Budget 2013 – what do we want and what can we afford?

An interesting piece of Budget's expectations from Tan Sri, GOOD!
Budget 2013 – what do we want and what can we afford?

http://thestar.com.my/news/story.asp?file=/2012/9/27/budget/12087434&sec=budget
Comment by Tan Sri Ramon Navaratnam

BUDGET 2013 has been one of the most difficult to design and to present to the people and Parliament. I’ve done this many times before, so I think I know!
This budget is crucial for many reasons. First, we are facing global economic decline and considerable uncertainty that can adversely affect our socio-economic outlook.
Second, the 13th general election is imminent. People and voters 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 now faces the exacting challenge of both wanting to please the voters and protecting the integrity of the budget and indeed the sustainability of the economy. The budget will thus have to strike a clever balance that will not easily please everyone – the people and the foreign financiers.
On the macroeconomic front, we must take into account the rising concerns of the international rating agencies, the World Bank and the International Monetary Fund (IMF), which will be closely watching how we manage these conflicting demands.
We can all merrily ask for more perks, tax concessions, subsidies and even more spending to make us all feel good and happy. But we have to think of the impact of more “give-aways” on the overall health of the economy. We have to remember our overriding need to control the budget deficit and debt burden that have been rising rapidly and weighing down the confidence in the economy in the longer term.
For instance, the longer-term implications of an unduly populist budget, which can lead to a downgrading of our financial rating by Fitch and/or Standard & Poor’s or even the IMF, can be serious. Just as important, foreign investors would want to be assured that the economy is being managed well with greater prudence and fiscal discipline.
Hence, we have to aim to reduce the budget deficit, the federal budget debt and the national debt in this Budget 2013.
So how would the Government also meet the rising expectations of the rakyat?
An important strategy of the budget should seek to give greater priority to 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 chains.
The budget should remove more taxes and administrative constraints on small businesses. The economy should be further liberalised without imposing too many controls on land for cultivation of food, and in granting licences and approvals and quotas for small and medium enterprises that are the backbone of our economy.
Budget expenditures should also be more stringently managed to get more value for taxpayers’ money and the borrowings that have to be paid back with interest.
Unemployment and unemployable graduates are becoming major problems. This is largely due to the poor and unsuitable education we provide. Instead of churning out many unemployable graduates from our public schools and universities, more budget allocations for academic education should be diverted to technical education to produce productive technicians who are more employable and who can even operate their own businesses.
The budget strategy should adopt a basic human needs approach. It should provide more funds for housing, transportation, school expenses and reduced utility rates. It could allocate more funds for 1Malaysia clinics, shops for low-priced clothing and a whole range of other basic needs of the poor and low-income groups from the lowest 40% of our population.
It could lessen the subsidies that are now also enjoyed by the high-income groups. Surely, people like professionals, managers and big businessmen 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 multinational corporations, enjoy much more in terms of incentives and tax concessions.
But how do we finance these basic needs of the poor? The budget has to ensure that we get more bang from the taxpayers’ buck. Taxpayers’ money has to be more efficiently spent through more genuine tendering of contracts, a drastic cut in corruption and the removal of inefficient contractors and developers. They short-change the budget 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 could be reduced to increase budget savings, to narrow the deficit and debt. The 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 to get more to pay taxes. Approved permits should be scrapped or auctioned instead, to free the market, raise revenues and increase confidence in fighting wasteful protectionism.
Tax reliefs for the lower-income groups can be increased without too much adverse effects on budget revenue. In any case, this is also the role of the budget – to help promote better income distribution by raising the disposable income of the low-income groups.
The income gaps are widening and the Government has to address this problem more carefully, before it causes social problems. Development expenditure could be reduced or slowed down to reduce the budget deficit and debt burden.
This can be done as we did before, through a managed go-slow on some low-priority, non-urgent and even ‘prestige projects’ that can be stretched over a longer period.
Budget 2013 can meet the challenges and conflicts that we face if we give greater priority to meeting 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 lower the budget deficit and debt burden.
The budget will then make us all feel good and at the same time enable our continued socio-economic stability and prosperity on a more sustainable basis.
l A former senior civil servant, Tan Sri Ramon Navaratnam is chairman of the Asli Centre of Public Policy Studies.