WE are all filled with cautious expectations for Budget 2019. It will be announced in a speech in Parliament on November 2.

It will be the first Budget of the new Pakatan Harapan government, after 61 years of Barisan Nasional rule!

The people, naturally, are asking whether there will be a difference in Budget policies or practices, or if we will have more of the same.

As the prime minister announced in the recent midterm review, there will be greater priority given to good governance!

This is encouraging – but how will we achieve better governance in Budget 2019 and beyond? Will we have more integrity, prioritise public services for the bottom 40% of households, less income disparity, and more efficiency and fairness in public spending? Will our new taxes be more equitable and caring to the poor?

One thing is for sure – we cannot expect too many, if at all, the traditional goodies in the Budget this time.

In fact, we may have to brace ourselves for more taxes, and we will have to face the prospects of some expenditure cutbacks. But please, do not hurt the bottom 80% of the population. I see a gloomy Budget for 2019 – and a little beyond. Why is this so?

The Budget 2019 environment is dull!

The international economy is slowing down by all accounts. The overall cyclical global decline is here.

The damaging consequences of Brexit (Britain’s exit from the European Union) are already present. Now, the threatening dampening effects of the possible trade war between two economic giants – the US and China – are also going to undermine the global economic outlook.

This will take place sooner rather than later , unless these top economies settle their unnecessarily hostile positions soon.

Domestically, the atmosphere has been sluggish, too. This is partly due to the international slowdown, and of course, the fiscal and financial mismanagement in the recent past.

Budget expenditures were badly eroded by corruption, leakages, wastage and inefficiencies. The true value of our rising expenditures and expanding national debt, and our high infrastructure investments, was not fully realised.

This was because of weak and distorted purchasing policies, and a lack of adherence to proper open tender and contract management procedures. The perception of weak institutions, like the huge civil service, low education standards, and the relative lack of independence of the judiciary, Election Commission and inter alia, police, also added to the economic burden and financial stress.

What, then, could be our macro Budget strategy?

Budget 2019 has to be consolidated and mildly expansionary. Hopefully it will not be contractional as our slowdown could be aggravated.

Neither can the Budget be too expansionary, hence, we have to keep the Budget on even keel, and that is a very big challenge!

An economic growth rate at about 4.6% for 2019 is acceptable. We can’t expect too much more without facing more strains.

Inflation could be maintained at a low level of about 2% to 3%, if we can keep the Budget deficit within 3% of GDP. It’s not a sacrosanct target, and we can be a bit more flexible and relaxed!

Income disparity has to be reduced as part of our long-term strategy. We can aim for this goal by focusing on providing the basic needs of the bottom 40% and middle 40%.

So, what can we expect from Budget 2019?

Firstly, don’t expect too many tax cuts, since the Budget simply cannot afford it. Hopefully, though, the Budget will impose new and higher taxes on the wealthy!

Don’t tax the poor. Instead, give them tax incentives to be more productive and to save for rainy days, and we now have many these days! Please provide a higher minimum or living wage. Provide more tax incentives to corporate foundations, to undertake more corporate social responsibility investments.

Encourage the private sector to establish more tax exemption foundations to participate in the education, health, environment protection and tourism sectors. There has to be more attractive policies to get the private sector to more fully participate in economic growth and income distribution, rather than depend on the government to do so.

The Budget could raise taxes, such as wealth taxes, estate duties, carbon tax and sin tax, like on tobacco and alcohol. We could increase tax charges on public services, like road and vehicle taxes, to reduce pollution and nasty traffic jams.

Expenditure Budget reductions has serious limitations

How can we cut the salaries of 1.6 million civil servants unless we dismiss many more? But it’s not easy to reduce the number of civil servants, unless they are on short service contracts.

We can, however, reduce the recruitment of more civil servants and get those presently employed to be more productive. But that needs tough leadership, from the chief secretary down to secretaries and directors-general.

Furthermore, many civil servants are now politicised. So, it’s not easy to trim the civil service and its salaries, which are now relatively comfortable.

Charged expenditure, like the constitutionally guaranteed Budget grants to the state government, such as capitation and road grants, cannot be cut.

Federal government debts must also be settled. Now. we have large amounts of guaranteed loans, many of which were incurred by government-linked companies and statutory bodies. They are our sovereign debt, and must be settled!

Debt to pensioners

Pensions have to be settled, too. But sadly, pensioners have long complained that they have not been paid past revisions, as promised.

How can we ignore and neglect the thousands of government pensioners who sacrificed so much to serve the government and society for so long? Unfortunately there have been those who think that the promise of higher pensions can be delayed further, so that pensioners die off and the promise made to them can be resolved by the deaths.

This is a cruel thought, and not worthy of any government or society. So please, settle the debt to pensioners.

Borrowing much more out of the question

For now, especially, after all the protests against the RM1 trillion nationa debt! However, some borrowing can still take place as the debt-to-GDP ratio is still not unduly high, at about 50% to 80 % of GDP, depending on the definition of debt!

The International Monetary Fund, World Bank and ratings agencies have not jumped up in protest yet. Hence, we should not be over-anxious about the present debt problem, as the debt-to-GDP ratio is not critical as yet.

Budget 2019 to restructure the economy?

We expect Budget 2019 to restructure socio-economic and finance policies. It must be designed to meet the basic needs of our society. Budget policies must be needs-based, not race-based.

The Council of Eminent Persons’ recommendations will hopefully be made public, and be fully incorporated in the Budget 2019 proposals where appropriate.

The New Economic Policy has served its purpose relatively well, but it must be modified into the much more acceptable New Economic Model, which is fairer to all Malaysians. Too much protectionism will reduce national efficiency, promote mediocrity and not meritocracy and competition, and undermine national unity!

Thus, we should not be caught in the middle-income trap and progress only slowly – if at all! We should do much better.

The ringgit and balance of payments must be strengthened, and the brain drain and capital outflows should be slowed down for us to succeed further and faster. If the private sector is not treated more equitably, and if more preference is shown to GLCs, the public sector, the Budget and the five-year plans will have to bear the brunt of additional necessary and essential investments, which can further strain the Budget.

The private sector’s role in our economic development will have to be expanded and shared reasonably with both Bumiputera and non-Bumiputera participants, to achieve balanced and stable development.

To this end, suitable tax incentives can be introduced in the Budget to stimulate better multiracial investment, economic growth and income distribution!

All the new reforms on good governance, human rights, and especially, more pro-bottom 40% policies have to be given greater priority in the Budget and its implementation.

Corruption and Budget expenditure leakages should also be more aggressively tackled, to raise confidence in the new government’s capacity to govern effectively!

Conclusion

Malaysia’s economic fundamentals are still quite strong. Hence, Budget 2019 should not be too tight.

But, we need to consolidate our Budget to remain strong and sustainable.

We have to use Budget 2019 to make a difference from the old regime.

We must restructure the economy to make it more competitive, meritocratic and fairer to all Malaysians.

National unity, and racial and religious harmony must be reflected in our Budget and economic planning to move forward with confidence and pride in the New Malaysia. – October 26, 2018.

* 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.