Saturday, August 30, 2008

CPPS Statement on the 2009 Budget

Below are the analysis from Center of Public Policy Studies (CPPS) on Malaysia Budget 2009.

CPPS Mailing List - CPPS Statement on the 2009 Budget

CPPS Statement on the 2009 Budget


CPPS' Statement on the 2009 Budget

1. Increase in Budget Allocation

This is a record expansionary budget of RM207.9 billion, a further increase of 5% from the RM177 billion budget allocated in 2008, with the express objective of countering the problem of stagflation and overall economic slowdown indicated by the expected 5.4% growth rate for 2009. The fiscal deficit is also expected to increase from 3.7% in 2007 to 4.8% in 2008. Whilst this is acceptable because generating growth is a priority during such economically challenging times, this has to be carefully guarded for the future, as a large fiscal deficit is not sustainable in the long run and should be monitored quarterly. Operational expenditure has increased to RM154.2 billion, from RM128.8 billion in 2008, an alarming increase of almost 20%. This is close to a 200% increase from the operating expenditure in 2000, which was only RM53.35 billion. The government's commitment in reducing the fiscal deficit as promised must be closely monitored. Secondly, there are no measures mentioned explicitly in tackling rising inflation.

2. Policies should be Equitably Implemented

There seems to be a shift in strategy, in that there are no explicit references to closing interethnic inequalities within each of its policies on poverty eradication, urban transportation, health services, public amenities and so on. This is a positive move away from race-based policies. However, the CPPS cautions that these policies be implemented equitably regardless of race, failing which they would fall into the trap of naturally executing incumbent policies favouring one ethnic community over the other.

3. Reducing Regional Imbalances

The government has responded to the criticisms of many that its economic budgetary policy has given insufficient attention to Sabah and Sarawak, now evidenced by its allocation of RM580 million and RM420 million, respectively. The entrenched systems of corruption must nevertheless be checked so that the money is rightly channeled, lest they are wasted in the form of massive leakages in both states.

4. People-Oriented Budget

The budget puts less focus on mega projects and gives attention to lower income groups. Whilst the budget focuses on addressing rural poverty, very few measures besides increased allocations for public transport are directly related to addressing urban poverty. In a situation of rapid urbanization, with 71% of Malaysia projected to be urban by 2015, urgent measures are needed to alleviate the predicaments of the urban poor.

In light of rising food prices and the increased burden this places on low-income groups, the government has reduced import duties on various consumer durables and full import duty exemption from selected food items. The CPPS however recommends that all food items should be exempt from import duty, since food price increases are affecting low to middle income groups greatly.

5. Stimulating Investment

The announced measures for stimulating private investment are welcome, but are also lacking. It is recommended that the Foreign Investment Committee guidelines for equity ownership should be loosened to encourage domestic and foreign investment, which will give our economy a much-needed boost, stimulating production. Strict equity restrictions are what turn away foreign investors from Malaysia. Further, these restrictions for approved investments are carriers to investment and do not materially assist Bumiputera growth. Burdensome regulations pertaining to licensing, permits and quotas should also be addressed. Cutting the proliferation of red tape here will only serve consumers by lowering prices and the cost of doing business, which is Malaysia is slipping in.

6. Strengthening Institutions

Finally, the Centre believes that it is primarily due to the weakened institutions that implementation of sound policies have failed. The delivery system of the government has to be improved if we are to compete with first world countries. The government must ensure value for people's tax money and reduce wasteful government spending, which has only grown courtesy of corruption fueled by opaque government policies and practices. As such, greater funds should be allocated to the Judiciary, which presently fails to adapt to private sector needs for commercial dispute resolution, amongst dealing with other legal procedures necessary for efficient operations within both the private and public sectors. The trend of greater independence and funds for the Anti-Corruption Agency should continue to check wastage and leakage in the public and private sectors. Such funds would build capacity and ensure independence and autonomy from the executive, thereby guaranteeing further checks and balances in our system of governance – and ensure that the hefty amounts of funds allocated for the country's growth do not go to waste.

Tan Sri Ramon V. Navaratnam, Chairman

Tricia Yeoh, Director

Centre for Public Policy Studies

Kuala Lumpur

29th August 2008

For more enquiries, please contact:

Tricia Yeoh:

Tel: +603-20932820/20934209

Fax: +603-20933078

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