By Stephanie Jacob
Over the past few years the government has called on the people to tighten their belts and be more prudent with their spending. Given the government revenue is expected to be hit by the decline in oil prices, in Budget 2016 the government should do the same with its operational budget in order to make ends meet.
Challenging and tricky seem to be the most commonly used words by analysts and economists when they are asked their views on the upcoming Budget 2016. One main cause for their concern is the impact that plunging oil prices will have on government revenue coming from petroleum.
Standard Chartered’s managing director and head of research for Asean Edward Lee summed it up by saying: “There will be quite a few balancing acts to do. There is the reality check on oil revenue, which would have been affected by the prolonged low oil prices in 2015.”
Revenue from the goods and services tax (GST) will help reduce the shortfall, but not entirely. So the government’s spending capacity will be reduced in Budget 2016 and this means either cutting its expenditure and/or increasing its revenue to be able to meet its responsibilities and fund its projects.
But how and who can they raise revenue from? Over the past few years the government has done this by removing subsidies. The sugar subsidy was totally removed in Budget 2014 and the petrol subsidies were entirely removed last year. Aside from raising electricity tariffs there are not many big subsidies left to take away.
Furthermore, a move to raise electricity tariffs will be hugely unpopular and it is unlikely that the government, which is already dealing with poor approval ratings due to scandals and the weak economy, will want to anger the people any further than they already have.
More importantly, though, it will be unfair to expect people to shoulder another revenue-raising exercise. Just this year Malaysians have had to deal with GST and more recently a toll hike of as much as 100% in some places.
Many, especially the low to middle income urban population, are already struggling to make ends meet. So asking them to tighten their belts further might be simply too much to ask. Instead, at a time when the rakyat is being made to cut back, so should the government walk its own talk.
In terms of the budget this means cutting back on government operational expenditure. In Budget 2015, RM223.4 billion was allocated for the government’s operational spending purposes. The biggest chunk was allocated to emoluments or salaries (RM65.5 billion) followed by supplies and services (RM38.1 billion), while the rest was allocated between subsidies, grants and transfers to state governments, pensions and gratuities, debt service charges and other expenditure.
So in Budget 2016, the government must reduce the operational expenditure through improving efficiency and cutting waste.
Malaysia has a huge civil service and, as mentioned, the biggest allocation earmarked under the operational budget is for emoluments. The government can keep salaries bill in check by at the very least maintaining, if not reducing, the rate of hiring and avoiding any unnecessary expansion in the size of the civil service.
In particular, the government should consider reducing or consolidating the number and size of the many overlapping government ministries, agencies and commissions, such as the Prime Minister’s Department which had the fourth largest allocation in Budget 2015 behind only education, finance and healthcare and ahead of defence.
The department has 10 cabinet ministers who are known as ministers in the Prime Minister’s Office and it is unclear if these posts are nothing more than a reward for loyal service to the prime minister. Furthermore, it is made up of various committees and agencies which could easily sit under other existing ministries.
For example the Land Public Transport Commission or the affordable housing scheme Perumahan 1Malaysia (PR1MA) could be under the purview of the Transport Ministry and Housing and Local Government Ministry respectively.
Najib Abdul Razak
Under Prime Minister Najib Abdul Razak, the department has grown both in terms of staff size and budget. According to opposition MP Zairil Khir Johari in 2013, the PM’s Department had a budget that was nine times that of Selangor’s budget. Last year the department’s allocation went up again to about RM19 billion. In cutting the operational budget, this would be a good place to start.
The government should also cut back on the supplies and services allocation, where there is a great deal of waste due to poor procurement practices. This is a good time to reduce the allocation so that money distributed is spent more prudently – which is no less than what is being asked of the rakyat.
By tightening its operating expenditure the government will be able to maintain and even increase the developmental budget which goes towards several key areas.
It funds economic (agriculture and rural development, trade and industry and transport) social (education and training, health and housing) and security expenditure and general administration costs.
Ideally development budget should not be touched because these are projects which are necessary for economic growth and the welfare of the people. Affordable housing, for example, is out of reach for many, while comprehensive public transportation connectivity is still lacking.
Although it is important to be fiscally responsible, the government must also drive economic development; maintaining the development budget will allow this to happen. Stopping or pulling back on this spending will be unhelpful and could even slow economic growth.
The theme of Budget 2016 is ‘Strengthening Growth, Enhancing Inclusiveness, Ensuring Fiscal Sustainability’. By slashing its own spending and expenditure, government revenue can be channelled to important development projects and go towards easing the high cost of living.
This should not be too hard to do; after all, it is no more than what the government is asking of the rakyat. And as they say, what is good for the goose is good for the gander.
GRRRRR!!!
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