How to get the best value from government expenditure

 

The 2024 budget contains a slew of policies covering economics, labour, taxation, education, healthcare, and women empowerment, among other issues. So did the 2023 budget, and all others that preceded it.

The budget gets bigger every year, with no lack of ambitious plans aimed at solving all the country’s woes.

While we have been traditionally good at disbursing money, we could certainly rethink our monitoring system to ensure that the money we spend achieves its intended purposes. and the policies we set are the most cost-effective.

An outcome monitoring system, if used well, is a canonical tool to track the performance of government agencies. Performance measurement involves the consistent and systematic gathering, examination and reporting of data that monitors resource utilisation, output, and whether the policy achieved its intended outcome.

As a common budgetary practice, Malaysia’s budget documents often include a set of broad measurable targets. For instance, the government aimed to increase the amount of approved foreign direct investments from RM43.5 billion in 2022, to RM46 billion and RM50 billion in 2023 and 2024, respectively. Under the 11th Malaysia Plan (11MP), a similar method was used to assess performance.

Tracking outcomes

At the most rudimentary level, outcome tracking should be made transparent and comprehensive. The current practices deal with data at the high level, but often lack accountability and nuance.

Ministries that fail to achieve some of their targets are not flagged, and many of the failures of the policies stay hidden. Successful policies are often lauded for their outcome-based achievements, and failures downplayed, and in time, forgotten.

This has demonstrably caused every new masterplan or blueprint to include a lot of the efforts pledged in the past.

For instance, the 10th, 11th, and 12th Malaysia Plans identified productivity as being a priority, as the government failed to hit its target in the previous years. The 12MP again seeks to revitalise productivity through similar policies outlined in previous plans.

The systematic failure of our performance monitoring system warrants an improvement and rethinking. An improved performance-tracking system built on efficiency and transparency would be vital, but another question looms.

How much resources have we devoted to improving these outcomes? Are there other ways that would achieve the same outcome with less resources?

Re-thinking policy evaluation

I propose two criteria in evaluating policies: efficiency and cost-effectiveness.

A policy is considered efficient if the total benefit is more than the total cost. As an illustration, the government invests RM1 million into training 1,000 TVET graduates, equivalent to RM1,000 spent per person.

If the graduates get employed in a higher productivity and higher wage job at an average of RM100 per month of increment, we would say the policy has a return of 1.2 times in a year, and 12 times the initial spending in a decade. This is a step up from the current evaluation.

On the other hand, if none of the TVET graduates get a wage increment outside of his usual increment, or gain promotion beyond current progress, then the government just effectively wasted RM1 million. This is, in fact, more prevalent than given due notice, as industry leaders often complain that TVET courses do not reflect industry needs.

Secondly, a policy’s desirability often hinges on cost-effectiveness, meaning it accomplishes its objectives at the lowest cost compared to alternative policies. This becomes particularly crucial when there’s a need to reduce programme budgets or to choose between different sets of programmes that lead to the same outcome.

Gains and losses

Let’s use TVET as an example again. To ensure the programme is efficient and cost-effective, the government needs to ensure that it brings in net positive gain and is the least costly programme per ringgit gained.

Many questions should be addressed along the way to maximise its potential: Is the course provider of high quality? Can they meet the industry’s needs? How much does it cost to train one person? The lack of data on these measures makes it difficult for academics and policy analysts to assess its performance.

Most importantly, a detailed and systematic outcome-tracking determines the efficiency and cost-effectiveness. After the training, will the graduate move up the value chain to work in a higher skilled job? What is the short-term wage gain and lifetime income differences between TVET and non-TVET graduates of similar backgrounds? Is this the most cost-effective programme out of all available options?

Under the 2024 budget, RM100 million will be allocated to provide industry-recognised professional certificates to TVET graduates.

Firstly, how many Malaysians will benefit?

If the programme can certify 10,000 Malaysians, that translates to RM10,000 per person trained, and if each of them earn RM1,000 more per month upon graduation compared to non-graduates, in one year, the policy brings in a net benefit of RM2,000 per person, or RM20 million.

But if the policy only manages to increase the salary of RM100 per person on average, it means that the government will spend RM100 million but only reaps a return of RM12 million a year.

Make proper comparison

It is also important to compare a group that receives training to a similar group that did not receive the training. This is because wage progression and work promotion is natural career progression, and we might mistake it for being the outcome of the programme. Comparing between these two groups enables us to specifically filter out the performance of the specific policy.

That is the difference between outcome-monitoring with cost-efficient and effectiveness tracking. Training 10,000 or even 100,000 Malaysians means little if nothing else changes. Similarly, a policy that brings in the highest benefit with the same cost should be desired. That means cutting similar programmes that don’t perform.

These concepts are not new, but its adoption has not been widespread globally. Efficiency is akin to a cost-benefit analysis, which is performed by the private sector before venturing into a new industry or investment. Cost-effectiveness has been practised in the healthcare sector, to assess a drug’s efficacy against treatment cost.

With public debt reaching 62% of our GDP, and our government’s budget rising every year, it is imperative that we get the most out of our money. Effective monitoring is a golden step forward to minimise waste and increase policy efficiency. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.