Published October 26, 2009

MALAYSIA INSIGHT
Time Najib means business

Curbing corruption and wastage alone will help narrow budget deficit

By PAULINE NG
KL CORRESPONDENT
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PRIOR to Prime Minister Najib Razak tabling his maiden Budget, senior officials in his administration had said that it would be a challenging one given the need to stimulate growth yet rein in the fiscal deficit that has ballooned to 7.4 per cent of gross domestic product, the highest in two decades.

At the tabling last week, Mr Najib proposed a Budget that's 11 per cent smaller than the previous year's, and projected that the deficit would be trimmed to 5.6 per cent next year.

Most analysts are doubtful since the Budget fails to spell out how the deficit would be reduced. Moreover, Malaysia's lack of fiscal restraint is evident in that since independence in 1957, the country has only shown six budget surpluses.

Before it could even balance the books from the Asian financial crisis of the late 1990s which necessitated huge government stimulus programmes, it was forced to pump prime again this year when the global financial crisis hit.

On hindsight, perhaps Mr Najib's predecessor, Abdullah Ahmad Badawi, now wishes that he had worked harder to reduce the budget deficit of some 4 per cent in 2005, instead of steadily increasing the budget size and operating expenditure, the latter rising annually from RM90 billion (S$37 billion) to RM154 billion last year as spending rose in tandem with higher petroleum revenues.



Malaysia knows it needs to widen its tax base since the earnings of national oil company Petronas accounts for 44 per cent of federal government revenue. Moreover, only an estimated 10 per cent or a million odd of the 11 million working population pay tax.

Going by the Budget, it is obvious that Malaysians will have to brace themselves for higher fuel and living costs as there will be a restructuring of subsidies, which last year amounted to RM23 billion.

A goods and services tax (GST) is also on the horizon.

That Mr Najib intends to review fuel and other subsidies including sugar, is laudable, given the careless use of the commodities and rampant smuggling.

But there is little doubt that the GST would prove unpopular. Indeed, the government has already twice back-tracked from implementing it, in the late 1990s and in 2007. Mr Najib has assured that the government would proceed with caution as it did not wish to 'burden' the people.

Talk of burdening the people must sound hollow in the wake of the Auditor-General's report, coincidentally also released last week. His audit of government ministries and agencies contained the annual litany of mismanagement, abuse and wastage, or what the local media have described as the 'same old, same old'. The fact that one department saw fit to pay RM42,000 for a fairly basic laptop is but one indication of the bureaucratic profligacy plaguing the country.

Many are incensed and question the need to raise taxes for bigger budgets when billions of ringgit routinely flow down the drain, given that in many instances the returns on investment are few, if any.

Indeed, if the same standards of transparency, accountability, competency, and governance required of public companies were applied to the executive, there would be precious few investors, truth be told.

This irony does not escape Corporate Malaysia: that rules continue to be strengthened for public listed firms so that investors can be more confident that their investments are likely to be secure, but in the 'corridors of power', it appears transparency, good governance, accountability, and competence can be dispensed with since hardly anyone is brought to book.

The glaring double standards need to be removed. Why ask of public listed companies and government-linked companies a standard that the government itself is not prepared to adhere to?

Mr Najib's administration ought to state in no uncertain terms that it is prepared to rein in the corruption and wastage, so that spending becomes more prudent than it has been in years past. That, in turn, ought to help narrow the budget deficit.