The Malaysian Insider :: Opinion
The Malaysian Insider :: Opinion |
| Maxing out the national credit card Posted: 28 Aug 2012 05:20 PM PDT AUG 29 ― We are coming up to September, and once again, it is that time of the year when we hear about three things: how did the Malaysian economy perform over the past year, how much is the proposed Budget for the upcoming year (tabling of the national Budget in Parliament) and how did we spend the monies previously approved (Auditor-General's Annual Report). These three things are bound to generate a mixed bag of high fives, screams of joy or agony (depending on who you are), public statements that defy rational and intelligent thought (from both government and opposition benches), groans of disbelief, expressions of outrage and incredibility, as well as numerous forehead slapping and "facepalm" moments. For me, I am worried. Why? Because of two reasons: firstly, we may have maxed out the national credit card and, secondly, the government doesn't seem to be worried about it. Every national Budget over the past few years has had a deficit. When total national expenditure exceeds the revenue collected, a budget deficit then exists. The only way for the government to pay for this deficit is to borrow. But like everything else in life and like you and me, contrary to what some people may believe, there is an actual limit as to how much debt that the Federal Government of Malaysia can accumulate. Most democratic governments have this limit spelt out in law to ensure that the government of the day and the political representatives are accountable to the people of that country whom they serve. For Malaysia, the national legal limit is clearly stated under the 1983 Government Funding Act and the 1959 Loan (Local) Act and is 55 per cent of the country's gross domestic product (GDP). Under these two Acts, the government cannot legally have debt beyond this ceiling. The 2011 economic report indicated that government debt had reached RM456 billion. This represented 54.3 per cent of the country's GDP, which was also 0.7 per cent under the limit permitted under the law. That was in 2011. Very few people were worried back then. A couple of Yang Berhormats even demonstrated both an ignorance of the law and a "tidak apa" and "couldn't be bothered" attitude. Arguably, over the past year, the government seemed to demonstrate a similar attitude. You know how the government has dealt with the debt thus far? It is sobering to remember that only 1.8 million of the entire public and private sector workforce actually pays taxes. Despite civil servants making up more than 10 per cent of the country's labour force, most don't have to pay taxes. In 2011, the government received tax revenue of RM185.4 billion. But the original 2012 Budget was RM232.8 billion. So, the tax income alone is insufficient. Therefore, the government has borrowed. But Malaysia prides itself on not borrowing from international sources such as the International Monetary Fund or from other countries. Therefore, 90 per cent of debt is domestically funded; it is borrowed from us, from the Employees Provident Fund (EPF). Last year, the Ministry of Finance stated that the government had borrowed RM79.4 billion from the EPF. In fact, the government actually owes us more than RM240 billion. Yes, that is how those bonuses, numerous cash hand-outs and special projects are being paid for. With your EPF money. Our EPF has the distinction of being among the largest in the world (RM440 billion as of 2011). It is the savings of over 12 million private sector employees. So, what happens if we exceed the national credit limit of 55 per cent? Besides it being a sign of leadership failure and an indicator to the rest of the world of our inability to keep our expenditure under control and being fiscally responsible, we would need to also ask whether it would be legal for our government to continue to operate. Students of US politics will be familiar with the politics of the debt ceiling. The maximum amount that the US government can borrow is restricted by this limit, which can only be increased through specific legislation enacted by Congress and signed into law by the President. The same principle governs our debt ceiling of 55 per cent. The only way to increase it and legally allow the government to spend more than the limit is for Parliament to amend the two laws mentioned. As far as I know, we have not done so. If the government is spending more than the debt ceiling, then the spending is not legal. Seeing how in 2011 government debt had already reached 54.3 per cent of the GDP and RM20.5 billion is needed each year to service the country's debt commitments, the question must be asked and answered: where are we today? Do we even care? Financial agencies are already warning of a possible downgrading of Malaysia's credit rating if the government doesn't rein in its debt. Short of very optimistic economic growth rates, it is almost certain that the government's current spending levels have breached the debt ceiling this year. This could be a historical year. For the wrong reasons. So what can we do? The reality is, not much. After all, people love their RM500 hand-outs and hold out their palms for more. Public servants delight in unscheduled bonuses. But as long as we do not send a strong signal to the government and our members of parliament (MPs) to tell them that enough is enough, they will continue on with impunity. The government has been adamant that there is sufficient revenue. Yet, it's borrowing like mad. The Auditor-General's report is bound to reveal yet again the extent of wastage and mismanagement that is endemic in the system which cost taxpayers millions of ringgit. We will moan, groan and complain. And things will stay the same. Why? Because we do not demand accountability from the civil servants; the latter, the MPs and our top leaders don't feel accountable to us. And because we are complacent and comfortable in allowing things to stay the same. At existing expenditure levels, it is impossible to continue on without the introduction of new taxes or take on more loans. Government expenditure must be reduced and responsible fiscal policies must be adopted. But whatever solution must not involve more borrowing from the EPF. Even Petronas can't deal with the government's unquenchable thirst for oil derived revenue and has proposed a reduced annual dividend payment to the latter. The more reckless debt that the government takes on and the more money that it gives away today, the less will be available for essential and sorely needed social welfare programmes tomorrow. Make no mistake. Those will be the first to go. Largesse comes at a cost. We have to do better in keeping our politicians and government honest in how they are spending the rakyat's money and demand for responsible fiscal policies. Lest they forget (and it seems like they often do), it is not their money but that of the rakyat. The people responsible for today's debt will not be the ones paying for it. Instead it is our children and grandchildren who will be forced to pay. They and we deserve better. * The views expressed here are the personal opinion of the columnist. |
| Why brain drain will continue (Part II) Posted: 28 Aug 2012 05:00 PM PDT AUG 29 ― In my last column, I touched upon the role of education, media and politics in contributing to brain drain from Malaysia. In this piece, I want to examine the impact of all of these on creativity and innovation, and how this may exacerbate the problem. The euro zone crisis and a slowing US economy may be hurting these nations in the short term, but they are producing an accent on innovation that shall change the drivers of economic growth in the medium and long term. Already many experts are convinced that the age of manufacturing driving growth in developed economies is over, being replaced by information and knowledge. What is produced and how, and what is consumed and how, have changed dramatically in the space of a few short years. From purple-coloured potato chips to Siri in the iPhone, production processes are getting ever more complex. Geographical distances are no barrier as logistics get ever more sophisticated. From 16 variants of a shampoo to websites that can help consumers decide between options of cars, choice is becoming central to purchase decisions. Information technology and knowledge systems are driving this change. The Internet is the medium that has allowed information and knowledge to combine to take innovation centre stage. Highly-educated professionals armed with information are using creativity to churn out products and services harnessing the power of the Internet to make the world practically unrecognisable from even a couple of decades ago. Twitter and Facebook, Yousendit and Amazon, Sensa and Skype, Xbox and Kickstarter are all using this confluence to change the way we diet, play, dance, heal, read, talk and practically everything else. In a business environment this competitive, manufacturing becomes a mere executional element in a mix where innovation and access to capital dominate the landscape. China, India and South-east Asia, if they do not radically change their developmental priorities, will look back to today as the good times, because the value of low cost manufacturing in the business mix is going to be sharply reduced, if not totally commoditised through automation, much as agriculture was in a previous era. This is fine if the country is aspiring to middle income status on the back of large domestic demand for entry level, low tech products, like India or Indonesia, but not if it wants to be a developed, high-income nation by 2020 on high-end exports, like Malaysia. For this to happen, Malaysian policy makers need to sharpen their focus on fostering high-end innovation. High-income consumers are early adopters of ideas that provide incremental consumption benefits, like Facebook over Friendster, which can then go get investment capital to expand and be adopted by the rest of the world, like Google. To compete in this space, low-cost manufacturing or crude and palm oil exports are not the answer. The reason why practically all the innovations mentioned above are emanating from the West has a lot to do with education, media and political systems in these countries. Silicon Valley is the result of kids with brains honed to be inquisitive, a media landscape that forces those brains to challenge conventional wisdom, and political systems focused on fostering meritocracy and economic growth, wherever it may come from. Unfortunately, reverting to Malay as the medium of instruction, insisting on rote learning as a marker of excellence and lowering standards to increase the pass rate are not helping Malaysia's cause, today or in the future. Nor is stifling every contrarian voice in the mainstream media and banning books and cartoons at the slightest whiff of controversy. Nor is the currently pathetic level of political discourse where there are no public debates between competing ideologies, only mudslinging, name calling and the invocation of race and religion at every turn. Add to that endemic corruption, declining oil revenues and profligate government spending, and there is a perfect combination of things not to do if getting to be a developed nation in this century is a real ambition. For those young people smart enough to see these realities, there may be no real choice between staying and leaving. This is also why brain drain will continue unless urgent steps are taken now to align public policy with the way the future of the developed world is being cast. * The views expressed here are the personal opinion of the columnist. |
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