Address the national deficit

Budget 2012 can be examined from the macro (overview) ie, how it affects the economy as a whole and the micro view in terms of how it influences the people on the ground.

Macro expectations

1. The deficit – must be seriously addressed. It has to be reduced as a percentage of the budget to less than 5%.

This means that expenditures must be trimmed and revenues raised. Otherwise the national debt will have to rise and this is not good for good governance and greater financial prudence.

2. Private investment – has risen but it must be sustained.
Otherwise our investment targets and economic growth targets, employment and national wealth will decline hence the investment climate – has to improve by new policies that will attract rather than drive away investment – both domestic and foreign.

Structural impediments like the abuses of many aspects of the NEP have to be removed.

We should not be unduly encouraged by the current rise “lumpy investment” in petroleum and gas.

3. The present corporate and income tax rates could be reduced by two percentage points as part of a package of new incentives to retain and pull in FDIs.

4. The efficiency index – has to be further improved by removing constraints to economic expansion.

5. Tenders – have to be made much more transparent and competition further enhanced to build greater confidence in the economy.

6. Incentives – have to be given to raising productivity and preferably encouraging joint bumi/non-bumi companies to harness the cooperation and collaboration and synergies of all promising entrepreneurs.

7. Adequate expenditures must be provided to strengthen the major government institutions such as the – judiciary, MACC, police, etc

8. The fight against corruption – has to be stepped up as one weapon against inflation and wastage of resources, so that more funds can be allocated to fight poverty and to help the under-privileged .

Micro measures

1. Inflation – can be alleviated by increasing the supplies of food. This can be done by allocating more land for agriculture to efficient farmers who often find it difficult to expand their farms. More licences and permits could be given to hawkers to sell cheaper food and more 1Malaysia restaurants can be set up.

2. The minimum wage policy – should be introduced at the budget and not delayed further. This will help the poor and low-income groups cope with rising inflation.

However, government must insist on greater productivity – of the 1.2 million civil servants whose efficiency has to be monitored closely.

The good performers should be rewarded while the bad apples have to be phased out like in the private sector.

3. The general service tax (GST) has to be introduced after so much delay to help reduce the deficit – but the basket of goods/services of the poor, should be exempted from the GST.

Green stamps could be given to low-income consumers to meet their basic food needs.

4. Subsidies should be phased out to save more for the poor, instead of benefiting the rich, eg petroleum, sugar, cooking oil etc, subsidies that benefit the rich as well.

There can be mechanisms put in place to ensure that the subsidies are enjoyed only by the target groups. Green stamps is one way and in any case these mechanisms are used elsewhere and can be adopted here too.

5. Training and short courses and even more micro financing should be extended to SMEs as they provide the bulk of our employment and production of consumer goods and services to benefit the poor and the low-income groups.

6. Government should better enforce its rules so that more fines are collected and less is spent on maintenance due to careless use of public utilities. Local authorities and state governments could be given more allocations so that they can monitor their expenditures to ensure greater efficiencies and economies of scale.

The above are some of the many expectations for Budget 2012 which is expected to be generous in view of the coming general election. But it has to be realistic so as not to worsen the budget deficit.

Article published in The Sun and The Star.

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