Wednesday, October 28, 2009

Budget 2010: Will It Stick?

I will be raising this issue in my budget speech today, assuming all goes according to plan. The parliament spends weeks debating the budget each year. The Barisan Nasional MPs will of course often go out of their way to "praise" the magnificent budget. While the opposition MPs will try to eke out the weaknesses and challenge the Ministers in parliament. The Budget is then without exception, passed without any amendments, as law.

The problem is not so much that the Budget is passed without any amendments (i.e., Parliament becomes a rubber stamp). The bigger problem is, despite the Budget getting passed annually as Law, it gets trampled upon once it hits the Government departments. As highlighted annually by the Auditor-General's office, the Government significantly over-spends whatever has been budgeted, alters the use of funds without necessary authority, and most obviously, abused the Budget by purchasing items which are either not needed or at astronomical prices.

The question then is, what then is left of the sanctity of the Parliament? Below is a statement which I had issued last week before the Budget was announced seeking that the Prime Minister will announce ways in the Budget to enforce financial discipline, but sadly, there's no mention of financial discipline in the Budget 2010. Most assuredly, come next year, we'll find out that the Government has once again, overspent the limits.

The culture of poor management, unplanned and unapproved expenditure has resulted in the persistent excess spending over annual government operational budget

The Auditor-General's report has over the past few years consistently highlighted the persistent and rampant unplanned and unapproved over-expenditure and cost-overruns by the Government departments and ministries. The year 2008 was no different, as the Auditor-Genera's report is littered with such examples of poor management by the various government departments and ministries.

Among the more glaring examples include:
  • the purchase of equipment at wildly inflated prices by the Ministry of Human Resources, such as the Miri training institute (ILP) paying nearly 3,000% above market price for a RM990 pole platform or the Kepala Batas ILP paying 800% above market price for a RM1,500 cabinet.

  • The purchase of a piece of land measuring 6.86 hectares in Balakong by Syarikat Prasarana under the Ministry of Finance at up to 40% higher price than recommended by an independent valuer in July 2008. Syarikat Prasanara paid RM31.03 million despite the RM22.17 million valuation conducted. The piece of land has yet to be used to date.

  • The Federal Territories state development agency (PPN) was found to have over the 3 consecutive years audited expended up to 59% more than the value of projects which have been approved.

  • The Ministry of Education paid RM57,493 for landscaping supplies and works which cost between 470% to 880% more than the highest prices offered in another quotation sourced by the Audit-General's office.

  • It was also disclosed that 9 ministries had exceeded their approved and budgeted expenditure by more than RM3.6 billion; for e.g., the Ministry of Education exceeded budget by RM1.24 billion, Finance by RM772 million, Health by RM690 million and Defence by RM658 million.
The result of the government's excesses, poor financial discipline and abuses, over the past 9 years since the year 2000, the Government's operational expenditure has always exceeded the Budget passed by the parliament by at least 5%, often making a complete mockery of the annual Budget debate by the country's legislature. The actual government operational expenditure versus the government's budgeted expenditure since 2000 is illustrated in the table below (in billions):

(Click table for larger image)

Therefore, Datuk Seri Najib Abdul Razak, who is both the Finance and Prime Minister must take concrete actions to stem and check the increasingly endemic financial ill-discipline in government departments to ensure that every cent of the rakyat's money is properly expended in accordance to approved and budgeted limits. This pervasive culture have created additional fiscal strains to the government coffers which hampers the Government's effort to stimulate our economy with the widening budget deficits. Officers who have been unable to comply to expenditure limits, and who are clearly responsible for reckless expenditure as per some of the examples above must face serious action such as sacking or suspension to ensure that such mistakes or abuses are not repeated.

Otherwise, the complete lack of regard to the annual approved budget in parliament over the past 9 years have rendered the budget debate nearly meaningless as whatever allocations approved by the Parliament gets completely ignored, and the actual expenditures are significantly different from the one approved. In the coming budget announcement, to redeem the credibility of the proposed budget, Datuk Seri Najib Abdul Razak must hence not only announce his proposed expenditure, especially in the light of the need for expenditure cuts, he must also announce specific steps to be taken which will rein in the reckless disregard by the Government departments to ensure that the targets and objectives of the Budget are met.
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