With 7 days left to the announcement of the 2010 Malaysian Budget, which had been keeping nearly all businesses waiting with bated breath, we can start seeing subtle signs from the public towards the brewing anticipation.
Possibly partly due to it being the first budget under the administration of our PM Najib, coupled with delaying in announcement, the budget tend to attract more attention this time around.
Considering that our country had been in positive economic growth for the past ten years, especially with the windfall returns from the past 5 years of high oil and gas returns, we would expect that the current account balance to be in the surplus. Increasing the national reserve so as to add another option of economy tweaking tool to tackle times of economic crises. The sad fact is that despite the decade long growth, not only have we not saved in proportion with our profit, we have been running a budget deficit for the past 12 consecutive years. Perhaps the trend of our time is that borrowing world capital for government spending is the way to go with the states leading the pack. However, in our case, there's a cardinal difference, instead on increasing expenditure on necessary infrastructure and balancing out sectors which has skewed incentives, the bulk of our spending lies in government expansion.
(c.f. Government operating expenditure: RM80.5 billion in 2004 and RM154.2 billion in 2009.
Running on a deficit budget is like taking a retrospective annuity. We get free money for a while and all is nice and dandy, but the maturity date will come, and we won't go scot-free. In fact, our PM has acknowledged this fact and is signalling that actions will be taken to close the deficit.
One of the changes predicted to be carried out in the introduction of Goods and Services Tax (GST) to replace the existing single stage sales tax. Basically, this means that instead of collecting tax once throughout the production cycle, every stages are taxed. The result is harder tax-evasion and an estimated increase in government tax revenue. We cannot say whether GST or the current sales tax burdens the people more before rates are announced. However, it is likely that the end consumers will see themselves paying more for years to come.
Notwithstanding the benefits of GST, a more direct way to close the deficit would be cutting down on government expenditure. Ideally, these are the areas that would likely yield higher benefit to the nation,
1. Reduce the number of GLCs.
2. Restrict independent power-producers.
3. Cut government spending. There are obvious leakages, PKFZ being the epitome.
4. Review degree of influences on companies by Khazanah.
5. Remove tariff on motor insurance.
All are without any particular order. With number 5 a request on behalf of actuaries. One important note is that however promising a budget may be, it is still mere rhetoric if execution is not seen through.
