THE government is right on track in giving much attention to the fiscal management of the country, especially in the preparation of the 2019 Budget.
Indeed, this coming budget is the most challenging one the central government has to experience, given the critical issues it has to address.
In fact, I am not surprised the Budget will definitely be the forerunner of several new economic policies by the new government for Malaysia Baru, covering overall economic growth and national economic management.
For a start, the high-level public sector debt, the need to rein in public expenditure, and the efforts to raise revenue need courage from the government and strong public support to see them through.
The government has to scale down unnecessary expenditure and collect more revenue so as to finance the debt repayments and to meet important and critical basic social needs and obligatory requests.
While the revenue position will be influenced by the petroleum price, which is higher than earlier forecasts, with the reintroduction of the Sales and Services Tax (SST), ministries and government departments must assume a greater role to reduce their expenditures — sacrifice those considered non-essential and not contributing to revenue generation, and have improvements in value-added creation, such as new investments and exports promotion.
The people may not know that much of public expenditure is compulsory in nature, like those stipulated by the Constitution, such as grants to states and local governments and those contractual in nature such as salaries and pensions.
The provision of subsidies, while not obligatory in substance, is considered essential socially and politically to reduce costs of living (diesel subsidy) and promote educational attainment such as scholarship and financial assistance.
The room for manoeuvre is very narrow and this is largely in the acquisition of supplies and services. As such, the contribution of the controlling officers, the secretaries-general in particular, is critical to examine in detail which expenditure can be reduced to the minimum to effectively reduce public expenditures.
Perhaps the government may want to concentrate more on expenditure on software, rather than on mortar and cement (or buildings); the latter may have experienced over-investment in the past.
Software expenditure will improve quality and human skills in the public sector. Thus expenditure such as research and development, training, information and communications technology (ICT) should be given priority in this Budget.
This Budget should underscore the importance of state and local authorities, seeking all avenues to improve and strengthen their finances as well as rein in their expenditures.
The policy of having strong fiscal management should not be the concern of the Federal Government alone. It is equally pertinent for the state governments and local authorities too. In this regard, the skills of the current finance minister, who has much experience in strengthening Penang’s public finances, should come in handy in improving the state governments’ finances.
Actually, we have taken our public finances, at all levels of government, quite for granted, especially during the days of good oil prices, leading us to imprudence to some extent. This is, perhaps, what is often called the “Dutch disease”.
Moving forward, we have to observe good financial planning and practices in the public sector, including observing a balanced budget, efficient and cost-effective expenditures, and prudent debt management.
To a certain extent these were observed during the economic crisis in 1985/86 when there was an across-the-board drop in most commodity prices amidst international adjustments to the Plaza Accord, which significantly appreciated the yen then. Some of the structural adjustment measures may be worth a revisit.
Looking for new sources of revenue may be challenging as society is sensitive to new taxes. However, it would be good to look for avenues that can support other public policies, such as environmental care and protection.
Taxes that cut fuel consumption and reduce environmental decay may be worth exploring. In this context, taxing the consumption of plastic bags and bottles is a good idea and will send a deep message to society to be mindful of the environment.
Finally, a strong policy stance to stamp out leakages by ensuring all procurements are done on the basis of open bidding will be a good practice while ensuring society gets value for their money. Direct negotiations more often than not are costlier, and contribute to deficit. Our entrepreneurs should accept this culture from now.
Wishing the very best of luck to Finance Minister Lim Guan Eng in his forthcoming maiden Budget. Society is indeed waiting for new a direction in the management of the economy.
Tan Sri Sulaiman Mahbob is the chairman of the Malaysian Institute of Economic Research (MIER)