Unearthing Najib’s Budget Patterns

The 2015 National Budget is dawning upon us, coincidentally it is also the last budget of the 10th Malaysia Plan. It also signifies the sixth ever budget under the premiership of Datuk Seri Najib Razak. Last but not least, this is a budget that is 6 years away from our ex-Prime Minister Tun Mahathir Mohamad’s grand vision of Wawasan 2020 and it will be remembered as a “GST Budget” – the implementation of the Good and Service Tax (GST) as a new tax regime in Malaysia – to reduce continuous fiscal deficit in the federal budget over past sixteen years.

There is always a huge media coverage whenever the Minister of Finance announces the country’s budget, but perhaps like every other news in Malaysia, attention span given by the rakyat from all classes are at most, minimal. Typically, the parliamentary debate on federal budget both at the policy as well as committee stages will usually last about two months. During the committee stage of the debate, the contents are usually relatively boring, this in turn leads to the rakyat’s focus on the issue dissipated with the passage of time.

Consequently, if some hidden crucial details are not being unearthed within first three weeks after the announcement of the budget, chances are the parliamentarians may not have the exposure it needed to elevate the issue to the rakyat’s eyes; or because of the nature of the budget is esoterically drafted, therefore the media will find difficulties in digesting it over such a short time span, and turn into a news worthy of reporting.

Nevertheless, a closer examination of the budget will still shed light on some of the policy and approach that is exclusive to Najib’s budget. Before delving deeper into the issue, there is a need to bring ourselves back in time in order to discern the pattern which is embedded in his budget all along.

Former Prime Minister and Finance Minister Tun Abdullah Ahmad Badawi presented his last national budget on 29th August 2008. 19 days later, on the 17th of September 2008, he passed on his duty as the finance minister to the then, Defence Minister, Najib Razak. Responding to the news of the transfer of power, the Kuala Lumpur Stock Exchange suffered a backlash, the Composite Index fell by 39.70 points, or 3.96 percent, to 963.29 points. As a result, the 2009 National Budget was not presented by Najib although he was the finance minister at that time. Since then, Najib was officialy sworn in as the Prime Minister and concurrently Finance Minister on the subsequent year. Thus, Najib tabled a total of five national budgets which is 2010 till 2014 under his premiership. On 10th October 2014, Najib will talble his sixth national budget, i.e. Budget 2015.

When the global financial crisis happened so suddenly during the third quarter of 2008, which coincidentally occurs just after Najib took over the post, this proves to be a big test on our prime minister’s economic capability. He responded to the challenge by introducing a series of economic stimulus package, including passing a 2009 supplementary budget which increases the government expenditure hoping to stir Malaysia away from the crisis. Since then, although the country has not faced similar economic hardships similar to the 1997-98 Asian financial crisis, or the Indian Ocean earthquake and tsunami, Najib’s regime still habitually presenting and passing supplementary budgets in the parliament. In the mean time, the Federal Government continues having fiscal deficit.

Najib’s annual budget has a few similar characteristics, which is reflected on the nation’s fiscal deficit, debt, and the passing of supplementary budget itself. Despite the warning given by the international financial reporting that our national debt has reached 55% of our GDP threshold, but government’s economic report still set out the tone that the Federal Government debt is still well below the 55% threshold and therefore within manageable level. It is undeniable there is no accountability from the government’s side in dealing with the Federal Government debt problem faced by Malaysia right now.

In the latest edition of the Edge Weekly dated October 6th – October 12th, 2014, Mahathir has said in his interview, by referring to 1MDB – or “1Malaysia’s Debt of Billions”, as described by the Opposition Leader Dato’ Seri Anwar Ibrahim – that “when the government stands guarantee, it is equivalent to government borrowings”, and that “the debts are too high. It is not very transparent.”

Similarly, when the national budget was tabled each year, the worrisome data of fiscal deficit will hit the headlines of all if not most of the media outlets. However, the frustrating part is there is hardly any serious debate or discussion in the mainstream media on why with the increase in national income each year, the country is still living beyond their financial depth. Adding on the fact that how the supplementary budget was used as a political tool by a regime trying hard to manage increasing Federal Government debt does not get a fair share of reporting is equally bewildering. Malaysia will continue to worry herself with ever burgeoning debt crisis, but never bother to think of why was she in this precarious juncture at the first place.

It is a norm that under the premiership of Najib, there will always be two supplementary budgets each year followed closely after the national budget, as if the spending of the first was never enough (nevermind the actual national budget).

Supplementary budget was originally a tool to exercise it in time of crisis, when substantial government intervention was needed to kick start the economy. However, it will only serve to push the country to the brink of another financial crisis with the fiscal debt shows no sign of declining. Given that the state has not experienced any economic turmoil, and society is still largely peaceful and safe from natural disaster. The onus should falls on the government to be prudent on its spending to ensure there are sufficient capital to maneuver around if a crisis is ever around the corner, yet we see supplementary budget still preposterously being passed in the parliament.

A crisis as subtle as this could exacerbated by a suddenly unforeseen financial collapse. Malaysia’s irresponsible and non-transparent debt could give rise to the volatility of our financial system, and it is akin to a bubble waiting to burst.

Till this year October, Najib has proposed a total of 6 annual national budgets, as well as 11 supplementary budgets . Although, the 2009 National Budget was proposed by Abdullah Badawi, but, the 2009 controversial supplementary budgets was indeed proposed by Najib. The first was RM10 billion and the second was RM11.4 billion.

Recently, Parliament had passed two supplementary budgets i.e. the Supplementary Supply (2013) Bill 2014 in March 2014 and the Supplementary Supply (2014) Bill 2014 in June 2014. The former is a budget that is meant to supplement the financial year of 2013 and it was tabled in 2014. The latter is a budget that is meant to supplement the financial year of 2014 and it was also tabled in 2014. The first supplementary budget of 2013 is up to RM15 billion, the second is RM3 billion. The first supplementary budget of 2014 is RM4.6 billion. Will the second supplementary budget of 2014 be tabled early next year?

Since Najib is in power, every year there are always two supplementary budget. Therefore, we boldly predict that the treasury will finance the second half of 2014, by presenting the second supplementary budget. This has always been the trait of Najibnomics under Najib’s budget features.

Another feature of Najib’s distinctive budget, is the ever rising operational expenditure, and operational expenditure accounted for a high proportion of the total cost of the budget. Generally, high income advance countries would allocate its total cost of budget more on operational expenditure than development expenditure. The developing countries would spend more on development expenditure given its vastly untapped potential.

Malaysia is ranked among the middle income nations. Theoretically, government in the preparation of the budget, should given more attention on the development expenditure rather than the operational expenditure. Unfortunately, Najib’s budget is inclined on allocating more towards operational expenditure. The first budget he proposed during 2010 has a ratio of 75 : 25 between operational expenditure and net development expenditure. The next budget is even more disproportionate and has a ratio of 80 : 20. The 2012 Budget has an operating expenditure accounted for 82%, and net development expenditure accounted for only 18%. Both the 2013 and 2014 Budget have estimated operating expenses accounted for 84% while estimated net development expenditure accounted for only 16%!

This tells us conclusively that whether is the debt-ridden problem, the fiscal deficit, or the passing of supplementary budget, Najib lacks the discipline of a prudent financial minister to govern the country’s economy. Furthermore, he lacks the political will to initiate a change in our unhealthy allocation between operational and development expenditure. Although at times like this, an ill-advised budget might not have a severe effect towards the country, but this does not mean that there were not any hidden risk that will affect the country and rakyat’s future.

 

Released by,

Ooi Heng

Executive director for KPRU

6 October 2014

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