A bud­get is also about en­sur­ing po­lit­i­cal sta­bil­ity, im­prov­ing qual­ity of the pub­lic good

New Straits Times - - News -

THE re­cently an­nounced bud­get, un­der­stand­ably, has in­vited its fair share of com­ments. Is­sues were raised on in­come dis­tri­bu­tion, ris­ing cost of liv­ing, em­ploy­ment and com­pet­i­tive­ness. To a lay­man, un­der­stand­ing bud­get de­bates can be tough. The views from ex­perts vary — some pos­i­tive, some neg­a­tive. How does one make sense of the bud­get? What are the con­cerns? Are they valid?

A bud­get is a pol­icy doc­u­ment. It re­flects a gov­ern­ment’s pub­lic pol­icy pri­or­i­ties and de­ci­sion pro­cesses. The bud­get es­sen­tially re­veals the po­lit­i­cal, so­cial, eco­nomic and ide­o­log­i­cal un­der­pin­nings of a so­ci­ety.

As a pol­icy doc­u­ment, the bud­get nat­u­rally means dif­fer­ent things to dif­fer­ent peo­ple. Al­bert Hyde, a fa­mous pub­lic ad­min­is­tra­tion scholar, says that bud­get­ing is partly po­lit­i­cal, partly eco­nomic, partly ac­count­ing and partly ad­min­is­tra­tive. To a pub­lic pol­icy an­a­lyst, bud­get­ing is about al­lo­cat­ing re­sources among con­flict­ing and com­pet­ing in­ter­ests to de­liver the op­ti­mum pub­lic good and in­crease pub­lic value. To an econ­o­mist, the bud­get con­cerns the dis­tri­bu­tion of in­come, pro­mo­tion of growth and em­ploy­ment, curb­ing in­fla­tion and main­tain­ing eco­nomic sta­bil­ity. To an ac­coun­tant, the bud­get con­cerns rat­ing the gov­ern­ment ex­pen­di­ture and en­sur­ing al­lo­cated funds are suf­fi­cient.

For sure, a bud­get goes be­yond eco­nom­ics. Though there are as­pects of the bud­get that need eco­nomic scru­tiny, we will not do jus­tice to the bud­get anal­y­sis if we only adopt purely eco­nomic ra­tio­nale. Here are a few ex­am­ples why this is so.

One crit­i­cism of the re­cent bud­get is that it does not ad­dress the na­ture of Malaysia’s tax struc­ture. Some econ­o­mists have claimed the tax regime is struc­tured to favour top-in­come earn­ers. They rea­son that the tax regime did not pro­vide for cap­i­tal gains tax and wealth in­her­i­tance tax. Such con­di­tions, they ar­gue, go against the prin­ci­ple of fair­ness and eq­uity, qual­i­ties so es­sen­tial in a tax de­sign.

The com­ments are un­fair. To start with, the gov­ern­ment’s re­cent an­nounce­ment to take two per­cent off the in­come tax for those earn­ing less than RM70,000 an­nu­ally ad­dresses the con­cerns. Now, 216,000 more tax­pay­ers no longer need to pay taxes. As for in­her­i­tance and cap­i­tal gain taxes, is this a good time to in­tro­duce new taxes?

Ex­perts tend to com­pare Malaysia’s tax regime with that of the Euro­pean Union coun­tries and the United States, but these are dif­fer­ent po­lit­i­cal economies at dif­fer­ent points on the de­vel­op­ment tra­jec­tory. The worry is that in­tro­duc­ing such in­her­i­tance and cap­i­tal taxes at this stage of Malaysia’s de­vel­op­ment could see a flight of cap­i­tal to tax havens. In­tro­duc­ing cap­i­tal gains tax could cre­ate liq­uid­ity prob­lems to a nascent cap­i­tal mar­kets, sti­fling the build-up of cap­i­tal and in­vest­ment. Put an­other way, it is un­timely to in­tro­duce such taxes given a still un­steady global econ­omy and in­tense re­gional com­pe­ti­tion for in­vest­ment.

Econ­o­mists also raise the is­sue of ris­ing prices. Three rea­sons are given — im­ported in­fla­tion, the in­tro­duc­tion of Goods and Ser­vices Tax (GST) and the re­moval of sub­si­dies. Rolling back on the GST and sub­si­dies will only ex­ag­ger­ate Malaysia’s fis­cal po­si­tion. The truth is that GST re­ceipts have buffered the econ­omy from the loss of oil and gas re­ceipts. The re­moval of sub­si­dies has re­lieved Malaysia of much fi­nan­cial bur­den and re­duced mar­ket dis­tor­tion. Rolling back these poli­cies could worsen fis­cal deficit, as well as pro­mote leak­ages to the econ­omy that the GST at­tempts to ad­dress. A longterm pub­lic pol­icy con­cern is needed here. At a time when Malaysians are get­ting used to the idea of lesser sub­si­dies, re­in­sti­tut­ing the sub­sidy men­tal­ity will only make fu­ture sub­sidy cuts more dif­fi­cult.

Last, some econ­o­mists have raised the con­cern of an in­creas­ing op­er­at­ing ex­pen­di­ture, high­light­ing that emol­u­ments make up a big por­tion of the ex­pen­di­ture, about 35 per cent of the to­tal op­er­at­ing ex­pen­di­ture. This might be a con­cern, but there is an al­ter­na­tive per­spec­tive. An ob­vi­ous one is that to­tal ex­pen­di­ture is only about 16 per cent of the to­tal Gross Do­mes­tic Prod­uct, a small amount that speaks of pru­dence. Sec­ond, Malaysia’s civil ser­vice head­counts in­clude teach­ers who are ex­cluded in some coun­tries. The so­lu­tion is not just about cut­ting back on pub­lic sec­tor em­ploy­ment, but also en­sur­ing the growth of the pri­vate sec­tor. The gov­ern­ment’s con­tin­u­a­tion of SL1M (1Malaysia Train­ing Scheme) and in­vest­ment pro­mo­tion ad­dresses this. In ap­prais­ing ex­pen­di­ture costs, the harsh re­al­ity is that we need to con­sider so­cial and po­lit­i­cal, not just eco­nomic as­pects, of the pub­lic good. Rolling back on ex­pen­di­ture at this stage of growth could af­fect the de­liv­ery of the pub­lic good. This is usu­ally lost with mere eco­nomic pre­scrip­tion.

The 2018 Bud­get, like the 2017 bud­get, is cen­tred on un­lock­ing the huge la­tent po­ten­tial of ev­ery Malaysian, and im­prov­ing the qual­ity of the pub­lic good. The bud­get ad­dresses the costs is­sues by re­leas­ing more dis­posal in­come to the bot­tom 80 per cent of the pop­u­la­tion. Di­rect trans­fers (BRIM pay­outs), fi­nan­cial in­cen­tives for young en­trepreneurs and small- and medium-sized en­ter­prises, re­duc­ing per­sonal in­come tax, en­cour­ag­ing women to re­join the work­force and un­lock­ing eco­nomic po­ten­tial from in­fra­struc­ture projects are poli­cies meant to un­lock Malaysia’s huge po­ten­tial over the long term.

There are in­deed no firm an­swers to bud­get as­sess­ments. For sure, when as­sess­ing the bud­get, the con­cern is the po­lit­i­cal econ­omy — eco­nomic sus­tain­abil­ity, en­sur­ing po­lit­i­cal sta­bil­ity and en­hanc­ing the pub­lic good. From a pub­lic pol­icy stand­point, ul­ti­mately, it is the peo­ple that mat­ters when we ad­dress the bud­get.

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