we have been heavily dependent on foreign direct investment, not for want of capital, but for access to markets, technology and expertise. To make matters worse, over the last decade, foreign investors have taken a growing share in publicly listed companies, helped by the falling ringgit in recent years.

Arguably, foreign ownership of the Malaysian economy has never been as high since the 1970s. As large corporations are increasingly dominant, they have often crowded out small and medium-sized enterprises (SMEs) and other Malaysian firms.

Macroeconomic management

In his recent book, Dr Bruce Gale (author of ‘Economic Reform In Malaysia: The Contribution Of Najibnomics’) has praised current macroeconomic management.

Jomo: Well, Gale is a political consultant and needs to ‘cari makan’. He is not a serious macroeconomist the last time I checked, but should nonetheless be taken seriously because he reminds us that well-managed ‘public relations’ influence market and public sentiment, including credit and other ratings. He heaps praise on ‘conventional wisdom’ which remains very influential, even if wrong.

Gale’s book reminds us that ‘creative accounting’, involving the transfer of debt and liabilities to state-owned enterprises or government-linked companies, has enabled the government to limit the growth of mainly ringgit-denominated federal government debt by rapidly expanding federal government-guaranteed ‘contingent liabilities’.

His defence and justification for GST ring quite hollow as his premise is that the middle class has been evading income tax, whereas it is mainly the rich who have successfully done so, whether legally or otherwise.

Although he has been writing on Malaysia for over three decades, he appears to have selective amnesia, only giving credit to the prime minister and his late father, whom no one would grudge, while ignoring other prime ministers and finance ministers, in line with the new official narrative.

Malaysians worse off?

Earlier, you acknowledged that Malaysian economic growth has continued, albeit at a lower rate, over the last two decades. Yet, you also argue that Malaysians may have become worse off in recent years. That sounds contradictory.

Jomo: Moderate economic growth has continued since the 1997-1998 financial crisis. More recently, this has been partly due to foreign financial inflows, helped by unconventional monetary policies in OECD economies.

Between 2012 and 2014, most people, especially low-income earners, became better off, thanks to the introduction of the minimum wage, continued ‘full employment’ and higher commodity prices.

Since then, commodity prices have fallen, unemployment has been rising (especially for youth), the GST was introduced, and consumer confidence has fallen lower than during the 1997-1998 or 2008-2009 financial crises.

However, consumer sentiment in Malaysia has been negative for some time according to CLSA and MIER (Malaysian Institute of Economic Research). Indeed, according to Nielsen, the international polling company, it has been poor since 2013, and is now the lowest in Southeast Asia.

Food prices have generally continued rising, as transport charges – for tolls, trains, etc. – have been increasing again, with floating petrol prices. Meanwhile, lower commodity prices and climate change have reduced many farm incomes.

Official unemployment has gone up from 2.9% in 2014 to 3.5% in 2016, still commendably low, although there are concerns about high youth unemployment, especially among the tertiary educated.

Retrenchments have been worst for services, casting doubt on future employment prospects as the authorities rely increasingly on services for growth and jobs. With unemployment low, but rising, wage growth has slowed after the initial introduction of the minimum wage, while real incomes have been hit by higher prices and taxes.

Wage depression

You seem to imply that Malaysian wages have been artificially lowered.

Jomo: Malaysians, in general, have higher incomes now than before. However, official numbers are misleading as we do not account for the massive presence and contribution of foreign labour, especially undocumented immigrant workers.

Their status has also served to depress wages for low-income Malaysian workers. Not surprisingly then, labour’s share of national income has gone down relatively.

This decline is not due to declining labour productivity, even if that may be the case. After all, higher labour productivity does not automatically raise workers’ incomes. Prevailing low wages retard technical change which would, in turn, raise productivity.

Thus, the unofficial low wage policy stands in the way of labour-saving innovation, such as mechanical harvesting, so necessary for development. We need a medium-term development strategy far less reliant on cheap foreign labour.

Consequently, wages and living conditions are too low, especially in agriculture. And even smallholder agriculture has been neglected by officialdom in Malaysia for some time, especially after Pak Lah’s (Abdullah Ahmad Badawi’s administration.

Fighting a jihad against middlemen was not only thinly disguised misinformed and misguided stunt intended to score ‘ethno-populist’ points, but also irrelevant to addressing contemporary challenges.

Shifting tax burden

How have recent tax reforms affected Malaysian households?

Jomo: Following the introduction of the GST in April 2015, tax revenue from households increased from RM42 billion in 2014 to RM67 billion in 2016, with GST more than doubling the contribution of indirect tax from RM17 billion to RM39 billion.

At the same time, income tax revenue has risen modestly from RM24 billion in 2014 to RM28 billion in 2016. On average, Malaysian households paid taxes of RM5,600 each, more than ever before.

Meanwhile, government subsidies and assistance have declined, falling from RM43 billion in 2013 to RM25 billion in 2016, with most food price subsidies removed between 2013 and 2016.

Inflation numbers

Official inflation numbers are low. Why does the public doubt official inflation numbers?

Jomo: There are many reasons why the public doubts official inflation numbers, but perhaps most importantly for the country’s open economy, the ringgit exchange rate dropped from RM3.2/USD to RM4.5/USD before recovering to RM4.2 recently.

People presume that a decline in the international value of the ringgit by about a quarter must surely have inflationary consequences.

The GST of 6% has been imposed since April 2015, directly affecting about half of household spending, with up to a fifth more indirectly affected. Again, this is expected to have affected the cost of living.

Price subsidies for sugar, rice, flour and cooking oil have been removed since 2013, raising prices by 14% to 31%. Meanwhile, transport – including fuel and toll – prices have risen on several fronts.

Hence, you can understand why people are sceptical.

Transformasi Nasional 2050 (TN50)

After announcing and then abandoning the New Economic Model, there is now much ado about an economic transformation agenda for 2050.

Jomo: The TN50 exercise has been broadly consultative, involving young people, which surely is a good thing. Unfortunately, as with BR1M, it has been used to mobilise political support for the regime before the forthcoming elections rather than open up a more inclusive debate about where the country is headed.

The conversation should be about where the country should go and how to get there. It is still unclear to what extent we are going beyond the usual feel-good, futuristic sounding clichés, but this should open up an important debate to give serious consideration to actually achieving the transformation.

 

The country is presently mired in a political crisis that has paralysed effective economic policymaking. Malaysia desperately needs a legitimate and consultative leadership to implement bold measures to take the country forward.

Many people in the country know what ails the economy, but we do not have the open discussion needed to really tackle the challenges the nation faces. For example, a free and independent media will not only improve the quality of public discourse, but also the legitimacy and acceptability of resulting public policy.

Yesterday: Jomo in defence of honest, constructive criticism

Malaysia: 2018 National Budget–Need for Greater Fiscal Discipline


October 5, 2017

Malaysia: 2018 National Budget–Need for Greater Fiscal Discipline

by T K Chua@www.freemalaysiatoday.com

Image result for Najib as Finance Minister

 

In a couple of weeks, the 2018 national budget will be revealed and a peek into the options and challenges awaiting us, is in order.

Beware of Off-Budget Agencies

FIRST, the budget is not what it used to be. Increasingly there are expenditures and commitments outside the purview of the budget but their impact may eventually impinge on government finance. These are off-budget agencies of which the revenues, expenditures and debts should be tabulated and presented as addendum to the budget.

Keep Budget Deficits under Control

SECOND, in all likelihood, the 2018 budget will be another year of deficits. This means there will be new borrowings or sales of government assets to finance the deficit. New borrowings mean more accumulated debts and more debt service charges going forward. When more is provided for debt service charges, less will be available for other operating expenditures.

THIRD, most government revenue has almost reached its limits unless income and expenditure continue to grow. In recent times, the government has been relentless in its enforcement efforts to extract the maximum from individuals and business establishments. Similarly, the implementation of the GST is in full swing. It is doubtful that the government will be able to cover more loopholes and tax leakages/avoidance cases or to increase further the GST rates at this stage.

If revenues are limited, the government will not be able to offer new expenditure programmes unless it incurs more borrowing and debt.

FOURTH, most expenditure programmes are “locked in”, stifling the government’s ability to look at the new impetus. The government’s commitments toward BR1M, civil service salaries and benefits, pensions, and debt service charges will continue to grow. This will leave little room for the budget to meet new challenges lurking in the horizon.

Watch the Expenditure Side of Things

FIFTH, the government has looked at the revenue side by introducing new taxes and by enforcing stricter compliance of existing taxes. However, this trend can’t go on forever. It is time to look at the expenditure side of things.

The annual audit report has given more than sufficient information on wastage, inefficiency and abuse of government allocations and expenditures. Sometimes corruption is due to allocations being too lavishly handed out. If government departments and agencies have too much money, the tendency is to be careless with the expenditures.

 

MALAYSIA ‘SCREWED UP’ BY WORST FINANCE MINISTER NAJIB – RESERVES THE LOWEST IN ASIA THAT MoF UNABLE TO PAY EVEN US$600 MILLION DEBT?

Who is the de facto Minister of Finance– Najib Razak or Handbag Rosmah Mansor? How did she spend the funds  allocated for her signature project Permata?

Stringent and optimal budget allocations do not have to affect output or service to the people, as was commonly claimed. We only need those responsible to work harder and be more careful with the money.

The National Budget is not a Mundane or routine exercise

I think it would be a big mistake if we continue to look at the budget formulation as a mundane or routine exercise. Some of the trends are obviously unsustainable. Even if we start to reverse or correct the trends now, it may take us many years to restore sustainability.

TK Chua is an FMT reader.

The Entire Trump Agenda Is at a Tipping Point–The Mess in US Senate and House


June 29, 2017

The Entire Trump Agenda Is at a Tipping Point–The Mess in US Senate and House

by Ryan Lizza*

http://www.newyorker.com/news/ryan-lizza/the-entire-trump-agenda-is-at-a-tipping-point

Image result for Trump and Mitch

Ryan, Trump and McConnell and the Legislative Mess they created in the House and Senate. I label them the Dysfunctional Trio –Din Merican

Earlier this month, a senior White House official deeply involved in enacting President Trump’s agenda on Capitol Hill laid out the Administration’s ideal legislative schedule for the rest of this year.

“Between now and the August recess, we’d like them to get health care done, we’d like them to get the debt ceiling done, we’d like them to start tackling the budget,” he told me. “So when they get back from the August recess, first or second week of September, we can throw a tax proposal down and, literally, we can do taxes for September, October, and November.”

The G.O.P. has adopted a major—even radical—agenda: transforming a massive sector of the economy, slashing taxes and rewriting the entire tax code, passing a budget that would dramatically reduce the size of government, and, in the middle of all of that, raising the debt limit. They have a plan to accomplish almost all of it before the end of the year, with minimal transparency, and without relying on a single Democratic vote. But if health-care reform goes down this summer, the rest of the plan may sink with it.

For obscure parliamentary reasons, Republicans can’t move on with the rest of their wish list until they pass the health-care bill. And those prospects are not looking good. On Tuesday, Mike Lee, of Utah, became the fifth Republican senator to say that he would vote against even bringing the health-care bill up for debate. Senate Majority Leader Mitch McConnell, who announced, also on Tuesday, that he will delay the vote until after the July 4th recess, may yet broker a deal on health care, but if he fails to do so the legislative impact for Trump could be calamitous.

The parliamentary maneuver McConnell is using is called reconciliation. The process was created, in 1974, as a way to streamline the congressional budgeting process. It wasn’t intended to be used for major legislative changes. However, as partisan deadlock has grown, it has become an increasingly attractive legislative tool because it is protected from a filibuster in the Senate and therefore needs only fifty, rather than sixty, votes to pass. (Vice-President Mike Pence can cast a tie-breaking vote in both cases.)

Bill Clinton’s attempt at reforming health care was probably doomed the day that he decided not to use reconciliation. Obama passed his initial health-care bill through the Senate without using reconciliation, but he always kept it as a backup plan—and it turned out that he needed it. When he lost his sixty-vote majority in the Senate, Democrats used the process to pass a final package of tweaks to the bill.

This year, Republicans have been even more creative. They planned to use one reconciliation bill for health care and a separate one for the beast of tax reform. But one of the many arcane rules about the reconciliation process is that any new reconciliation bill cancels out the old one. “This is the first time anyone has tried to do this,” Stan Collender, a longtime budget expert who now works for the strategic-communications firm MSLGROUP, said. “You can only have one budget resolution in effect at a time. Their idea was to do health care and then move on to tax reform, but that strategy was based on doing health care quickly.”

If the Senate health-care bill dies and Republicans move on to tax reform, they will have an interesting choice to make: do they give up on health care and propose only a tax-reform bill? Or do they combine tax reform and health care into one monster bill, which would make passage even more daunting?

Some of these procedural issues might be overcome by a kind of nuclear option, whereby Republicans ignore or find a way to overrule the Senate parliamentarian who enforces the budget rules. But, however health care is resolved, the rest of the items on the Trump agenda consist of a series of fiendishly difficult political issues that divide Republicans. The budget, which must be resolved by October 1st, will pit congressional Republicans, who have decried the White House’s proposed budget, against Trump, who was so miffed about being ignored during the budget negotiations earlier this year that he tweeted, “Our country needs a good ‘shutdown’ in September to fix mess!” Republicans in the House are comfortable with defaulting on the debt, and the President himself has called for a shutdown. Things could quickly grow ugly.

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DJT and his Treasury Secretary Steve Mnuchin-Getting the US Economy moving again?

In the middle of this drama, the White House wants to pass a comprehensive tax-reform bill. The last time Congress approved such a piece of legislation was in 1986, and it was the result of a lengthy and bipartisan process of hearings and horse-trading. So how are Republicans approaching tax reform this year? They are writing a bill in secret that they intend to pass using reconciliation. The group writing it, which calls itself the Big Six, consists of Steve Mnuchin, the Treasury Secretary; Gary Cohn, Trump’s top economic adviser; Representative Kevin Brady, the chairman of the House Ways and Means Committee; Orrin Hatch, the chairman of the Senate Finance Committee; House Speaker Paul Ryan; and Senate Majority Leader Mitch McConnell. There are no Democrats and no women involved, and there have been no hearings.

“We are all on the same page,” the senior White House official told me, referring to tax reform. “There’s going to be one tax bill and one tax bill only.”

Before a tax bill can move forward, Republicans will have to agree on health care—or abandon the issue. The health-care reconciliation package is a giant iceberg that needs to be cleared out of the way before Republicans can move forward with the rest of their agenda.

*Ryan Lizza is the Washington correspondent for The New Yorker, and also an on-air contributor for CNN. Before joining the magazine, in 2007, he was a political correspondent for The New Republic, from 1998 to 2007, and, before that, a correspondent for GQ and a contributing editor at New York. He has also written for the New York TimesWashington Monthly, and The Atlantic Monthly. Since 1998, he has covered most of the country’s major political stories, including the last four Presidential campaigns, and has written many political profiles for The New Yorker, on Barack ObamaHillary ClintonJoe BidenMitt RomneyJohn McCainPaul RyanEric CantorMichele BachmannDarrell IssaPeter OrszagLarry SummersRahm Emmanuel, and John Hickenlooper, among others. His awards include the 2012 National Press Club’s Hood Award for Diplomatic Correspondence, for his article “The Consequentialist,” and the White House Correspondents’ Association’s Aldo Beckman Memorial Award, for a series on Obama’s Presidency and reëlection campaign. His article “Making It” was a 2009 National Magazine Award finalist, and his 2010 article “As the World Burns” received honorable mentions from the Toner Prize for Excellence in Political Reporting and the National Press Foundation Dirksen Award for Distinguished Reporting of Congress.

Reading List: Ryan Lizza recommends “Trump Solo,” Mark Singer’s 1997 profile of Donald Trump.

Watch: Ryan Lizza discusses campaign politics and the future of the G.O.P. on Comedy Central’s “The Daily Show.”

A blinkered Fiscal Vision-There is no such thing as a free lunch, Mr. Trump


Match 7, 2017

Donald Trump may have veered from self-inflicted crisis to self-inflicted crisis over the course of his young presidency, but he has kept one policy goal steadily before him: tax cuts for the wealthy. A case in point is his recent proposal to find $54 billion more for military spending by slashing Head Start, food aid for low-income pregnant women, environmental protection and other programs. Those trade-offs are bad enough in themselves. But they also reveal a ruinous worldview in which nondefense spending is always excessive and tax cuts are necessary for growth. This sort of thinking will only weaken the economy and betray the people who put their hopes in Mr. Trump.

Spending on the nonmilitary discretionary programs that have been targeted by Mr. Trump comes to 3.2 percent of the economy — well below the average of 3.8 percent going back to 1962. By calling for cuts that would average about 15 percent in almost every category other than defense and “mandatory” programs like Social Security and Medicare, Mr. Trump would undermine his promises to make sure “every child in America has access to a good education,” to help the “poorest and most vulnerable” and to rebuild infrastructure. Other categories at risk of being cut include scientific and medical research, job training, national parks, air traffic control and maintenance of dams.

Worse yet, some Republicans may call for limiting Mr. Trump’s proposed reductions by cutting instead from Social Security and Medicare, which Mr. Trump has pledged to protect. That would be needlessly tightfisted. A rich nation with a resilient economy can afford to care for both the poor and the elderly. Besides, support for the elderly is already becoming stingier as a result of changes instituted years ago, including an increase in the Social Security retirement age from 65 in 2002 to 67 by 2027.

That is not to imply that all spending cuts are off limits. But it’s sensible to mix them with tax increases. The approach of Mr. Trump and congressional Republicans would deeply cut taxes even as spending is slashed.

Mr. Trump has essentially called for three tax cuts: a personal income tax cut, a corporate income tax cut and a cut achieved by repealing the Affordable Care Act. Specifics are scant, but one thing is clear: All three would overwhelmingly benefit the wealthiest Americans. A campaign draft of the income tax plan indicated that at least half of the proposed multitrillion-dollar tax cut would flow to the top 1 percent of earners in 2025, according to the nonpartisan Tax Policy Center. Repealing the A.C.A. would end the additional 0.9 percent Medicare Hospital Tax on incomes above $200,000 ($250,000 for married couples).

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Donald Trump is a bold conservative. But he’s not just a conservative on fiscal issues… He is a foreign policy conservative, too! That’s why  on MSNBC’s Morning Joe, Donald Trump explained his plan to do what President Barack Obama is unable to do: Destroy the Islamic State (ISIS). But make sure that these mentally deranged Islamic fanatics don’t screw  you first like they did to George W. Bush on September 9, 2011

Mr. Trump and Republican lawmakers say tax cuts spread prosperity by generating economic growth and thus increasing federal revenue — a thoroughly debunked claim. Experience shows that large tax cuts either deepen the nation’s debt or necessitate spending cuts. Forecasts from the Congressional Budget Office indicate that if tax revenue is not increased in the coming decade, spending cuts of $3 trillion — or about 25 percent outside of Social Security and Medicare — will be required to keep the debt at its current level of 77.5 percent of the economy. Clearly, if defense spending rises in the coming decade, as Mr. Trump has called for, while tax revenue declines, either the debt will rise or spending cuts will need to be even deeper.

Both outcomes can be avoided by abandoning deep tax cuts. It would be wise to take on new debt for stimulus during economic downturns or for infrastructure investments, but not to finance tax cuts during a military buildup. Economic activity could be encouraged by bolstering wages, including federal overtime protections. Tax revenue could be raised in constructive ways, including a carbon tax.

Giving the wealthy never-ending tax cuts while gutting programs for the middle class would create more of the resentment and inequality Mr. Trump has promised to address.

Fiscal Deficit and Fiscal Reform in Japan


September 13, 2016

Asia Pacific Bulletin

Number 351 | September 13, 2016
ANALYSIS

Fiscal Deficit and Fiscal Reform in Japan

by Taro Ohno

Over the past few decades, Japan has experienced a number of changes in its social and economic circumstances as its population has been aging, its birth rate has been falling, and its economic growth rate has been declining. These changes all affect central government finances: they encourage increased expenditures (especially with regard to social insurance benefits) and decrease tax revenues, thereby increasing the fiscal deficit.

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The key turning point for central government finance came around 1990 when the economic bubble burst, and since that time Japan has been grappling with the issue of fiscal reform. The first attempt to deal with the fiscal deficit was a set of fiscal reforms introduced in 1997, the goal of which was to reduce the deficit by 2003. However, this effort proved ineffective because of the domestic financial crisis that started in 1997. The second attempt came in 2006, when the government set a policy target that sought to shift the primary budget balance to a surplus by 2011. However, this target was deferred in 2008 as a result of the recession. The most recent attempt was the setting of a new policy target in 2010 to eliminate the deficit and create a surplus by 2020. Currently, the Abe cabinet is continuing to pursue that target. It raised the consumption tax rate to 8 percent in 2014 and will raise it to 10 percent in 2019 to achieve this goal. However, these reforms alone are insufficient.

The major contributor to the current negative fiscal situation is the increasing cost of social insurance, and given the country’s aging population, that trend will continue. The current fiscal reform will not be able to achieve its target by relying only on restraining the costs of social insurance, and so a further tax hike is unavoidable.

What kind of tax policy, then, would be most effective? In Japan, current fiscal policy over emphasizes inter-generational redistribution, which places a heavy burden on the younger generation to fund the benefits of social insurance for the elderly generation. In addition, the burden on the younger generation is already heavy due to pension insurance premiums. Therefore, because an income tax has the disadvantage of the burden falling predominantly on those who are younger, an income tax hike is not a feasible approach. What is desired is that both young and old alike bear the burden. A consumption tax has the advantage that the burden falls on all age groups, making it a more feasible approach. However, it also poses a problem. Namely, the consumption tax burden on lower-income households is heavier than that for higher-income households on a point-in-time basis, as the ratio of tax burden to income is disproportionate. A consumption tax is “regressive,” meaning that some measures for low-income households would be necessary.

A lower consumption tax burden on higher-income households exists because of their high savings rate. As a household’s ratio of savings to income increases, its ratio of consumption to income decreases. This in turn lowers the ratio of consumption tax burden to income. However, a household will spend down its savings in the future, and thus will eventually bear the consumption tax burden on that spending. In other words, savings only has the effect of changing the timing of consumption; it does not relieve the tax burden entirely. Therefore, it is also necessary to evaluate the tax burden on a lifetime basis. Based on the author’s estimates (Ohno et al. 2014), the consumption tax burden of higher-income households is heavier than that for lower-income households. This implies that the consumption tax is in fact “progressive.” This would imply that any measures for low-income households might be adequate if applied only to the younger age brackets.

The current policy debate in Japan emphasizes the results on a point-in-time basis. This leads to the conclusion that some measures need to be taken to protect low-income households. Several such measures exist as options. First is a reduced consumption tax rate for necessities, such as food. Second is a benefit given only to low-income households — for example cash benefits or an earned income tax credit. In September 2015, Japan’s Ministry of Finance proposed a plan for low-income households that included a combination of the reduced tax rate on food and a tax refund. Each individual’s consumption information would be recorded through a unified electronic card called the “My Number Card,” which is similar to a social security card in the United States. Low-income households could apply for a tax refund equal to the amount of the tax cut for food expenditures at the end of the fiscal year. The public, however, reacted negatively and criticized the plan for the complexity of the system and voiced concerns about the security of the identity card. The public prefers a reduced rate for the consumption tax on food rather than the plan proposed by the Ministry of Finance because it is a simpler system and free from worry about the security of personal information in the unified electronic card. As a result, the government decided to raise the general consumption tax rate to 10 percent while at the same time adopting a reduced tax rate for food. However, the reduced tax rate for food is not an optimally effective policy because higher-income households are benefiting as well.

“Given the current situation in Japan, where a further tax hike is unavoidable, a consumption tax hike is a better option than an income tax hike.”

Barring any sudden drastic changes in the country’s birth rate or immigration policy, Japan will continue to face daunting fiscal challenges in the years ahead, and thus finding the most effective and equitable fiscal policy should be a top priority for the Japanese government. We can conclude that a further consumption tax hike is desirable. Given the current situation in Japan, where a further tax hike is unavoidable, a consumption tax hike is a better option than an income tax hike. However, the policy debates in Japan today seem to emphasize the results only on a point-in-time basis. In designing the optimal policy, it is important to evaluate the current tax system not only on a point-in-time basis but also on a lifetime basis. Finally, the reduced consumption tax rate for food needs to be reconsidered. While the public prefers the reduced tax rate, this policy is less effective in terms of being a measure for lower-income households.

About the Author

Taro Ohno is an Associate Professor in the Faculty of Economics and Law at Shinshu University, Japan. He can be reached at taro_ohno@shinshu-u.ac.jp.

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