Tuesday, September 02, 2008

Budget 2009: Skyrocketing Operational Expenditure

The above chart tracks the increase in the Government's
operating expenditure over the past 12 years (in millions)

The budget for 2009 announced last Friday, is once again, a record budget amounting to RM205.9 billion relative to RM176.9 billion which was budgeted for 2008 last year.

While everyone was expecting an expansionary budget in the light of a global economic slowdown, the very substantial increase of 16.4% raises the question of the Government's efficiency and effectiveness especially when the bulk of the increase has gone towards operational expenditure. Operational expenditure includes financial items such as rental, maintenance, emoluments, general supplies and services as well as other items such as compensation to toll concessionaires.

As per the chart above, the Government's operating expenditure has been increasing very rapidly over the past 10 years. It has increased by 189.0% since 2000.

I find it very difficult to fathom why the Government's operating expenditure has to increase by as much as RM53 billion or 52.4% in just 3 years since 2006. It has more than doubled since Datuk Seri Abdullah Ahmad Badawi took over as the prime minister in 2003.

In fact, the proposed Government's operating expenditure in 2009 of RM154.2 billion has exceeded the entire Government's budget expenditure of RM136.8 billion by 12.7% just 3 years ago in 2006.

The Government must put in more effort to rein in operational expenditure which has clearly grown fat and unwieldy and is becoming difficult to maintain. Most importantly, the Government must act firmly to cut down on wastages, corruption and unfair contracts such as expensive repair and maintenance bills for poor quality construction like Middle Ring Road II, purchasing equipment with highly inflated prices as discovered by the Auditor-General as well as lucrative compensations paid to toll concessionaires.

This rapid expansion of operational expenditure has deprived the country of sizeable funds for development expenditure which has greater economic multiplier effects. It has also resulted in a larger than necessary deficit in our budget, which leaves no surplus for our future generation. If this trend were to continue, our economy will be certainly at the risk of collapse in the near future.


Anonymous said...

Are those figures inflation-adjusted?

Anonymous said...

this budget is only viable if the oil price and palm oil prices do not fall substantially next year.

Doubling of the operating expenditure needs further amplification for us to understand it better.

this is a pump priming budget no doubts with lots of gravy in the gravy train. WATCH OUT INFLATION!

Anonymous said...

Dear YB Tony and all the Readers,

I agree with what YB DSAI said in the debate last few weeks, this is the "kebocoran", this is the lament for all the Malaysian.

Our hard earn money, we pay the tax to the government. Now we can see how the government spend the money?

Malaysia every years in deficit figure, how people can survive, today USD once again strengthen against MYR. If this matters continue, what I worry is the rich man will divert their money out as lost confidence to Malaysia government. We normal rakyat can't have much choice, is either to stay and struggle for the survival or go other place to aim for better life. If we are graduate from university, maybe we can still get a job at Singapore. But how about the rest, I really worry about that.

The gap between the rich and poor become wider. Is this what the government want, if you don't want please please x100times try to help us rakyat.

The immediate action is cut down the corruption. YB DSAI or YAB DSABB, rakyat already give the signal, they fill the pinch.

Justice said...

TDM promised that the rationale for privatisation was to reduce the operating expenditure. Not sure whether he was serious or just expediency but it seemed a convincing argument.
The reality has been entirely different as rightly pointed out in your article and all this escalation is borne by us as taxpayers.
The first shock was the bloated cabinet announced by AAB.
Then came legions of consultants to ministers and ministries often of dubious value to the running of govt as no effiencies are being seen and often overlapping the functions of existing depts within the ministries.

The question that troubles us is that it seems to be left to the willy-nilly fancies of ministers to employ them at public expense.

Is there any check and balance and accountability oversight over such dubious employment? How do make these employments transparent and accountable(i.e.subject to a formal approval system.)Can we find out how much it is costing us and what tangible proofs do we have of their labours(if any).

clk said...

During TDM's tenure, privatisation was said to eventually save the Public Sector in some of its expenditure.

1-2 decades after privatisation, most of what was privatised incurred more costs to the Govt. Now we also see a jump in operational expenditure.

WY said...

from previous comments, three quick questions:

1) inflationary pressure from fiscal spending? The govt might as well print ringgit bills like zimbabwe.

2) any breakdown of the operating expenditure? pass it on to any auditors / economists out here, and let us scrutinize the details?

3) don't anyone think abdullah badawi is on a burn and flee tactics? where's fiscal prudency?

Anonymous said...

Thank you for collating all these datas for us to 'see'.

I am dissappointed again and again with this government. Sigh.

Anonymous said...

GST 2010.

There is no choice on the matter. At oil of 100 US$/barrel, we are going to have an even bigger deficit. How you say?

Because the problem with the new oil price mechanism is that eventually they have to lift almost all prices control. From bus, lorry and food companies cannot plan their production when prices of gas is uncertain but their selling price is fixed. Inflation is going to continue as they lift more and more price control...

Anonymous said...

In Din Mericans site

"By David Yong

September 1, 2008 (Bloomberg) — Malaysia may miss its budget-deficit target because lower oil prices may hurt revenue, putting the nation’s currency and credit rating at risk, according to the Royal Bank of Scotland Group Plc.

The government’s projections for a narrower shortfall may unravel, RBS’s Singapore-based analysts Sanjay Mathur and Scott Wilson said in a research note today. Prime Minister Abdullah Ahmad Badawi is counting on oil prices to average $125 a barrel in 2009, unchanged from 2008. Malaysia depends on oil exports to make up for losses from a slew of handouts including lower personal income tax and import duties on consumer goods."



Bentoh said...

Not sure if you can adjust the inflation accordingly... after all the official inflation rate is fake... and ringgit value has supposedly appreciated in the past few years...

NEO said...


Government expenditure up ~ 20%

Deficit increase to 4.8%


our Stock Exchange (crystal ball for future economy) down 40% is less than 6 months!

Pak Lah Score Card @ http://khinghong.blogspot.com/2008/09/pak-lah-score-card.html

Anonymous said...

Sorry, its www.jeremiahliang.blogspot.com

"The Economy Demands Political Change in Msia"

Bentoh said...

Ah... got inspired by Hafiz about the inflation thingy... Too bad I'm not economist but ecologist LOL~

Government's Operational Expenditure from 1998 - 2009 and its theoretical value (consider 1998 as base year) if inflation rate is persistently 3%, 6% and 9% respectively.

% of increment (or decrement) of government's OE from previos year, 1999 - 2009 (1998 is the initial year). The graph includes 4 different scenarios, which inflation rate is assumed to be persistent at 0%, 3%, 6% and 9%.

Even if there is a 9% inflation in this year (2008), the 2009 allocated operational expenditure will still be about 10% higher than this year's...

The inflation rate in Malaysia for year 2007 was said to be about 2%...

Anonymous said...

A typical case of spending grandfather's 'money' without tomorrow.

The saddest part is that there is NO grandfather's money in the first place!

With falling prices for both 'oils'. Badawi/M Nor has projected wrongly. The fiscal deficit will grow out of projection & the consequences very very bad for M'sia future credit standing.

MR will not worth much with weak exchange rate. The foreign reserve will not be able to cover sufficiently the looming import requirements. The internal funds of EPF will be squandered to support GLCs' bad business decisions.

All pictures point towards a bleak economic future if nothing is to be done to revert these blur sotong's economic handling.

Anonymous said...

Our country believes in spend spend spend while the money is still there. There is no prudence in spending our money.
Who is the Godfather of this stupid and excessive spending? Get your clues from Chedet. He is the mastermind!

Sagaladoola said...

My writing on this :
Why Is It Hard to Accept An Apology In My Personal Capacity?

Anonymous said...

Bentoh, your statement about official inflation is fake is ridiculous.

I suggest you read the difference between CPI and GDP deflator to understand the phenomenon more.

One suggested article: http://economistsview.typepad.com/economistsview/2008/09/the-gdp-deflato.html