What Do We Want from Budget 2014?

It is gratifying that the Government has called for Budget proposals from the public well before Budget Day this year.

I think it’s an open invitation that we should all try to at least think about and communicate to the Government if we are inclined to do so.

Budget 2014 is particularly important because it is the first Budget after the 13th General Election, when all the Government’s election promises will need to be addressed.

Indeed, this Budget could show the way for a new Mid Year 5 Plan, based on the election promises and feedback from voters who have sent powerful signals to the political leaders from all sides.

So what do we want from Budget 2014?

Firstly, our economic structure has to be improved. The Budget provides the best instrument and occasion to promote higher competitiveness. For this we have to remove the worst elements of the New Economic Policy and move on to the New Economic Model.

There should not be policies and programmes that are race-based. The economy has gained much in terms of poverty reduction and bumiputra restructuring of equity and ownership, thanks to some success of the NEP. Many would argue that the 30% bumiputra equity has already been achieved. Hence an independent review would help to clear the doubts.

Nevertheless, a proper adoption and application of the New Economic Model will strengthen the country’s socio-economic structure. It will build sustainable growth and equitable income distribution into our economic system.

This review should also courageously reject new requests for more than 30% equity for investment and ownership and for contracts, licences and permits and quotas. The economy needs structural review and transformation so that we may be able to break out of the middle income trap that we are now caught in. Budget 2014 should therefore be based on the New Economic Model and not the outdated NEP.

Secondly, the Budget’s integrity that was compromised through extraordinary Budget expenditures will also have to be restored and strengthened.

Thus, the first priority of the Budget will have to aim for greater reduction of the national deficit and national debt.

These two fiscal pillars will need to be reinforced to ensure sustainable economic growth and fairer income distribution, to give a better deal to the poor. If the deficit and debt are not systematically reduced, we may set our economy along the slippery path that Greece took several years ago. Hence, we must constantly remind ourselves that even a relatively strong economy like ours, can slip pretty fast if we are lax in our fiscal discipline.

Thirdly, the General Services Tax (GST) will have to be introduced after so many false alarms. We can’t wait for the ideal political timing. The best time will be for the next Budget, now that the elections are over. Further postponements can be regarded as irrational and even irresponsible.

The lower income groups can be spared any additional burden if the taxes are imposed mostly on the high income consumer goods and services.

As in many other countries, the consumer goods and services that are considered as “basic needs” could be exempted from taxes, or suitable methods devised to reduce the tax burden through the issue of vouchers or even BR1M handouts.

Similarly, the wide range of subsidies could be kept at a reduced rate for the poor but denied to the higher income consumers who can easily afford to bear the higher costs due to reduced subsidies.

Fourthly, the Budget should make proposals to slash expenditure wastages and corruption. There is no point in raising some taxes and cutting down on subsidies if the savings thus incurred, are frittered away in higher cost of tenders and contracts. All government and even private sector contracts should be made really open, transparent and competitive.

There must be transparency and accountability all round so that abuses that encourage cronyism will be stamped out. Crony capitalism breeds corruption and inefficiencies that no economy can afford to ignore, even for a short while. The birds will come home to roost sooner than later!

Fifthly, Malaysia’s institutions have to be further strengthened through higher expenditure allocations and greater efficiencies. The civil service, the judiciary, the police and Customs, and particularly the education service, among other institutions, have to be made more accountable for the delivery of better service and productivity to our society.

Pemandu and Pemudah can be given more authority to monitor performance. They could provide advice to the Treasury to cut down or raise expenditure allocations to the institutions, depending on their performance. Individuals who contribute to competence and quality enhancement, should be rewarded and those who are poor performers should be retrained or penalised or retrenched from the unduly large civil service.

Finally, unless Budget 2014 includes new policies and programmes that are transformational in nature, it will be just another Budget that does not take into account the full will and expectations of the people for new initiatives to achieve a better and more united Malaysia

I hope the Budget 2014 will be transformational and more responsive to the rakyat.

Article published in The Star.

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