2013 BUDGET: Focus on debt reduction, aid for real poor
THE 2013 Budget will, I am certain, been one of the most difficult budgets to present to the people and Parliament tomorrow.
I've worked on one many times before, so I think I know.
The budget is crucial for many reasons. First, we are facing global economic problems and considerable uncertainty that could affect our socio-economic outlook.
Second, the 13th general election is looming and the people want and think they can get more from this Budget.
Third, more so now, there is a major conflict between two perennial budget issues -- what people want and what we can afford. The government is faced with the exacting challenge of wanting to please voters in an election budget and protecting the integrity of the budget, and indeed, the sustainability of the economy itself.
The budget will, thus, have to strike a balance that will not easily please everyone, including the foreign financiers.
On the macro-front, we must take into account the concerns of the international rating agencies, World Bank and International Monetary Fund, which will be watching closely to see how we manage these conflicting demands in the budget.
We can all ask for more perks, tax concessions, subsidies and spending.
But we have to think of the impact of more "giveaways" on the overall health of the economy. We have to remember our need to control the widening budget deficit and debt, which have been rising rapidly and weighing down confidence in the economy in the longer term.
For instance, the long-term implications of a generous budget that could lead to downgrading of our financial ratings by Fitch or Standard & Poor's or even IMF can be serious. Just as importantly, foreign investors want assurance that the economy is being well managed with greater prudence and fiscal discipline.
Hence, we have to aim to reduce the budget deficit, federal budget debt and national debt in the 2013 Budget.
So, how would the government also meet the rising expectations of the rakyat, especially in an election budget? An important strategy of the budget should be fighting inflation.
Prices are rising for several reasons. When the supply of goods and services decrease, prices increase. So, the budget should break more bottlenecks in the supply chain of these goods and services.
The budget should remove more taxes and administrative constraints on small businesses. The economy should be liberalised further without imposing too many controls on land for cultivation of food, and in granting licences, approvals and quotas for small- and medium-sized businesses that are the backbone of our economy.
Expenditure should also be managed more stringently to get more real value for taxpayers' funds and borrowings which have to be paid back with interest.
Unemployment and unemployable graduates are becoming a major problem. This is largely because of the poor and unsuitable kind of education we provide.
Instead of churning out unemployable graduates from our public schools and universities, more allocations for academic education should be diverted to technical education to produce productive technicians who are more employable and who may start their own businesses.
The budget strategy should adopt a basic human-needs approach. It should provide more funds for housing, transport, school expenses and reduced utility rates.
The budget could allocate more funds for 1Malaysia clinics, shops for low-priced clothing and a whole range of basic needs consumed by the poor and low-income groups.
The budget could lessen the subsidies enjoyed by the high-income groups. Surely, the higher income groups, such as professionals and managers and business tycoons, do not need petrol and other subsidies as well as scholarships for their children.
Let the budget look after the poor and encourage the rich to look after themselves. After all, big business, particularly foreign investors and multinationals, enjoy much more in terms of incentives and tax concessions.
But how do we finance these basic needs for the poor? The budget has to ensure that we get more bang from taxpayers' buck. The money has to be spent efficiently through tenders of contract, a drastic cut down in corruption and removal of inefficient contractors and developers. These people shortchange the government and worse still, the public.
For example, houses can be less expensive if there are fewer abandoned housing schemes caused by unscrupulous and unqualified contractors.
Tax evasion and avoidance can be reduced to increase budget savings, to narrow the deficit and debt.
A goods and services tax (GST) can be introduced so as to apply mainly to goods and services consumed by the rich and not the poor and low-income groups. The tax base could thus be widened.
Approved permits should be scrapped and auctioned to raise revenues and increase confidence in fighting protectionism.
Tax relief for the lower-income groups can be increased without too much adverse effects on revenues.
In any case, this is also the role of the budget -- to promote better income distribution by raising the disposable income of the low-income groups.
The income gap is widening and the government has to address this problem before it causes social problems. The development expenditure could be reduced or slowed down to reduce the budget deficit and debt burden.
This can be done as we did before by going slow on some low priority, non-urgent and even "prestige projects" that can be phased out over a longer period to protect the Budget's integrity.
Finally, the 2013 Budget can meet the challenges and conflicts that we face if we give greater priority to meet the basic needs of the poor and low-income groups, raise our standards of discipline in revenue and expenditure management and thus, go all out to obtain a lower Budget deficit and debt burden.
The budget will then make us all feel good and at the same time, maintain socio-economic stability and prosperity on a more sustainable basis.
Tan Sri Ramon Navaratnam, chairman, Asli Centre for Public Policy Studies, Kuala Lumpur