Budget 23 : Possible Game Changers By a Reformist Government

by Dr. Lim Teck Ghee

Budget 22 was clearly racially contorted, narrowly politically driven and served neither the short term nor long term needs of the nation. It followed the pattern of the past two decades by bloating the deficit and ignoring the revenue side.

Now that an ostensibly reform oriented government is in power, can the nation see a budget that addresses the shortcomings of earlier budgets which have squandered the nation’s considerable financial resources with relatively little return?

This upcoming budget is the first real test of the Anwar administration. We will see from it how much of a genuine reform government the new administration really is.

For reform to begin in earnest, the new government must tackle the major challenges facing Malaysia that are outlined here. Otherwise this year’s exercise could end up as another instrumental agency misshaping the country’s socio-economic development further which is clearly evident from the following

• The widening gini index of inequality. Malaysia inequality trend. Gini coefficient inequality worsened from 0.399 in 2016 to 0.407 in 2019. This was the first time since 2004 that the household income gap had been recorded as widening.
• Poverty numbers remain large and have grown with little evidence of progress in the last decade. According to the Department of Statistics in 2021 a majority of households experienced a decline in income with many households from the higher income decile group moving to the lower income group. 20 percent of households from the M40 group with income between RM4,850 and RM10,959 moved to the B40 group.
• Inequalities in regional development have been uncorrected. The latest data has led the World Bank to observe that significant differences now exist between Bumiputera in Peninsular Malaysia and Bumiputera in East Malaysia with the latter experiencing more chronic poverty, more downward mobility and less upward mobility.
• Burgeoning government debt and liabilities have reached record levels. Total government debt and liabilities as of June 2022 was estimated to be at RM1.42 trillion. Federal government debt accounts for 61 percent of debt-to-GDP, at RM1.04 trillion up from RM 979.8 billion in 2021. Total debt and liabilities are about 82 percent of GDP.

Populist But Reformist?

The Prime Minister has signalled what will be the main concerns in the coming budget. According to reports, there will be a mix of focus on everyday issues such as cost of living and food security as well as on the ignored elephant in the treasury room related to debt reduction. He has also indicated that he will not reinstate GST until income levels rise.

It is entirely to be expected that the government will want to burnish its populist credentials. On this, while there is a need to act on the larger spectrum of sectoral concerns, it will be crucial to focus attention and prioritise the one or several key budget related policy changes that can make a positive difference to the everyday life of Malaysians and the economy.

One Possible Game changer

The removal of toll charges on all – or as many as economically prudent – the highways of the nation can be one immediate budget game changer to benefit Malaysians. Freeing road users from payment of toll fees will not only lift a significant financial burden for road users, especially those from the M20 and B40 groups. It will also have a positive knock on effect in reducing the transport costs of components of the supply chain and increase the efficiency of most business sectors. Other benefits are the reduction of physical and mental stress of road users due to shorter trip times. This will lead to improvements in the rakyat quality of life and generate other indirect socio-economic returns.

One source in 2019 had estimated that the taking over of all 29 toll highways in the country would cost the government a total of RM 130 to RM 145 billion, inclusive of about RM 52 billion in debt. The total annual cost of maintaining these toll roads was estimated at RM1.5 billion to RM2.5 billion.

Today the cost of any takeover will be higher but this is affordable to the nation’s treasury which has been padded by rising oil and gas revenues. Although local businesses are among the concessionaires owning the toll highways, some of the major toll companies are government linked entities. The government share of ownership can help finance the buying over of toll highways in agreements that are fair and reasonable to all parties. The fact is that most concessionaire holders have already been well remunerated for their investment.

As for the concern that conversion of concessionaire operated toll roads to free highways may result in the toll highways not be well maintained or economically unsustainable, the Ministry of Works which is responsible for public works and highways with an enlarged budget from the several billion ringgit annual collection of road tax receipts should be able to ensure the efficient running of the takeover highways.

Tackling Long Standing Issues

Whilst the Prime Minister’s promise that the new Government will take up and prioritise the public concerns of the day is reassuring, he must also begin to address the structural deformities in the nation’s socio economic situation.

Despite the challenge that the PM and the unity face on the political front, the launch of the new budget provides a historic opportunity for

• Nurturing more competitiveness. Malaysia is suffering a relative decline in productivity growth. This must be turned around to sustain economic growth.
• Shifting from a low cost labour production towards creativity and innovation led industries run and operated by the private sector. GLCs have been good in rent-seeking monopolistic and oligopolistic structured industries. These business units are coming to an end in their potential to keep growing without further subsidies by the taxpayer.
• The low wage model has given rise to the huge brain drain. This needs to be checked to enable Malaysia to seek new growth engines.
• There needs to be radical changes to the education system. Within humanities there is a glut of graduates in relation to job availability. The value of these degrees in current and future employment is questionable. Thus, there needs to be a radical evaluation and immediate change plan on what is taught and curriculums.
• There needs to be a refocus towards TVET to provide relevant skills to sole proprietorships and SMEs. The MSME sector is a major section of the economy that can be quickly enhanced through TVET. This will have quick and positive effects within some of the B20 and M40 groups.
• There must be an SME centred rather than a GLC centred budget. Pouring extra money into the public sector is only adding to inefficiency and leakages.
• Aggregate ‘ikan bilis’ corruption is as much if not greater

than the big news worthy corruption scandals such as 1MDB. The systemic corruption raging through the public sector must be stemmed through reform of MACC and within the civil service itself.

The Big Challenge

To tackle the major concerns identified here – widening income inequality, rising and stubborn poverty levels and regional inequalities – the government needs to craft a universal basic income mechanism and appropriate social safety net. This will require a new development paradigm for the nation to reverse the current pattern of wealth accumulation and concentration which, while rewarding the upper and middle class, has been hijacked by a small elite to the detriment of the national interest and that of the great majority of Malaysians.

The shaping of the new paradigm and the type of reforms that are necessary to go along with it can emerge from unimpeded public discourse.