THE new Pakatan Harapan government must be commended for introducing a mid-term review of the 11th Malaysian Economic Plan with the new goal of sharing prosperity. But this prosperity is slowing down’ so how to share it?

The previous preoccupation with promoting economic growth did indeed neglect income distribution and widening income disparities  Thus the rich got relatively wealthier and the poor suffered from this worldwide phenomenon of the widening income gap between the rich and the poor. We must thus support the government in righting the past wrongs!

Therefore the growing recognition that our economic planning should more vigorously tackle these unwelcome worsening trends of income inequality, is to be appreciated and respected and promoted more aggressively in the future.

Economic slowdown

But how much can be done to share prosperity when in reality we are slowing down economically?

Despite these concerns nevertheless, it still remains a worthy goal, which is relatively new in our emphasis and our traditional overall socio-economic planning.

The economy is expected to grow between 4.5-5.5% in the remaining years of the 11th Economic Plan 2018 -2020. This is mainly because of global uncertainties like the cyclical world economic slowdown, Brexit, and now the threat of a trade war between economic giants the US and China.

Our own current estimates of achieving even a 4.5% growth rate can be questioned and remains in doubt.

The mid-term review mentions private consumption growth of 6.8% for 2018-2020, Private Investment of 6.1% and public investment of only a meagre 0.6% for the same period. But what if even these low rates are not attained and what if they worsen?

Overcautious mid-term plan due to debt and deficit?

But we need not be too overcautious. I would think that the mid-term plan could have been less overcautious in dealing with the One Trillion National Debt. After all, the national debt although very high is not critical yet. It’s still relatively acceptable at about 60-80 % of the GDP, depending on what definitions we want to use. In any case the international rating agencies have not sounded the alarm bells and neither have the World Bank and the IMF protested openly.

Thus at this time of global slowdown should we aggravate the economic decline by drastically reducing the development expenditures? It’s been cut by a huge amount of RM40 billion, from an original allocation of RM260 billion to RM220 billion for the full plan period of 2016-2020.

Was this really necessary?

Actually, the mid-plan is too cautious and its planning could have been unduly affected by the public debt and the budget deficit.

Budget deficit

The budget deficit is now estimated at 3% of the GDP. It is expected to rise from the current estimate of 2.8 % of the GDP. Here again, are we being overcautious ? In reality, there is no legal or fixed obligation to keep the budget deficit rigidly at less than 3% of the GDP.

Many countries are doing well with higher deficit ratios. Of course the major determinants for sound fiscal discipline would be to ensure that the higher development expenditures are used to generate viable income generating projects.

I think we can now assume that there are less leakages and corruption in spending our scarce budget funds. To its credit, the government is tackling corruption, wastage and leakages much more effectively now. With so many corruption charges being made at the highest levels, surely we can expect that the fear of being caught for corruption has become a severe constraint against corruption. It could be an incentive to be more honest in dealing more professionally with taxes and public funds.

Budget 2019 should not be overcautious.

The mid-term plan is only a plan and can be altered and improved as global economic developments dictate, as we move along.

But the 2019 Budget on November 2 need not be too cautious. It should make amends to the mid-term plan.

Indeed, the Budget could be more counter cyclical and stimulative to achieve higher economic growth and better wealth distribution, as presented and promoted in the mid-term plan!

Proposal to refine mid-term plan review

Thus for the mid-term plans to be implemented more meaningfully, I would propose that the following Budget 2019 measures be adopted:

1. Restore some of the major sensitive development expenditure items that have been severely cut. These could include, inter alia, low cost housing, medical and health facilities, education scholarships and training, research, environment protection and anti poverty programmes in the rural and especially now in the new and neglected urban areas of poverty.

2. Better wealth distribution, which can mainly be attained with higher taxes that can be imposed on the rich. How about a wealth tax at reasonable rates, estate duties, and taxes on property and capital gains and sin and carbon and soda?

Conclusion

The mid-term review of the 11th Malaysia Plan has to be refined in Budget 2019. Unless we are bold and brave and take the necessary budgetary measures listed above to mildly stimulate the economy, raise wealth taxes, and accept that we should not be bound by rigid economic theories, but be more flexible and pragmatic in our socio economic planning and in formulating the 2019
Budget, we can only worsen the socio economic challenges we are facing now and over the next few years at least.

Let the government strive harder to share wealth even when the prosperity is slowing down!

* Ramon Navaratnam is chairman of the ASLI Centre for Public Policy Studies

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.