Challenges 2013 Budget must address
The 2013 Budget, which will be unveiled on Sept 28, should aim to show that it can sustain the strong growth rates on a longer-term basis.
The latest estimates released by Bank Negara Malaysia indicate that the economy grew by a creditable 5.4 per cent in the last quarter and a revised figure of 4.9 per cent for the first quarter of this year, compared with the earlier estimate of 4.6 per cent.
This is an impressive performance given the low, slow and even declining growth rates in the United States, Europe, Japan and most parts of the world.
Even the conservative London Financial Times writer, Jeremy Grant, could not hide his surprise at Malaysia’s resilience.
But we should not be carried away by this favourable assessment of our economy. Neither should we take this steady growth for granted and, worse still, become complacent and cavalier.
This is because there are serious undercurrents and global threats, while we also have internal socio-economic and political concerns to contend with. Thus, the second half of this year and further ahead may be fraught with dangers brought about by a whole range of socio-economic weaknesses that we need to overcome with a firm political will to remain resilient.
Hence, the 2013 Budget has to be well planned to play a more strategic structural role in sustaining our short-term economic gains. The budget has to strengthen the “economic transformation” to ensure longer-term structural growth and better income distribution that will be truly sustainable.
For instance, we cannot ignore the fact that it is the government’s accelerated spending in recent times that has pushed up public consumption and public investment. The salary increases, high subsidies, cash grants and handouts have no doubt boosted growth rates. The Economic Transformation Projects and programmes have also stimulated growth, together with private sector partnerships and financing. This is all good for the economy but it begs the critical question as to how long this public sector initiatives can be sustained.
We should not forget that our non-petroleum exports could decline with lower demand from declining foreign economies. At the same time, our essential imports will have to continue and this trend could adversely impact the balance of payments. More importantly, revenue could be affected by lower exports. If government expenditure, especially in the operating budget, keeps rising at a high rate, then the deficit would worsen.
The oft-postponed goods and services tax could be introduced on a small scale to collect more taxes from expensive items consumed by the higher-income group. The 2013 Budget has to be more fiscally responsible to address any worsening of the deficit. Big-ticket projects, that have lower priority now, can be slowed down. The savings could be diverted to finance small projects and programmes for the bottom 40 per cent income groups and small-medium industries to meet the higher priority basic needs of the poor and less privileged.
However, there is the danger that the economy may be soon approaching a tipping point if the government does not restrain the deterioration in its deficits and debts. We must take remedial action through the 2013 Budget to protect and ensure our longer-term economic viability.
Article published in The New Straits Times.