More of the same or better?
ALL Malaysians are looking forward to Budget Day on Oct 21. They invariably ask: “What is there for me? We should also ask – what is there for the whole country?”
The government should explain more of the thinking behind the Budget so that people don’t look only for handouts and goodies. It must also seek to find policy measures that will bring in more economic growth and better income equity and fairer income distribution on a sustainable basis.
Budget 2017 cannot be just another incremental budget, where we continue to get more of the same. With the onslaught of globalisation and the world economic transformation we have to be more innovative. The budget has to become more relevant. It should better respond to the peoples’ wish lists and plan for the long haul.
The government has to be commended for having consulted civil society, the academic and business communities and general public. However it has to listen carefully and follow up with concrete proposals for tax adjustments and expenditure allocations.
Tax cuts for big business are constantly requested, but they cannot or should not be fully entertained. Big businessmen usually want more cuts in corporate tax and personal tax but this concession cannot be prudentially given at this time of budget strain. Some would argue that there is a good case for government to raise taxes for the rich to provide more for the bottom 40%. Then there is the middle 40% income group whose standards of living have been diminishing with rising inflation. Should they also not enjoy better quality government facilities and services?
It has to come from more reserve and not more borrowing. Hence could the Budget introduce some income equity taxes to offset against the serious widening income disparities that can cause social unrest? Could there be better estate duties on huge properties, wealth taxes on the very wealthy, etc?
The people want fewer taxes and more tax relief for the lower- and middle-income groups. These requests are fair, given the national need to raise living standards for the people whose real incomes have been falling, especially with unduly slow wage rises.
More basic needs for the poor (B40) – like housing, health, education, transport, etc, could be provided on a gradual basis, so that the budget deficits could be controlled and constrained. But again – if we are not to borrow too much, then the finance has to come from more taxation at the top brackets. Investors may protest against higher taxes. But the response should be that investors are attracted to not only lower tax regimes, but more importantly to the attractive investment climate created by many factors.
Inflation has to be better contained. The steadily rising prices of food is especially depressing. Furthermore the rising prices on the ground, may not be adequately reflected in official price statistics. This could mean that people are paying far more for essential foods and services than we think. The impact of rising prices on the poor can be more painful than the middle and upper-income classes can imagine. So what can the Budget do about inflation? i) Affordable housing – provide more incentives to build more low-cost houses through the industrial building system.
Developers can be encouraged to build more affordable housing by promoting the public private partnership concept on a winwin basis.
ii) Health can be improved if higher taxes are imposed on food and goods that spoil our health like sugar, salt, cigarettes, alcohol. Lower taxes on sports equipment can also encourage people to exercise and be healthy.
iii) Scholarships and bursaries can be provided to more students in the B40 and M40 groups, by enabling private schools, colleges and universities to increase their scholarships to poor, bright students. This can be done by granting these institutions full tax relief on their surpluses. More savings from these surpluses can be diverted to fee exemption and scholarships. This will encourage the establishment of more education endowments and foundations – and thus relieve the government of huge education Budget expenditures. Similarly public universities should be encouraged to raise fees from the well-to-do parents.
iv) Transport charges and fees can also be given more tax concessions. There is no point building large transport infrastructures like the MRT, LRT and BRTs and to provide bus services, if these expensive facilities and their services are highly priced and not adequately used. The pricing has to be constantly reviewed and made more market oriented. Sometimes the authorities lose the “consumer feel” and both sides lose out and government unnecessarily loses the goodwill that it can richly earn from providing better transport to the people.
v) Supplies must be increased as shortages are the main causes of inflation. More production, higher productivity and larger supplies could be encouraged to meet the stronger and rising demand for more goods and services. So the budget has to identify the many supply bottlenecks and break them, to increase supplies of food, goods and services. Often these supply shortages are man-made. For instance, bad bureaucracy and wasteful protectionism can seriously hinder and hamper production and productivity. The careless denials of suitable land alienation for food and agriculture, and for housing, the deprivation of licences and permits for trade and especially for the small and medium industries and the severe compliance costs and wide and rising grand corruption, can stifle efficiencies and suppress supplies badly. Corruption causes cost inflation too.
The 2017 Budget has to be different. It cannot offer more of the same, but should be better than in the past. This is because we are facing more challenging circumstances.
We have to do much more for the B40 and M40 income groups. Yes, they want economic growth and jobs and higher incomes – but for whose benefit – the rich or the poor?
Corruption, cronyism and expenditure wastage have to be overcome urgently.
The Budget should adopt more of the New Economic Model and ensure that it gradually replaces the New Economic Policy.
The people must realise that Budget 2017 will be a tight budget because of many economic constraints. The global economy is slowing down, our budget deficits have to be reduced to about 3% of GDP, the national debt has also to be limited to about 55% of the GDP, the balance of payments and our ringgit are under pressure. Hence, all these constraints allow little manoeuvrability.
Finally, we have to have a pragmatic and prudent Budget 2017, so that we can move forward with greater confidence to build a stronger and more sustainable economy.
Tan Sri Ramon Navaratnam Chairman Asli Centre for Public Policy Studies