Budget 2012 must go back to basics

Budget 2012 has a lot of catching up to do after its predecessor's proposals withered from neglect.

PETALING JAYA: When Budget 2012 is announced tomorrow the government will have its plate full and overflowing. Apart from rolling out the latest economic initiatives, the new budget will also be forced to pick up the slack of its neglected predecessor.

Accoding to a political analyst, what initially appeared to be a reasonable enough budget on paper wound up stumbling over its lack of clarity and direction when it reached implementation stage.

Analyst Khoo Kay Peng said that it did not help that last year’s budget proposals were largely overshadowed by various political distractions such as numerous by-elections and the Sarawak state election.

Calling this year “an unfortunate and lost” one, he pointed out that politics had sidetracked the budget from reaching many of its targets particularly the projected income per capita, cost of necessities and job creation.

“We’re currently only halfway towards the income per capita target because last year’s budget didn’t follow through on activities to enhance growth,” Khoo stated.

“It also pushed for lower subsidies but failed to provide allocations for alternatives, especially in the transport sector. Then there was the Economic Transformation Programme (ETP) which promised one million jobs but where are those jobs now?”

Khoo, however, noted that generous expenditures had unfailingly accompanied each by-election and questioned where the money had come from, seeing that the budget had already apportioned government spending for the year.

He also rebuked both politicians and the media for bypassing these issues in favour of more sensational ones.

“They wasted a whole year on sensational issues,” he said. “Who cares about Mat Indera and (PAS deputy president) Mat Sabu when the rest of the world is talking about Japan’s future, China’s global presence and America’s reforms?”

Address critical issues

But Khoo added that it is not too late to make up for lost time as long as Budget 2012 returns to fundamentals and addresses critical issues rather than put forth bombastic proposals.

“We need a comprehensive public transport plan for starters,” he stated. “A RM50 million Mass Rapid Transit (MRT) will not yield connectivity without public transport to its stations.”

“Neither a MRT nor reduced petrol subsidies will reduce heavy volume of traffic if public transport remains weak. In fact, the budget should introduce a subsidy for public transport costs which will work out to be cheaper than subsidies for private vehicles.”

Khoo also pressed the government to pay more attention to local and foreign investments in order to boost job creation in the country.

“Right now, the government is on autopilot and clearly not able to resolve economic issues,” he said. “Instead, it’s getting embroiled in tiring political debates that eat into policy time.”

“This is not going to bring in investors. No one will want to invest in a government that is seen as trivial and illogical!”

Khoo pointed out that net flow outside is significantly large with Indonesia, Cambodia and Vietnam being viewed as very attractive destinations. Malaysia, on the other hand, severely lacks new areas for development.

“We have no new economic stories to sell so the government must focus on sectors in which the locals can get involved like manufacturing, retail and tourism,” he said.

“And it has to protect the locals by controlling the use of cheap migrant workers in sectors that can provide useful entry level jobs to our youth.”

Another populist budget

Yet, Khoo predicted that the election budget, as it is dubbed, will be another populist one with many more grants, handouts and subsidies.

Ratings Agency Malaysia (RAM) Holdings, meanwhile, expects a “mildly expansionary” budget against a backdrop of the fragile global economy, the looming general election and the second year of ETP implementation.

Its group chief economist, Yeah Kim Leng, forecast a narrowing of fiscal deficit to as low as 5.1% of gross domestic product (GDP) from the estimated 5.4% in 2011.

“These projections assume that Malaysia’s growth and inflation rates will revert to their long-term trend with no undue oil-price movements that may affect the government’s petroleum-related earnings,” he said.

“This should raise public debt from 56.3% of GDP at the end of the second quarter of 2011 to an estimated 56%-58%.”

So far, Prime Minister Najib Tun Razak’s pre-budget announcements have matched RAM’s
recommendations in terms of tackling the rising cost of living and raising the retirement age for
private-sector employees.

Yeah expects further measures to include a widening of the middle-income tax bracket, a deepening of the education system and larger allocations for social housing, labour skills enhancement and the MRT construction.

While he believed that subsidies would remain status quo until the general election, he warned of higher excise duties in light of an anticipated rise in government’s financing next year.

“It is unlikely though that the much debated Goods and Services Tax (GST) will be implemented in 2012,” Yeah added. “This is largely because the public’s current lack of understanding of the potential benefits of the GST may trigger heightened price expectations which could in turn fuel domestic inflation.”

“However, the importance of streamlining the GST may supersede the fear of inflation in the long run. As such, we expect the GST to be introduced via the tabling of Budget 2012, but only as a precursor to its implementation in 2013.”

“On the whole, Budget 2012 is expected to boost aggregate demand while addressing the needs of the most vulnerable strata of society.”

Excerpt from other wish lists:

Wan Saiful Wan Jan, CEO of the Institute for Democracy and Economic Affairs (IDEAS) Malaysia
A thorough review by the government of manpower needs and to make redundant the civil servants who are not needed. Our civil service is far too bloated relative to the size of our country.

I also hope to see the government bringing in private sector discipline into the management of its schools and hospitals. For instance, deadwood teachers should be sacked rather than transferred to schools in remote areas.

Daniel Lo, Country manager of the Coalition to Abolish Modern-day Slavery in Asia (Camsa)
A larger budget for human rights training and the sensitisation of enforcement officers. Each year more funds are allocated to law enforcement agencies but there haven’t been any improvements to their services.

The budget of the Malaysian Human Rights Commission (Suhakam) has also been reduced thus limiting the amount of funds available for it to carry out the required training and programmes.

So we hope to see more allocations to Suhakam, human rights NGOs, local councils and government agencies that address human rights issues.

Chan Chow Hun, CEO of the Financial Planning Association of Malaysia (FPAM)
I’d like to see the government announce that financial planning fees are tax deductible. And because of the potential benefits it will bring to the public and the financial services sector, it cannot be done soon enough.