PUTRAJAYA is taking the right step to rein in the fiscal deficit through rationalisation and cost-cutting measures but it should not go overboard, said economists.

The government must tread carefully when it comes to reviewing emolument, pension, healthcare and social security expenditure, they said.

In the mid-term review of the 11th Malaysia Plan tabled by Prime Minister Dr Mahathir Mohamad yesterday, the new government pushed back an earlier target of achieving a near-balance estimate of 0.6% of the gross domestic product (GDP) in 2020 and setting a larger deficit of 3%.

A thorough review of public institutions and agencies’ functions to boost their efficiency is crucial, especially with a reduction in spending, said executive director at the Socio-Economic Research Centre Lee Heng Guie.

In 2007, public servants’ emoluments totalled RM32.6 billion – 26.4% of total operating expenditure (OE). It shot up 8.4% yearly to RM73.1 billion or 34.8% of total OE in 2016. In Budget 2018, it was estimated to increase to RM79.1 billion or 33.8% of the OE.

But Lee said Putrajaya must not be too drastic slashing funding for public service initiatives, such as health and education funding, socioeconomic development, affordable housing, infrastructure and income support programmes for B40 households.

“The reality is that public expectations on government spending and public services need to be realigned with the limited budget,” he said.

“Some form of trade-offs is inevitable, going well beyond budget ‘business as usual’.”

The government must also spell out a credible timetable for the budget repair, which would put credit rating agencies and market investors at ease, he said.

The government is slashing RM40 billion from the original RM260 billion development expenditure for 11MP to consolidate the fiscal position to head off lower revenues due to the volatile global crude oil prices and the abolishment of the goods and services tax.

With the revised spending ceiling of RM220 billion and netted off the actual spending of RM107.0 billion in 2016 until the first half of this year, this leaves an average balance of RM113 billion to be spent up to 2020.

More than 4,000 ongoing projects will still continue across the nation, among others, the building of affordable houses, schools, hospitals and roads, said Lee.

Foreign labour dependency

Centre for Public Policy Studies senior policy analyst Jarren Tam said efforts must also be undertaken to reduce dependency on foreign workers by promoting greater automation and strictly regulating the number of foreign workers by introducing multi-tiered levies.

The overdependence on low-skilled foreign labour has perpetuated a labour-intensive economy, suppressed wages and served as a disincentive to automation, thus impeding efforts to increase productivity, the MTR report said.

Tam said shifting the country’s dependence on foreign labour will encourage the overall skills of the workforce, which would uplift wages and in turn sustain Malaysia’s economic growth.

While Malaysia’s economic growth is stable, underpinned by strong growth in domestic consumption, productivity remained a concern, said Institute for Democracy and Economic Affairs economist Adli Amirulla.

“Future growth will need to come from productivity and innovation. The government will need to accept less control in development of the economy as traditional government investment must give way to private sector entrepreneurship.”

Policies that promote labour productivity and further innovation will be essential while regulatory reforms should be driven by meaningful consultations with the private sector, he said.

“Malaysian firms will need to be exposed to new markets and competition through trade integration or risk being left behind.” – October 19, 2018.