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Thursday, September 29, 2011

Budget 2012: Expectations and what it needs to contain - Navaratnam

Budget 2012: Expectations and what it needs to contain - Navaratnam

Budget 2012 can be examined from two perspectives as follows:

1. The macro (overview) i.e. how it affects the economy as a whole and

2. The micro view in terms of how it influences the people on the ground.

Macro expectations

i) The deficit — must be seriously addressed. It has to be reduced as a percentage of the budget to less than five per cent. This means that expenditures must be trimmed and revenues raised.

Otherwise the national debt will rise and this is not good for good governance and greater financial prudence.

ii) Private investment — has risen but it must be sustained. Otherwise our investment targets and economic growth targets, employment and national wealth will decline, hence the investment climate has to improve by new policies that will attract rather than drive away investment, both domestic and foreign.

Structural impediments like the abuses of many aspects of the NEP have to be removed! We should not be unduly encouraged by the current rise in “lumpy investment” in petroleum and gas!

iii) The present corporate and income tax rates could be reduced by two percentage points as part of a package of new incentives to retain and pull in FDIs.

iv) The efficiency index — has to be further improved by removing present constraints to economic expansion.

v) Tenders — have to be made much more transparent and competition further enhanced to build greater confidence in the economy.

vi) Incentives — have to be given to raising productivity and preferably encouraging joint Bumi/non-Bumi companies to harness the co-operation and collaboration and synergies of all promising entrepreneurs.

vii) Adequate expenditures must be provided to strengthen the major government institutions such as the judiciary, MACC, police, etc.

viii) The fight against corruption — has to be stepped up as one weapon against inflation and wastage of resources so that more funds can be allocated to fight poverty and to help the underprivileged.

Micro measures

i) Inflation — can be alleviated by increasing the supply of food. This can be done by allocating more land for agriculture to efficient farmers who often find it difficult to expand their current farms, more licences and permits could be given to hawkers to sell cheaper food and more 1 Malaysia restaurants can be formed.

ii) A minimum wage policy — should be introduced in the Budget and not delayed further. This will help the poor and low-income groups cope with rising inflation.

However the government must insist on greater productivity of the 1.2 million civil servants whose efficiency has to be monitored closely. The good performers should be rewarded while the bad apples have to be phased out like in the private sector.

iii) The goods and services tax (GST) has to be introduced after so much delay to help reduce the deficit but the basket of goods/services of the poor should be exempted from the GST.

Green stamps could be given to low-income consumers to meet their basic food needs.

iv) Subsidies should be phased out to save more for the poor instead of benefiting the rich e.g. subsidies on petrol, sugar, cooking oil, etc benefit the rich as well!

There can be mechanisms put in place to ensure that the subsidies are enjoyed only by the target groups. Green stamps are one way and in any case these mechanisms are practised elsewhere and can be adopted here too!

v) Training and short courses and even more micro financing should be extended to SMEs as they provide the bulk of our employment and production of consumer goods and services to benefit the poor and the low-income groups!

vi) The government should better enforce its rules and regulations so that more fines are collected and less is spent on maintenance due to careless use of public utilities. Local authorities and state governments could be given more allocations so that they can monitor expenditures to ensure greater efficiencies and economies of scale.

The above are some of the many expectations for the Budget 2012!

The Budget is expected to be a generous one in view of the coming general election!

But it has to be realistic so as not to worsen the deficit!!

- Tan Sri Ramon Navaratnam is a retired top civil servant and a past president of Transparency International

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