SERI 2011 Malaysian Budget Dialogue

By Chung Hosanna

Photo by Daniel Lee

SERI conducted a Post-Budget Dialogue Session on 22nd October 2010 at Wawasan Open University. The Dialogue was chaired by Dato’ Dr Toh Kim Woon, Senior Research Fellow at SERI. The speakers at the dialogue were Mr. Manokaran Mottain of AM Finance, Dr. Chan Huan Chiang, Senior Research Fellow at SERI, and YB Liew Chin Tong, Executive Director of SERI.

Kicking off the dialogue session, Mr. Manokaran described the budget allocation of RM212 billion as being an expansionary budget, with 4 key thrusts, namely: reinvigorating private investment, intensifying human capital development, enhancing quality of life, and strengthening public service delivery. He highlighted several positive aspects of the budged such as the cap on toll rates for PLUS highways, abolishment of import duties for approximately 300 goods, and incentives for first-time house buyers. Meanwhile, he noted several negative aspects including the increase of service tax to 6%, the budget deficit at 5.4% of GDP, as well as the absence of corporate and personal tax reduction to spur private sector activity.

He also noted the major infrastructure development and public private partnership projects including the RM40 billion Greater KL MRT project and the RM5 billion Warisan Merdeka tower. Given the low inflation outlook, Mr. Manokaran was of the view that Bank Negara Malaysia may keep rates steady over the 3 to 6 months at 2.75%, before raising 25-50bps next year. The National Key Economic Areas (NKEAs) will not take off successfully, said Mr. Manokaran, until and unless there are structural reforms. The absence of specific measures in the budget casts doubt on the government’s efforts to encourage the private sector to function actively as the engine of growth. He also expressed his disappointment at the 7% hike in operating expenditure amid a 9% fall in development expenditure. However, he anticipated that Penang’s economy would rebound strongly by 7.7% this year, before moderating slightly to 5.7% in 2011.

According to the second speaker, Dr. Chan Huan Chiang, this budget represented 26% of the GDP, whereas for advanced economies, the budget is usually half of the GDP, due to the greater scope of public delivery covered by the government, including housing, education, environment, public safety, and health. On taxes, Dr Chan stated that with a population of 27 million and 4.5 million tax files, the 1-2million taxpayers would only be able to raise RM2 billion at a 3%-5% Value Added Tax (VAT). As such, VAT is not an alternative tax scheme. Taxes should not be viewed as a burden, said Dr. Chan. In his view, the poor should prefer higher taxes since they are tax recipients and not subject to taxes. Whereas the rich should fund better public delivery via their taxes in order to escape falling victim to social unrest caused by the disenchanted poor.  

Analysing Malaysia’s prospects to becoming a high income economy, Dr. Chan opined that instead of importing low end labour, it is better to flatten the organisational structure and decouple wage levels from educational qualifications. If direct investments are to be entrusted to the private sector, Dr. Chan suggests that policy-making must focus on the development of cities emphasizing livability and safety in order to overcome the traditional urban plight of inadequate housing, failing public transport systems and insufficient public amenities. Dr. Chan concluded that the 2011 budget should be about the first step in the new model of growth for developing cities, which was decentralizing governance.

The final speaker of the dialogue, YB Liew Chin Tong, gave his perspective on the budget, pointing out that at a grand total of RM214 billion, this has been the largest budget in history. YB Liew noted that government expenditure has increased drastically over the years, even making allowances for inflation. YB Liew questioned the allocation for Parliament in a Parliamentary Democracy enshrining parliament as an institution, yet the budget for Parliament was a paltry RM78 million, constituting less than 0.05 percent of budget for Prime Minister's Department. In contrast, he noted that the budget for Prime Minister's Department has increased to RM 15.86 billion, compared to RM5 billion in 2007. Meanwhile, Biro Tatanegara had an allocation of RM79.43 million in this budget, where it was in 2010 allocated RM66.88m.

The Bukit Bendera Member of Parliament also revealed that a large sum of RM65 million was allocated as expenditure for renovations in Seri Perdana, the Prime Minister’s official residence. YB Liew elaborated that the government spends about RM26,000 per day for rental and maintenance of Seri Perdana and Seri Setia, the deputy premier’s official residence, making a total of RM10 million per year.

In YB Liew’s view, the budget reflects a government’s priorities. He criticized the government’s priorities and opined that the RM40 billion MRT project was a ‘classic case of vendor-proposed public goods’, as an upgrading of the existing bus system would serve the people better. Regarding PEMANDU, he questioned the need to ‘outsource government thinking to the private sector’, considering the high expenditure that the satirically-nicknamed “Kementiran Idris Jala” costs the government, including an RM18.43 million one-off payment. Regarding the large budget allocation of RM5.7 billion for the police force, YB Liew said that while the actual strength of the police force was 107,000, the sum allocated by the government was for 126,000 personnel. He also pointed out that the second highest expenditure was for the Internal Security and Public Order unit, which commanded RM1.4 billion for its 41,000 staff. He questioned the need for jungle troops since the communist threat has stopped long ago. The general public sentiment, he opined, still felt unsafe despite the police force’s increased budget and strength. As such, he accused the government of being more interested to protect its regime rather than to fight crime.

The gainers and losers (in terms of budget allocation) among the various ministries were discussed by YB Liew. Notably there was a 30% increase in the budget for the Ministry of Rural and Regional Development, which he attributed to the fact that 65% of Parliamentary seats are allocated to rural constituencies in a gerrymandered system that does not take into account the fact that 70% of the population in Peninsular Malaysia is urban. YB Liew concluded that the money supply is not an infinite loop but was money rightfully belonging to the rakyat.

After a question and answer session, the dialogue session was closed.