New goal of sharing prosperity a challenge

THE new Pakatan Harapan (PH) government must be commended for introducing the mid-term review plan of the 11th Malaysia Plan with the new goal of sharing prosperity. But this prosperity is slowing down – so how do they share it?

The previous preoccupation with promoting economic growth did indeed neglect income distribution and the widening income disparities. Thus the rich got relatively wealthier and the poor suffered from this world phenomenon of the widening income gap between the rich and the poor. Thus, we must support the government in righting past wrongs.

Therefore, the growing recognition in our economic planning to more vigorously tackle these unwelcome worsening trends of income inequality is to be appreciated and respected, and promoted more aggressively in the future.

Economic slowdown But how much can be done to share prosperity in reality, when we are slowing down? Nevertheless, despite these concerns it still remains a worthy goal, which is relatively new in our emphasis, in our traditional overall socioeconomic planning.

The economy is expected to grow between 4.5% and 5.5% in the remaining years of the 11th Malaysia Plan period 20182020. This is mainly because of global uncertainties like the world economic cyclical slowdown, Brexit and now the threat of trade wars between economic giants, the US and China .

Our own estimates of achieving even a 4.5% growth rate can be questioned and remain in doubt.

The mid-term review plan mentions private consumption growth of 6.8% for 2018-2020, private investment of 6.1% and public investment of only a meagre 0.6% for the same period. But what if even these low rates are not attained and what if they worsen?

Overcautious mid-term review plan, due to debt and deficit? However, we need not be too overcautious.

Thus, I would think that the mid-term review plan could have been less overcautious in dealing with the RM1 trillion national debt. After all, the national debt, although very high, is not critical yet.

It’s still relatively acceptable at about 6080% of gross domestic product (GDP), depending on what definitions we want to use.

In any case the international rating agencies have not sounded the alarm bells and neither have the World Bank and International Monetary Fund protested openly.

Thus at a time of a global slowdown, should we aggravate economic decline by drastically reducing the development expenditures by a major slash? It’s been cut by a huge amount of RM40 billion from an original allocation of RM260 billion to RM220 billion for the whole plan period of 2016-2020. Was this really necessary?

Actually, the mid-term review plan has been too cautious and its planning could have been unduly affected by the public debt and the budget deficit.

Budget Deficit The budget deficit is now estimated at 3% of GDP. It is expected to rise from the current estimate of 2.8%. Here again, are we being overcautious? In all reality, there is no legal or fixed obligation to keep the budget deficit rigidly down to a low figure of less than 3% of the GDP.

Many countries are doing well with higher deficit ratios. Of course, the major determinants for sound fiscal discipline would be to ensure that the higher development expenditures are used to generate viable income generating projects.

I think we can now assume that there are less leakages and corruption in spending our scarce budget funds. To its credit, the government is tackling corruption, wastages and leakages more effectively now.

With so many corruption charges being made at the highest levels, surely we can expect that the fear of being caught for corruption has become a severe constraint against corruption. It could be an incentive to be more honest in dealing more professionally with taxes and public funds.

Budget 2019 should not be overcautious The mid-term review plan is only a plan, and can be altered and improved as we move along depending on global economic developments.

However, Budget 2019 on Nov 2 need not be too cautious. It should make amends to the mid-term review plan.

Indeed, the budget could be more counter-cyclical and stimulative to achieve higher economic growth and better wealth distribution as presented and promoted in the mid-term review plan.

Proposals to refine the mid-term review plan Thus for these mid-term review plans to be implemented more meaningfully, I would propose the following Budget 2019 measures be adopted: Restore some of the major sensitive development expenditure items that have been severely cut. These could include inter alia, low-cost housing, medical and health facilities, education scholarships and training, research and environment protection, and anti-poverty programmes in both the rural and, especially now, in the new and neglected urban poverty areas; Wealth distribution can mainly be attained with higher taxes that can be imposed on the rich. So what about a wealth tax at reasonable rates, estate duties, property and capital gains, and sin and carbon and soda taxes?

Conclusion The mid-term review plan of the 11th Malaysia Plan has to be refined in the Budget 2019.

Unless we are bold and brave, and take the necessary budget measures as above to: Mildly stimulate the economy; Raise wealth taxes; and Accept that we should not be bound by some rigid economic theories but be more flexible and pragmatic in our socioeconomic planning and in formulating Budget 2019; we can only worsen the socioeconomic challenges facing us now and over the next few years at least.

So let the government strive harder to share wealth even when the prosperity is slowing down.

Tan Sri Ramon Navaratnam is chairman of Asli’s Centre for Public Policy Studies. Comments: letters@thesundaily.com