What do Malaysians want from Budget 2015

Once again, we all look forward to the annual Budget and the secrets it will unfold, and any goodies that we can get.

As usual, Malaysians will want to know what is it for them, as individuals and for their families.

They may not be interested so much in the macro issues like the budget deficit, the national debt, the balance of payments, or even the gross national product. Bank Negara's latest estimate that Malaysia's gross domestic product (GDP) could exceed 5.5% this year will not impress the low-income groups. They will ask, who benefits most from higher growth, the rich or the poor?

But, the recent rise in the overnight policy rate to 3.25% and the prospects of the interest rates going higher can cause problems to their borrowing to go up, and inflationary pressure to firm up. So Budget 2015 will have to strike the balance with higher economic growth and price stability.

The Budget will concern Malaysians on issues such as whether there will be more or less taxation, more expenditure allocations to provide them with more basic needs inter alia, better education, health, transport and housing, or will there be expenditure cuts, in view of the budget deficits.

Budget 2015 that will be introduced on October 10th, 2014, will have to address these basic issues and bear in mind that Budget 2015 marks the beginning of the last lap before the finishing line in the race to Vision 2020.

The Budget allocations to provide the Basic Needs mentioned above, cannot significantly increase over one Budget year. This is a longer term structural policy issue that 5 year plans can hopefully resolve. Thus the knowledgeable Rakyat will not expect much change in their lifestyle on the basis of one year’s expenditure spending. Nevertheless, there will be high expectations on how the Budget will affect them and their lifestyle.

Taxes are not expected to rise for the rakyat, except for the introduction of the general service tax. Given the exemptions allowed for the goods and services consumed by the poor, the resultant higher prices would impact the poor relatively less. However, the rakyat would not mind if the more wealthy are taxed at higher rates to finance more development for the lower income groups, especially those who earn less than about RM5000/month. But on the contrary, it has already been announced that the income tax rate will be slightly lowered for the wealthy.

The rakyat will ask why so? Can't the high income tax payers afford to pay more? Should not the richer segments of our society pay more taxes rather than less? If the deficit is to be reduced is it not better to introduce more taxes for the richer class. Higher income taxes can be paid by the top income earners, and new estate duties and even death duties can be raised?

The argument proffered that investors will move away, if more taxes are imposed on the higher income earners, is rather weak, since there are many other incentives available to attract foreign investors and to keep domestic investors comfortable and productive.

Crucially, for the first time, the Budget will have to focus more on what can done to improve the business confidence and security, to protect and promote domestic and foreign investment on a sustainable basis.

Challenges

The biggest challenges facing the economy are not the economic fundamentals. They are quite strong in the short to medium term. But it’s the threats posed on business and peoples' confidence in the longer term. This is due to the rise in Racial Extremism and Religious Bigotry, excessive Politicking, the threat of the Sedition Act, high crime rates as well as declining good governance! These negative developments will not keep and attract domestic and foreign Investment. Neither will these adverse factors persuade our scarce talent to stay at home or encourage them to return to serve our country, like in the case of previous generations. We have stop or slow the bad brain drain that can haemorrhage our economy.

Operating expenditures allocations could and should be cut, but not for the lower income groups and not in areas of Security. Prestige Projects and buildings and unnecessary expenditures like lavish entertainment can be reduced if not removed. After all, the Auditor General's Reports are full of cases of wastage and inefficient spending. Not all Government Contracts are made subject to open and competitive tendering. This adds to unnecessary extra costs to the tax payer and the Rakyat. The Savings from keener competition and greater administrative efficiencies can help to provide more basic needs to the rakyat.

In any case, the 1.4 million civil servants need not be increased much further. In fact the civil service which has described as somewhat bloated, has to be trimmed in the Budget. They are now paid much better than before and their productivity could also be increased to conserve rising costs of salaries and pensions and many other benefits. But like most issues in our country, this is also a “sensitive matter” which hopefully can still be questioned in the public interests.

Development expenditures are, according to the World Bank, being unfortunately reduced in order to keep a lid on the budget deficit. However it’s the current operating expenditures like payment for salaries, maintenance services and debt servicing that should be pruned. It’s the rakyat that will lose most by denying them more development expenditure to meet their basic needs for low cost housing and transport and anti-poverty programmes, etc. We have to deal with the worsening income disparities and the plight of the patient poor. They may lose their calm and tolerance if there is less care shown to them!

Subsidies can be phased out faster to also release more funds to raise the standards of living and quality of life for the rakyat. Compensatory policies and programmes for the poor, through BR1M and similar aid schemes can mitigate the adverse effects on the poor. However, these compensatory aid schemes must be properly designed and targeted to benefit the poor and not for the rich to also benefit.

The environment and quality of life can be considerably enhanced by stepping up enforcement. So much is spent to clear rubbish, fight forest fires, keep rivers and drains clean and repairing the damage caused by sometimes deadly landslides and flooding, because of poor and indifferent attitudes shown to protect the environment. We have also paid the price for frequent and unnecessary water and electricity shortages due to the neglect of the environment and poor enforcement.

Much of these additional costs could have been saved and lives spared, if more resources had been provided to prevent wanton destruction and to protect the environment. And of course we needed stricter and more efficient enforcement to be imposed by the authorities, to ensure better productivity and returns from Budget spending.

Inflation would be the major preoccupation of the rakyat. The cost of living index rates are rarely taken seriously by those who do marketing. They shop and monitor the price levels closely and on a regular basis if not on an almost daily basis. They observe the steady rise in prices or Inflation and ask what the budget can do about it?

Combatting inflation is a structural issue. Inflation cannot be brought down overnight! It has indeed been growing over the years largely because of inefficiencies, wastage, less competition, more protection and high corruption.

To counter Inflation more effectively, we have to increase supplies of goods and services. More land and incentives could be provided to produce more food and meat, fish and vegetables. But if the provision of licences and permits are slow and difficult, then costs go up , We have to cut costs of production and by being more efficient. But for this the economy has to be more open and liberal. There must be less protection and cronyism. Most importantly there has to be a stronger political will to fight corruption which definitely raises the cost of doing business and thus inflation!

Conclusion

I don’t think Budget 2015 will not be exciting. Indeed it could be quite mundane, if not dull.

No major surprises are expected. The GST has been announced. The slight reduction in income tax rates has been mentioned. Nothing much will be done to raise taxes, other than the GST which will be unpopular to many. But the budget deficit has nevertheless to be gradually reduced. The subsidies will thus have to be further phased out hopefully in the budget. Operating expenditures have to be curtailed and development expenditures should not be reduced for projects that benefit the poor.

Finally, as the Prime Minister Datuk Seri Najib Razak well stated while attending this year's UN General Assembly in New York, “it is about making the right decisions not part of expediency or popular in nature”. He added that he wants Malaysia to be in the forefront and to make hard and tough choices to become an advanced economy.

Mr Prime Minister and Minister of Finance, Budget 2015 could well give you the challenge and the opportunity to deliver on your aspirations please.

All Malaysians now look forward to Budget 2015 that will be at the forefront of progress. –TMI