‘Fuel hike not the way to cut budget deficit’

Wastage and corruption should instead be cut first, says PKR think tank Institut Rakyat

PETALING JAYA: PKR think tank Institut Rakyat today said that increasing fuel prices will not address the need for fiscal reforms in the country.

“Reducing subsidies should not be the first measure to reduce budget deficit, although it may be a reasonable means.

“Wastage and corruption should be cut first and income-boosting policies should take effect before subsidies on essential goods be open to reconsideration,” it said.

Prime Minister Najib Tun Razak on Monday, announced a 20 sen increase for RON95 petrol and diesel, saying it was one of the measures to rationalise subsidies by the government.

Institut Rakyat on the other hand said that budget deficits incurred over the last few years can be attributed to “covert and overt election spending by Najib”.

“Bantuan Rakyat 1Malaysia (BR1M) and advertising spending by the PM’s department alone account for over 21% of our 2013 fiscal deficit of RM14.9 billion. Now that Najib has won his first elected term why should these expenditures be maintained?” it asked.

It then added that analysts who comment on the need for the government to improve its tax base generally avoid commenting on “how well and how the government spends its present tax income.

“It must be recognised that our deficit, and its attendant debt burden, are subsidising governmental corruption,” said Institut Rakyat.

“Just as we should not have a knee-jerk subsidy mentality, we must also avoid an approach of fiscal austerity that shortchanges the 38.5% of households that earn below RM3,000 per month.”

GST a regressive measure

The think tank recommended several approaches to correct the sequencing of fiscal reforms.

“Standard of living of the rakyat should take priority and public spending should be cost-effective and development effective,” it said.

It also stressed that targeted subsidies should be implemented before a poorly performing universal subsidy is taken away, adding that the government should first “give” before “taking away” something.

“An analogous example would be public transport. Ideally, a transport network should be functional, up and running before implementing a congestion charge or other disincentive for private car usage.”

It also opined that implementing the goods and services tax (GST) would be a regressive measure which would burden the poor.

“In countries with high median incomes, a GST may be an efficient way to collect taxes. However, in countries with low median incomes like Malaysia, implementing GST would be a regressive measure and unfairly burden the poor.

“Tax revenue is ultimately a function of the overall dynamism of the national economy. The Malaysian government is still obliged to implement policies that will promote industrial expansion, productivity, rising incomes, fair wage bargaining, and equitable distribution,” it stressed.