October 5, 2017
Malaysia: 2018 National Budget–Need for Greater Fiscal Discipline
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.
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.