You are using an older browser version. Please use a supported version for the best MSN experience.

Issues for the budget

New Straits Times logoNew Straits Times 4 days ago Tan sri dr sulaiman mahbob

AT this particular time, people working in agencies related to fiscal management, especially those under the purview of the Finance Ministry, are busy preparing the national budget for 2018.

In general, the preparation involves the forecasting of the country’s coming economic scenario and its attendant economic issues, implications on revenue, estimates on public operating and development expenditures, as well as their relationship with the public sector’s debt management.

Equally relevant in the budgeting process are agencies such as the Economic Planning Unit, central bank and Public Service Department (PSD), with PSD being given the task of interpreting the budget concerning public sector manpower requirements.

This preparation is being undertaken amid rising enthusiasm in the economy due to the macroeconomic scene that shows confidence in the prospects of attaining about five per cent growth in total output for this year as a whole, the stabilising of the ringgit, and pick-up in private investments in terms of real fixed assets and short-term flows.

These optimistic prospects can be further buttressed if the private sector players complement such emerging trends, with greater initiatives to enhance productivity, innovations and creativity, given the already many fiscal support measures for such initiatives to be undertaken.

The workforce, too, can reinforce the current impetus with efforts to maximise their contribution and performance towards enhancing overall economic performance.

Given the good industrial relations climate in the country, the role of labour in enhancing productivity, skill absorption and innovation-related initiatives at the firm level must be supported and conceptualised by human resources managers.

Budget preparation is not just a matter of dollars and cents, or allocations and revenue collection, it is also a matter of creating a fiscal ecosystem that is conducive to attaining the national purpose and departmental objectives with the same allocation or less.

One may recollect that we came out of the 1985/86 economic crisis with tax and expenditure cuts, accompanied by liberalisation and deregulation.

We also emerged from the 1997/98 financial crisis by unorthodox measures of capital controls and currency pegging, as well as the need to enhance good corporate governance within the banking system, in particular.

In the context of prevailing oil prices of not more than US$50 per barrel and high levels of public operating expenditures, our fiscal management stand should incline towards greater empowerment of agencies to raise their revenue and charge fees that resemble near-market pricing or costing. Hidden subsidies should be minimised, unless absolutely essential.

For example, the fees at public universities are extremely low compared with fees for similar courses (medicine, engineering and law, for example) in private universities, reflecting the social and private costs in the country.

The prevalence of unemployed graduates indicates that for many tertiary courses, the social return is already lower than the private return.

Maybe, public sector managers need to be more innovative in managing their finances, both revenue and expenditures, within the context of the national policy and delivery system.

In line with the view “let managers manage” that was opted for in the early 1990s (the Modified Budgeting System or the MBS), let heads of departments or officers-in-charge decide what is optimal for their company’s revenue and expenditure. Some decentralisation in fiscal functions may be necessary.

In this context, public managers must be trained in budgeting, especially in revenue and expenditure management, without compromising public sector obligations for good education and health systems, and other obligatory commitments expected under the constitution, particularly in matters related to federal-state relations, capitation grant for one.

Some quick and low-hanging fruits include the need for competitive bidding for procurements, raising college and medical fees that are significantly lower than the market price, creating public sector establishments on a contractual basis rather than “permanent and pensionable”, and letting market forces, including greater consumer sovere-ignty, prevail, rather than having large enforcement teams monitor controlled prices.

The national budget often addresses macroeconomic concerns, but, now, it must also address microeconomic issues, given the need to address such issues at the grassroots level. There is only so much that monetary policy can do to control inflation.

Yes, the government has implemented the 1Malaysia People’s Aid to assist the low-income group, but microeconomic policies that address supply-related issues by promoting small enterprises, self-employment, multiple-skills, higher wages to incentivise productivity, innovation and creativity, must be explored in these challenging times.

1Malaysia People’s Aid recipients in Putatan district, Kota Kinabalu. The government has implemented BR1M, but microeconomic policies must be explored in these challenging times. (Pix by IZHARI ARIFFIN) © Provided by Media Prima 1Malaysia People’s Aid recipients in Putatan district, Kota Kinabalu. The government has implemented BR1M, but microeconomic policies must be explored in these challenging times. (Pix by IZHARI ARIFFIN)

Equally important is to allow the state and local governments to be innovative in raising revenue and managing expenditure, as this can reduce their dependence on the Federal Government for financial assistance.

I wish the best of luck to my friends at the Treasury in preparing the 2018 Budget in these very trying times.

The writer is chairman of the Malaysian Institute of Economic Research (MIER).

© New Straits Times Press (M) Bhd

More From New Straits Times

image beaconimage beaconimage beacon