Think-tank: RM1 trillion debt by 2020 a possibility

Budget 2012

Guan Eng warns of debt aches from sweetened Budget

KUALA LUMPUR, Oct 12 — Putrajaya risks worsening the country’s public debt with its spendthrift “election budget” and will likely miss budget gap projections for 2012, DAP secretary-general Lim Guan Eng has said.
While welcoming federal aid to the poor, Lim, who is also Penang chief minister, questioned how the Barisan Nasional (BN) government would fund its “goodies”, given the weak global economy and lower Petronas dividends next year.

“For this reason, the federal government’s target of reducing the budget deficit from RM45.5 billion this year to RM43 billion in 2012… is unlikely to be reached.

“Revenue collection is overly optimistic and may result in higher federal government debt to fund the deficit spending,” he said in a statement today.

Lim said Malaysia’s debt-to-GDP ratio had steadily increased over the years, from 53.1 per cent in 2010 to an estimated 54.8 per cent next year, pointing out that this was “dangerously close” to the 55 per cent cap imposed by Putrajaya.

He added that, unlike BN’s alleged voter enticement through deficit spending, Pakatan Rakyat (PR) states only funded aid from budget surpluses accumulated through good governance.

“PR does not give money to the people from borrowed money, which ultimately has still to be paid by the people,” he said. “PR state governments give money from budget surpluses where the people… are not required to repay back in future.”

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Guan Eng warns of debt aches from sweetened Budget
12 October 2011 – MI

‘Unhealthy to overspend’

An economist is worried with the huge budget allocation and feels that the government should be prudent because of an expected economic slowdown .

An economist has expressed worry over the country’s spending in Budget 2012, describing the huge increase of 9.4% to total RM232billion budget, from RM212 billion last year, as “not so healthy”.

“This is the largest budget in the whole history of Malaysia, though of course we are expecting it to increase every year…but this is a huge increase and that’s not so healthy,” said Federation of Chinese Assocation Malaysia (Huazhong) deputy secretary-general Dr Chin Yew Sin.

“The government should be more prudent in the face of the expected economic slowdown next year and cut down on operating expenses,” said Chin.

Chin said it was also an unhealthy trend to continue to increase spending in operational expenses(RM181.6 billion, up 11.5%) as opposed to development expenditure(RM51.2 billion, up 4.1%).

“If we look at the spending proportion, this year we’ve actually increased spending on operations from 77 to 78%(compared to 23-22% development expenses). During Pak Lah’s(former Prime Minister Abdullah Ahmad Badawi) time it was 75%,” said Chin.

Chin said it was better for the country to spend more on development–such as having more construction of transportation services, roads,and so on– as that would bring about more positive effects on the economy.

“I suggest we should spend 70% on operations and 30% on developments. More development would only be good for the country,” he said.

Commenting on the country’s bloated civil service, Chin said the government has yet to cut down on operating expenses,especially the RM52billion in salaries for civil servants.

“The sum of RM52billion is about 1/3 of the entire operational costs. That’s a big sum, and its still increasing, and that’s not healthy.” He noted that the numbers of civil servants is increasing , from 1.2million to 1.3 million.

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‘Unhealthy to overspend’
October 9, 2011 – Hornbill Unleashed

Issues not addressed in budget

Hunting around for an apt description for Najib’s budget, we finally had to settle on ‘mindless’. No one in the entire overstaffed Finance Ministry, or their inept leader, appears to have bothered to apply their mind to the serious challenges facing the nation. Outrageously, Najib has themed his budget as one for national transformation when it is anything but.

The issues unaddressed include:

Jobs

How will this budget help to create new jobs?

How many jobs will it create?

Will these jobs be in high wage sectors?

Will any jobs that are created only be for foreign nationals?

New Industries

What new industries will the government encourage in Malaysia?

What kind of incentives will be offered for these industries?

The Environment

What initiatives (supported by what budgets) will the government undertake to protect the environment?

What investments will the government make into promoting green technologies and their related industries?

The Poor

The poor need higher income jobs and reskilling, not a one-off, arbitrary hand-out. It is unfortunate that the government treats the poor as a collection of beggars. We are back to being a medieval kingdom and Najib goes around tossing coins to the masses. Scrabble, guys!

What plans has the government to increase the earning power of households with incomes below RM3,000?

Rising Prices

Prices of all food and goods are rising every day. And it is rising more than the government says it is. This more than anything contributes to the hardship of all citizens. It is going to get worse, as the government plans only to maintain, not increase, the subsidies.

What plan does the government have to combat rising prices?

How does the government plan to reduce the price of food and basic necessities?

The Disabled

No concrete measures have been put in place to help the disabled. The government appears to have neither objectives nor interest in helping the disabled. We suggest policies like 100% employment for all the disabled who can work. There are enough GLCs to accommodate them.

The Civil Service

Civil servants were thrown scraps, a half-month salary, in return for their efforts. The government, being a poor economic manager, is unable to award them a better bonus. What monies were not wasted on mismanagement, were lost to corruption.

In the end, the biggest losers were the people of Malaysia. Whatever small short-term gains some may think they receive, they will find it turning to ashes in their mouth. Literally. For example by the time the poor receive their promised RM500, they will find its purchasing power greatly reduced due to rampant inflation.

What is clear from this budget is that the BN government is lost and it is desperate. They have absolutely no clue on how to tackle the economic ills afflicting the nation. They are reduced to self-destructive populism in a last-ditch bid to survive.

Najib may be a short-term thinker who does not look beyond ensuring his own survival in the next election; but Malaysians should look at the long-term damage that the BN will wreak on Malaysia’s economy if they are allowed to stay on.

- Malaysia Chronicle

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The Man Without A Plan
9 October 2011 – Malaysia Chronicle

A philosophical comparison of the budgets

OCT 11 — And so it has come to this. The last push. With the general election expected soon, both Pakatan Rakyat and Barisan Nasional are preparing themselves for the final assault. Barricades have been erected, cannons lined up and guns trained on the other side. In the last week, we have witnessed the opening salvos launched by both sides.

First to the tilt was Pakatan Rakyat with a modest offering encapsulated in the title “kesejahteraan untuk semua” or “prosperity for all’. And just as it was about to gain traction the ruling Barisan Nasional descended with a no-holds-barred mega welfare budget, coincidentally called “bajet membela rakyat, mensejahtera negara”, or “defending the people and prosperity for the country”.

Without a doubt, both sides have angled the budget with an election in mind. Thus, there is no escaping the menial comparisons between the two sets of proffered “goodies” — RM500 for lower-income households compared to RM1,000 for lower-income housewives, or cash and book voucher bonuses for students compared to RM700 childcare allowances, or a restructuring of teachers’ salary schemes compared to an outright increase in teachers’ allowances. In short, most comparative discourse has been about whose sack contains bigger and better presents — Santa Najib or Santa.

On the surface, both appear to be quite similar in intent and target, namely, to help alleviate the rising cost of living particularly amongst the lower-income groups. Yet the philosophical formulation of the two documents cannot be more divergent. Breaking through the sheath of populist pronouncements, one would discover a sharp contrast between the underlying ideologies that define the two budgets.

Take the position on expenditures. Again, both appear similar on paper — BN’s RM232 billion compared to PR’s RM220 billion, with BN curtailing the long-running national deficit to 4.7 per cent of GDP compared to 4.4 per cent for PR, though the latter is based on a more conservative GDP projection. However, closer inspection would reveal that the essence of PR’s spending policy is necessarily tempered by a commitment to prudence, efficiency and sustainability.

For example, the PR document promises to issue Approved Permits (APs) at market value, thus raising RM1.2 billion in what can only be described as lost revenue. In addition, an open tender system as well as an Unfair Public Contracts Act is promised in order to increase value-for-money and to ensure public interest is protected. More importantly, there is also a commitment to reducing the Petronas dividend to 40 per cent of projected net profits, thus ensuring our national cash cow is able to plough its profits back for reinvestment.

The BN’s spending approach, on the other hand, is really just about spending. In this case, reducing the deficit merely means spending controls and reallocation of resources without necessarily addressing wastefulness, inefficiency and the need for sustainable economics.

Another key difference is the discretionary budget of the Prime Minister’s Department (PMD). The BN’s budget has carved out RM13.5 billion for the prime minister’s use, while PR has pledged to reduce that amount by a third, returning it to the levels of half a decade ago.

Reducing the prime minister’s spending is only half the story — the true intention of this exercise is to take steps towards decentralisation of power. Over the last few years, multiple new agencies have been created and parked under the blossoming aegis of the PMD. This has not only served to consolidate power under the prime minister, it has also emasculated various ministries which have seen their functions replicated and usurped.

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A philosophical comparison of the budgets
Zairil Khir Johari
October 11, 2011 – MI

More comments on the budget

Black Mamba: Clutching a fist full of dollars ready to throw at civil servants and pensioners, PM Najib Razak hopes to walk to the polls for a big win.

This is the hallmark of a very shallow mentality, of a mediocre leader who lacks vision, originality, reform, progressiveness and intelligence to fast-forward the nation to greater economic heights.

Truth Seeker: What sort of government are we having now that appears to have no other serious plan for financial recovery for the country’s coffer, but continues to splash out goodies to gain support?

What many seem to forget is that the country needs to increase national productivity, sincerely foster greater racial respect for all races in terms of religious beliefs/practices amongst every creed and belief in our country.

When the country’s debt is high and dry, the problem of solving it will be that of the new government of the day.

Still remember what the Pakatan Rakyat government had to do in Penang?

Can a person who resorted to monetary handouts to gain support during any election/by-election be trusted to handle the country’s destiny? That’s a big question mark!

Quigonbond: Our civil service here pales in general by comparison with civil services in developed countries, including Singapore – not just in terms of productivity, but also in terms of independence, initiative and professionalism.

Why should almost 1 million unproductive people enjoy an increase in salary (which no doubt comes significantly from the blood, sweat and tears of taxpayers in the private sector), while the private sector is not similarly motivated with a proportionate reduction in income tax?

The constantly ballooning operational expenditure is now synonymous with unmitigated increase in graft, wastage and abuse of power.

Watch out Najib, Malaysians might just do a Tea Party on BN just as how the Americans swept the Democrats away in the mid-term congressional elections.

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An ‘I-help-you, you-help-me’ budget
Oct 9 2011 – Malaysiakini

Country weighed down by RM455bil debt

Federal debt went up 11.9 percent to a stunning RM455.75 billion this year, pushing up estimated interest rate payment for 2012 up by RM1.94 billion.

According to the Economic Report 2010/2011, the bulk of the increase came from domestic debt, “mainly due to higher borrowings to meet financing requirements”.

The report notes that at that rate, federal debt stands at 53.8 percent of the GDP, up by a minor rise of 0.7 percent compared with 2011.

“Through the debt level has been trending upwards in recent years, debt servicing capacity remains affordable and within prudent limits.

“The government will ensure that debt service charges remain at 10.1 percent of revenue (compared 9.8 percent in 2010) will remain manageable and not impinge on productive spending programmes,” the report said.

NONEIt added that fiscal rules will be “rigorously observed” so that debt will not exceed more than 55 percent of GDP with debt servicing costs maintained below 15 percent.

Leading the way in the debt load up in 2011 was the issuance of RM28.39 billion worth of new government investment issues (GII).

Also contributing to the hike in government debt are securities, up by 6.4 percent or RM16.72 billion this year.

External debts make up a smaller portion of the government debts, with market loans higher by around RM 745 million in 2011compared with last year, and project loans down by 2.8 percent or RM 7.2 billion this year.

The rise in securities contributes to the largest portion of the expected rise in interest payments for 2012, which the Estimated Federal Expenditure report for 2012 estimates to be an astounding RM20.45 billion.

Debt servicing of securities is up by RM1.2 billion, or 10.47 percent, to a mind numbing RM12.79 billion.

Securities are marketable debt instruments issued by the government to raise funds from the capital market,

They were issued in 1970s and 1980s to meet public sector development expenditure and used to sustain the budget deficit and prepayment of external loans starting the 1990s.

It was followed by interest paid to the Employees Provident Fund (EPF) which at an estimated RM2.04 billion is up by 14.68 percent.

Heavy on the interest bill at RM4.94 billion is payment for government issued investment, expected to rise by RM751.17 million compared with the figures for 2011.

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Country weighed down by RM455bil debt
Oct 8 2011 – Malaysiakini

Comments on Budget 2012

“Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime”

Quigonbond: I’m waiting for a comprehensive analysis on ‘feel good’ Budget. So far, the only transformation I see is reshuffling from one unproductive set of priorities to another unproductive set of priorities.

How is the government increasing Malaysia’s productivity? How is the government fixing our standing when it comes to global university ranking? How are our institutions of governance being fixed so that they are independent and professional? How are leakages being plugged? How are the rich contributing more to the economy?

As for the so-called better deal for poor households, show me the money, then I’d consider thanking you. But I might not, because the money you pay to these households means nothing if inflation keeps shooting up as a result of more severe debt financing and having to borrow at higher interest – thanks to an ever incredulously expanding operational expenses.

Not Convinced: This is clearly an election budget, Najib’s style. Cash payments for ex-military and police personnel, contractors for Department of Special Affairs (Jasa) and Jabatan Kemajuan Masyarakat (Kemas), and bonuses and goodies galore for the more than one million civil servants.

There is nothing in the Budget for the long-suffering taxpayers. But then again, someone has to pay for all the cash hand-outs. And that’s us – the 1.7 million taxpayers.

Anonymous: New graduates can’t afford a RM200,000 to RM400,000 house and the existing disposal income of average Malaysians cannot withstand the fierce inflationary pressures, especially with the high cost of food, electricity, transportation, higher education and others.

They will keep on increasing, believe me. Parents are happy that primary and secondary education are free but what about when their children enter tertiary education? What about the efforts of government to get the taxes from the majority Malaysians, not solely from the elite?

The PM gives fascinating goodies but in real life do the average Malaysians really benefit from the economic growth of the country?

KohJL: This is yet another deficit budget, with RM186 million to snipe at PAS deputy president Mat Sabu, and many other one-off payments where – pardon my ignorance – I just can’t see the ROI (return of investment) for the country.
Frankly, I’m disappointed. “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime” is a lesson not to be found in this budget.

Cascara: Spend, spend, and spend some more. Has Najib got any idea where he is going to get the money from? I think I know. All this will come from the GST (goods and services tax) he is going to introduce. He will drop the bomb after the GE (general election).

All the goodies are to prime dumb Malaysians into believing that BN is the party to vote for. I wonder if Malaysia is going to be the next Greece.

Wira: Najib, you don’t have to emulate the Penang state government in giving RM300 per senior citizen because you are running an increasingly deficit budget whereas Chief Minister Lim Guan Eng is giving the state a surplus budget.

Your wanton spending will cause us more problems. What message are you sending to all Malaysians – that it is okay to splash the money you don’t have?

Even with full tax exemption given to the import of hybrid cars, both Prius and Insight still cost an average RM30,000 more than those sold in Japan.

Remove the APs (approved permits) and the government can raise taxes by RM30,000 per hybrid and still the consumers won’t feel it.

Onyourtoes: “Debt servicing was RM12,8 billion in 2008. For 2012, it is RM20.5 billion – an increase of nearly 60%.”

Let me work backward: take interest rate at 5%, RM12.8 billion debt service charges in 2008 would make federal government debt at RM256 billion. Now with debt service charges at RM20.5 billion, the federal government’s debt is projected at RM410 billion.

This is an increase of RM154 billion from 2008 to 2012, an average increase of RM38.5 billion per year. This is Malaysia’s annual actual deficit? So please don’t look at the budget numbers.

What happened to private sector pension age and minimum wage? Is this the government of the people or government of the employers? Why do we keep rewarding a group of government servants who contribute nothing to the economy other than incurring spending, creating white elephants, and caused more wastage?

Excessive payments to unproductive government servants cause inflation which the private sector employees have no recourse. They don’t have the security of employment, their pay rise has been minimal (because of foreign workers and exploitative labour laws), and their bonuses are not assured.

SMC77: Our nation has reached an unhealthy debt level. The government has to spend approximately 9 percent of the Budget to pay off the debt. This interest for the debt will reach alarming level if domestic liquidity dries out and the government is forced to borrow under such an environment.

At the end of the day, EPF (Employees Providence Fund) and other government-linked funds will be asked to do national service by investing in debt papers issued by the government. Don’t forget that these funds belong to the rakyat. Please don’t steal our hard-earned money.

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Najib shores up BN’s fixed deposits
Oct 8 3011 – Malaysiakini

PSM warns of post-polls price hikes

Parti Sosialis Malaysia (PSM) warned that the Budget 2012 unveiled yesterday was a tactical move to win the coming general election before unfavourable policies are revived.

“The handouts to rakyat are short term, just enough for the government to crawl through the elections.

“If re-elected to power, withdrawal of subsidies, implementation of goods and service tax (GST) and fuel price hikes are sure to follow,” said PSM national treasurer A Sivarajan in a statement yesterday.

The cash assistance for low-income households, schooling assistance, book vouchers, pay hikes and payments for civil servants, as well as the proposed listing of Felda Global Ventures Holdings Sdn Bhd, he said, are clear election give-aways to woo support for the BN.

psm released penang bersih psm treasurer sivarajanThese short-term payouts, Sivarajan (left) pointed out, fail to address the spiralling costs of daily consumable goods for the rakyat.

“Although at the moment, subsidies for rice, sugar, oil and petrol remain, but the rakyat are still struggling to manage the price hikes that took place in the last two years due to the withdrawal of government subsidies then… but seems like the government has no plans to return the subsidies as before and ease the people’s burden.”

While PSM welcomed the abolition of school fees, it remained unconvinced how this will really make a difference to parents’ pocket books.

“It is important to note that for the last two years the Education Ministry has cut back on food and textbook assistance schemes for poor students.

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PSM warns of post-polls price hikes
Oct 8 2011 – Malaysiakini

Malaysia Unveils Plan for Handouts – WSJ

Malaysia’s Prime Minister Najib Razak unveiled a government spending plan for 2012 that pledged cash handouts and more benefits for ordinary Malaysians, while also shoring up the country’s finances and reining in its budget deficit at a time of global economic uncertainty.

Political analysts said Mr. Najib had at least one eye on the election that must be called within the next 18 months. Over the past month this aristocratic son of the country’s second prime minister has staked out the center ground of Malaysia’s politics, pledging to roll back laws that allow for detention without trial and to allow a greater degree of media freedoms in what is still a very closely controlled country.

For Mr. Najib, who took over the ruling United Malays National Organization party about a year after it lost its customary two-thirds parliamentary majority in a March 2008 election, Friday’s budget speech appeared to mark the next step in a plan to secure a strong mandate in this Muslim-dominated but ethnically diverse nation.

“There was something for all of the key groups in there,” said James Chin, a political-science professor at Monash University in Kuala Lumpur. The right wing of Mr. Najib’s ethnic-Malay party will likely be placated by the two billion ringgit ($631.2 million) of infrastructure contracts reserved for bumiputra-owned (ethnic-Malay-owned) businesses, while ethnic-Chinese voters will likely be relieved by the absence of new taxes.

“International investors got some reassurance on the budget deficit, too,” Mr. Chin said. “Mr. Najib needs to get this right and secure a strong majority whenever the elections come or else he could get kicked out by his own party.”

To help finance the 2012 budget, Mr. Najib, who is also the country’s finance minister, said the government plans to privatize and list state-owned plantation operator Felda Global Ventures Bhd. by the middle of the year. That could create the world’s largest publicly traded palm-oil producer by planted area, as well as draw substantial foreign investment into the country’s stock market.

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Malaysia Unveils Plan for Handouts
By JAMES HOOKWAY
8 Oct 2011 – WSJ