Budget 2019 to affect all and sundry
BUDGET 2019 to be tabled on Friday is anticipated by many with bated breath, given the weak fiscal position of the government amid the need to foster economic growth and development.
To a varying extent, it will affect everyone, favourably or unfavourably, or both.
Economic growth, which is anticipated to slow in the next couple of years, calls for greater government spending and lower taxes, so long as the government’s finance permits.
While there is doubtlessly the need for the government to maintain fiscal prudence, it may still be advisable to allow the fiscal deficit to increase moderately beyond 2.8% of gross domestic product (GDP).
This is because the risk of a sovereign rating downgrade remains if the economy were to plunge into a recession as an unintended consequence of excessive fiscal retrenchments. After all, there are other countries that have significantly higher fiscal deficit and debt ratios.
Moreover, the rising oil prices would provide some leeway for the government to be less conservative in its fiscal policy. Generally, it is less worrisome if the deficit is sustained from development rather than operating expenditure.
The government can spend more on development by cutting down on operating expenditure. Apart from cancelling low viability projects, steps can be taken to reduce duplication of roles across government departments and to re-deploy under-utilised staff from one department to another. A moratorium on staff recruitment and promotion can be imposed.
To augment revenue collection, loopholes for tax evasion or avoidance should be plugged. The tax net should be cast on those operating lucratively in the informal sector. This is particularly appropriate since the goods and services tax (GST) has been phased out.
Expenditures on healthcare and education should remain a priority as they contribute to human capital accumulation, which is vital for the long-term growth and development of the country.
Measures can be undertaken to boost the supply of and demand for technical and vocational education training (TVET). Generally, workers and entrepreneurs should be induced to live up to the challenges of the 4th industrial revolution.
New tax incentives can be offered to stimulate private sector activities in new and innovative businesses.
Being a major generator of employment, assistance may be rendered to small and medium enterprises (SMEs) to facilitate acquisition of digital technology.
For economic growth to be private sector-led, a climate conducive to investment in the spirit of Malaysia Incorporated can be created.
This may involve simplifying administrative measures and procedures to facilitate business compliance and to reduce the cost of business operations. Cumbersome, outmoded and antiquated administrative procedures should be done away with.
Apart from reducing the scope for rent-seeking, this could help reduce the government operating expenditure while facilitating the growth of the private sector.
Government-linked companies (GLCs) could play a complementary role as long as they operate like other private sector ventures. It does not matter who head the GLCs, whether they are politically-linked or otherwise, so long as they are people of high integrity with the nation’s interest at heart.
The Budget should also address the need to promote exports, given the smaller current account surplus registered recently compared with earlier quarters. This will prevent the country from falling into a twin deficit condition, i.e. fiscal deficit plus current account deficit. It would be ideal to boost the central bank’s international reserves to enhance investor confidence.
Fiscal policy measures should also be undertaken to discourage hiring of unskilled foreign labour. Such hiring involves considerable repatriation of wage incomes to home countries. This constitutes a significant leakage from the domestic economy and tends to make the country’s gross national product (GNP) low relative to its GDP.
In fact, what should matter more is the size and growth of the GNP rather than of GDP. It is pointless to generate high rates of economic growth merely in terms of GDP. The easy availability of foreign workers discourages automation and mechanisation. Such a situation also keeps wages depressed, pricing out locals from the labour market. Either that or they have to be contented with lower wages.
It is not surprising to hear about low productivity among local workers if they have to be engaged in two or three jobs in order to make ends meet. To alleviate the need for foreign labour, firms can be encouraged to employ senior citizens so long as they are employable, like in some other advanced countries.
This relieves their off-springs of financial burden, and enhances socio-economic welfare. The need for Bantuan Sara Hidup may be curbed if the compensation of employees to GDP is raised from the current 35.2%.
To ensure sustainability, have measures that favour the use of public transport and that promote the 3Rs (reduce, re-use, recycle). A targeted fuel subsidy scheme should replace the current blanket subsidy scheme which is socially unjust and environmentally hostile.
Generally, Budget 2019 and subsequent budgets should contain measures that can boost the long-term growth and development capacity of the nation. This will facilitate its transition to a high-income status. This, in turn, could yield returns to the government in the form of higher tax revenue in the future.
It is imperative that the national tax administration be beefed up to enhance tax buoyancy, i.e. to increase the responsiveness of tax collection to economic growth. The current tax structure needs a review – the tax base be broadened.
Finally, it should be everyone’s aspiration that Bantuan Sara Hidup would become redundant in the not-too-distant future. People should be bailed out from such a scheme. It is by no means a national pride since it involves a significant segment of the country’s population.