Hornbill Unleashed

October 2, 2013

The truth about government spending

Filed under: Politics — Hornbill Unleashed @ 12:00 AM
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The middle class Malaysians are like a neglected child left alone to deal with the rising cost of living and increasing asset prices.Ho Kay Tat

The middle class Malaysians are like a neglected child left alone to deal with the rising cost of living and increasing asset prices.

THE EDGE MALAYSIA has on a number of occasions written that the middle class is like a neglected child left alone to deal with the rising cost of living and increasing asset prices over the last several years.

The poor receive government cash handouts and do not pay income tax while the rich have enough to absorb whatever life throws at them.

Those in their 30s and 40s earning between RM3,000 and RM10,000 a month in urban centres are the ones suffering the most. They dutifully pay their taxes, but enjoy little government help when it comes to housing and medical care. Most, if they are lucky, have to get support from their parents’ retirement funds.

This is a fairly large group of close to 1.5 million people.

Official Employees Provident Fund (EPF) data for 2012 shows that the middle-income group – those earning between RM3,000 and RM10,000 a month – make up 23% of the fund’s 6.39 million contributors from the private sector.

Other interesting facts from the EPF: 78.66% earned RM3,000 or less a month, 91.07% earned RM5,000 and 97.41%, RM10,000 or less. Only 2.59% earned more than RM10,000.

This means that there are 5.82 million wage earners making less than RM5,000 a month. This is the result of a decades-old policy of keeping wages low to attract foreign investments that started in the mid-1980s when the recession caused high unemployment.

The government under Tun Dr Mahathir Mohamad “compensated” workers through subsidised fuel, electricity and water. But that is slowly being taken away while wages remain low. To make things worse for wage earners, a goods and services tax will be imposed soon.

Two articles I read recently prompted me to wade into the debate about subsidies and government spending.

Datuk Seri Idris Jala, Minister in the Prime Minister’s Department and CEO of the Performance Management and Delivery Unit (Pemandu) argued passionately for the rationalisation of subsidies in a national daily and on a website.

In The Truth About Subsidies, he slammed what he described as “not just mere oversimplification”, but incorrect criticism of subsidy rationalisation.

And in Celebrate, Grantrepreneurs in the same daily, Wan Saiful Wan Jan, CEO of the Institute for Democracy and Economic Affairs, voiced his concerns about the government continuing to provide crutches to those who may not deserve them and may in fact be milking taxpayers’ money.

He cited his own experience with a printer approved by the Ministry of Finance (MoF) whose quotation was three times that of another not on the ministry’s list to do the same job. But because the people who funded the book required him to use an approved printer, he had no choice. The book, ironically, was on combating corruption!

Wan Saiful said the job he gave was small compared with typical government contracts, “but it makes me wonder how much more taxpayers’ money has been wasted by paying these MoF-registered, overcharging contractors”.

Coming back to Jala, he made four key points in his article that struck me:

1. Life does not owe us anything. If the prices of things go up, we must all bear with it and not depend on the government to keep the prices down through subsidies;

2. In hard times, shouldn’t everyone carry a bit more burden?;

3. We are talking about tens of billions of ringgit a year – hundreds of billions of ringgit between now and 2020. Think of what it can do to our economy and our income; and

4. Let’s remember that channelling our limited resources into places where they can work best instead of putting more money into the hands of those who can afford it is a noble, nationalistic and worthy cause.

I agree absolutely.

But there are two sides to a coin. When it comes to government budget and spending, subsidies are only one side of the coin. On the other side are procurement and contracts.

I would like to put forward the other side of the four points Jala made:

1. Yes, life does not owe us anything. But please preach the same to the rent-seekers who make sinful profits, thanks to the government. In fact, don’t just preach. Do something about it. Imagine the amount of money we can save that will go directly into the pockets of the public and the Treasury;

2. Yes, everyone should carry a bit more burden. So, tell us what extra burden the government ministers and top civil servants will carry. Are you downgrading travel from first class to business to economy? Will you stop buying more big-ticket items like jet-fighters and armoured vehicles, and stop constructing grand buildings? And will you downsize a bloated civil service?

According to Merrill Lynch/CEIC estimates, the size of our civil service as a percentage of the total labour force is 9.4% – much higher than Indonesia’s (4.2%) and the Philippines’ (5.1%). Government spending on civil service salaries and pensions in Malaysia is 7.9% of GDP compared with 2.4% in Indonesia and 5.1% in the Philippines;

3. Instead of saving only tens of billions from cutting subsidies, how about also saving tens of billions from wastage, leakage and overpriced government procurements? (Ask Wan Saiful if you don’t think this is happening or read the annual reports of the Auditor-General).

Now, wouldn’t that be great? We can save double what we will save by just cutting subsidies. Are we going to see this happen? Or is that a sacred cow that can’t be touched?

4. Agreed that it is indeed a noble and nationalistic cause that we do not put more money in the hands of those who can afford to pay more for their fuel and electricity. Indeed, it is immoral that taxpayers’ money should be used to subsidise the rich. But then, it is also immoral for the government to condone and facilitate those who make taxpayers pay three times more for the services and goods they provide.

If the government can put a stop to all the leakages, the people will surely, in Jala’s own words, “put aside the differences they have and wholeheartedly give their unreserved support to subsidy rationalisation”.

But most people do not believe the money saved from subsidy rationalisation will be put to good use. They think it will be used to bloat the civil service further and pay for more government procurements at inflated prices for the benefit of a few at the expense of everyone else.

At a time when they are struggling to manage their family finances, it is a tall order to expect them to support cuts in subsidies, especially when they see the government on a spending spree, implementing all sorts of programmes for certain privileged groups.

If Jala needs any convincing, perhaps Pemandu could organise one of its famous labs and hear out the middle-income, forty-something parents with three college-going children and housing and car loans to service.

1 Comment »

  1. A lot of wastage of public fund as abused by governmental bodies as reported in the AG Report.
    Most of them are clear cut corruption.
    But MACC choose to be ignorant!

    Comment by Henry — October 2, 2013 @ 12:49 PM | Reply

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