Forgoing reforms to buy PRU13

Najib’s budget is tailored to ensure the survival of a regime with the premier being generous in dishing out cash handouts, but remaining silent on structural reforms.

By Charles Santiago, FMT

Let’s see what we have here. Succinctly put a budget which is best described as ‘more of the same’, without new directions in managing the country’s economy or creating new wealth including equitable distribution.

It is a budget that is designed to buy and secure another five years for the BN. It’s designed to help the regime tide over what has been described as the country’s most fiercely fought polls by throwing money at poor households, civil servants and young people – all who are key in bolstering BN’s vote bank and if possible give prime minister Najib Tun Razak a larger mandate.

In the quest to stay in power, the government has forgotten the welfare of the people. Malaysian families are facing a cost of living crisis but the budget does not provide sustainable solutions to this pertinent problem.

Instead it offers a one-off solution through BRIM 2.0 or RM500 in cash handouts to households earning RM3,000 and below. And throwing in RM 200 to youths to buy smart-phones is not going to solve the problem.

The government needs to explain how giving RM200 for purchasing smart phones is going to cushion society from spiraling prices.

This shows that this budget is about buying and securing BN’s interest given a large number of the 2.2 million newly registered voters are likely to vote against the government.

The RM3-4 billion could have been used to increase food production and provide affordable transportation. Increase in food production could lead to lower food prices, greater income for rural and suburban farmers while saving money from foreign imports.

And affordable transportation linking the periphery to the core city centers would help to decrease transportation costs.

Increase in food production and affordable transportation would have gone a long way to help manage the increase in the cost of living. But we have missed yet another chance.

However the puzzling ways of the government do not stop here. For example, the Malaysian Anti-Corruption Commission (MACC) is getting a RM276 million-allocation to fight graft. No this has nothing to do with looking at restructuring the body which has come under severe criticism for lopsided investigations and targeting only opposition politicians.

Instead, the government will make available an additional 150 posts annually to reach a target of 5,000 personnel in the MACC.

And that’s still not the end of the horror for it has made available RM300 million for 1.5 million young people to buy smartphones from an authorized dealer. While this deal smacks of cronyism, it also shows Najib’s priority or shall we say the lack of it, given the case.

Rosy economic projection

While a desperate Najib slammed the opposition and took pot shots at Anwar Ibrahim during the last half hour of his budget speech last Friday, without mentioning names of course, he chose to give a rosy economic projection for the country.

But growth rate projections of 4.5 % – 5% are highly optimistic. Malaysia is an open economy and thus highly vulnerable to external shocks.

The Finance Ministry’s Economic Report (2012-2013) notes that the country has experienced a 35-percent drop in FDI in the first six months of 2012. In fact, the International Monetary Fund’s (IMF) most recent World Economic Outlook warns developing nations to brace for further risks from uncertainties in Europe and the USA.

This together with the contagion impact on the Indian and Chinese economies will bite into Malaysia’s growth for the coming year.

A further problem for the Malaysian economy would be the impact of the euro-zone crisis on demand for palm oil and other commodities. Industry sources note that palm oil prices would drop further in the coming months impacting on the country’s revenue stream.

Let’s not forget that 40% of Malaysia’s revenue comes from the oil and gas sector which is very vulnerable to oil price fluctuations and production.

Deficits and debts have become BN’s preferred policy norm or option in economic management. The government’s attempts in reducing its 15-year budget deficit to 4%, from about 4.7 per cent of GDP in 2012, is largely prompted by pressure from global fund managers and rating agencies.

In the recent months, agencies such as Fitch and S&P warned of credit rating downgrades if the government did not reign in its fiscal deficit and ballooning debt of RM502.4 billion or 53.7% of GDP this year, with federal debt level at 55% of GDP being the legislated debt ceiling.

The government argues that deficit would be reduced with efficient tax collection and higher economic growth projected at 4.5% – 5.5% for 2013. This is also unlikely given the euro-zone crisis and its contagion impact on China and India. Thus projected increase in taxes and growth rates might not materialise.

Long term strategy missing

And no where in Najib’s two-hour budget speech did we hear anything about reducing wasteful spending like reducing the country’s civil service, a move which is necessary but will create a backlash for his government come the next general election.

So one can expect a supplementary budget in 2013 just like the RM13.8 billion a few months ago. What is clear is that the long term strategy in managing public finances in a sustainable fashion is missing.

Crime is another pressing problem in the country. While we commend the government for responding to the crime-issues faced by the rakyat, the present strategy of buying hardware and increasing manpower in the police force are not going to solve the problem. What is urgently required is a strategy change and re-allocation of resources.