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

Anonymous said...


BUDGET 2009 – BN’s Answer to Textbook Populist Policies

Of late, the national conversation has been centered on the turbulent political scene. Although a section may feel enthused by these developments, few would disagree that the intense politicking over the past months has relegated the discourse on governance in the eyes of citizens and politicians alike.

If we scrutinize the political scenario, the central theme of the current debate is the extent to which Pakatan Rakyat’s populist proposed policies appear relevant and in sync with the sentiment of the people. Budget 2009 reveals Barisan Nasional’s answer to Pakatan’s proposals that at face value, appear to have captured the hearts of many.

Public transportation – Investing in a Much-Needed Public Good

To be sure, the Barisan Nasional knows that it has much on its plate if it is to steer the country forwards in a time of global uncertainty. The state of public transportation is a case in point.

The infrastructure development in Malaysia has long been touted by the Barisan Nasional government as an indication of how far the nation has come from its humble beginnings. However an area of infrastructure development that has fallen short of expectations is that of public transportation.

The restructuring of subsidies in June appeared to elevate the issue of public transportation in the national debate, erstwhile affecting mostly the lower-income group.

The measures revealed to tackle the public transportation woes in Budget 2009 however, offer hope to the many urban dwellers of all income groups – who now more than ever, yearn for a public transportation comparable to the rest of the nation’s infrastructure.

The introduction of new rail cars, buses and LRT lines costing RM35 billion over 5 years is a welcome relief considering the sheer congestion that commuters face everyday during peak hours. The problem of services arriving late may also be alleviated with such a measure.

Necessary as that step may be, the government is smarter than to think that the public transportation issue is merely one about the lack of physical trains or buses. Moreover, government cannot pretend to be the most efficient economic agent I satisfying the public’s demand. A comprehensive strategy would require policies that incentivise the private operators to improve their services. For grouses characterising means of public transport as troublesome, slow and not consumer-friendly to go away, cooperation – artificial as they may be – must be gotten from the profit-making firms themselves. It is thus comforting that the government has taken note of this and afforded bus and taxi operators through tax exemptions for asset purchases as well as road tax reduction to only RM20.

Social Safety Net and Disposable Income

The Budget also contains a catalogue of services in the forms of welfare aids and provisions of public goods to ensure the less well-off get a better chance at life. The Abdullah administration incidentally, has a rather impressive record in alleviating poverty, with the overall incidence of poverty of Malaysians reduced from 5.7 percent in 2004 to 3.6 percent in 2007. This decline is the result of steady economic growth as well as the implementation of various poverty eradication programmes and projects.

According to the Ninth Malaysia Plan, “hardcore poor” in Peninsular Malaysia, Sabah and Sarawak is benchmarked at a monthly household income of RM398, RM503 and RM482, respectively. A review of 2009 Budget shows an upward revision to reflect higher cost of living and inflationary pressures for a new benchmark level of RM720, RM960 and RM830 for Peninsular Malaysia, Sabah and Sarawak, respectively or generous improvements of 81% for Peninsular Malaysia, 91% for Sabah and 72% for Sarawak.

The Budget contains other orchestrated plans of the Government to eradicate poverty at all levels. The aspect of rural development for example, sees the Government continuing efforts to provide basic infrastructure so that poor rural communities can be best equipped to work themselves out of despondency – an example of a government that understands both its responsibilities and its limitations.

It is important to note that such provisions in the Budget act as supplements to the already comprehensive and targeted measures taken by the government after the oft-misunderstood subsidy restructuring exercise in June 2008, which included expenditures of RM4.0 bilion for food security, RM1.5 billion for cooking oil, RM400 million for imported rice, RM200 million for flour and RM100 million for bread.

Whilst indirect and complex steps to improve the standard of living have their merits, the government also recognises that on some level, simplicity can often win the day. The Budget reflects this understanding as it contains a reduction of income tax from 28% to 27% and 13% to 12% - depending on income categories – and an increase in the rebate amount (for those who earn those who earn RM35,000 a year and are thus taxable) from RM350 to RM400. With such direct measures that affect the disposable income, localised worldwide inflationary pressures can be faced with more readily by the taxable middle class who too, desire the government to be on their side as much as it has been with the lower-income groups.

The Government magnanimously proposes to reduce import duties on various consumer durables from between 10% and 60% to between 5% and 30% to mitigate the impact of rising prices on consumers. These include blender, rice cooker, microwave oven and electric kettle. Also, the Government proposes full import duty exemption on several food items, which currently attract import duties of between 2% and 20%. These include vermicelli, biscuits, fruit juices and canned sweet corn.

Currently, private passenger vehicles with diesel owned by in individuals and companies are subject to a higher road tax compared with those with petrol engines. The Government proposes to reduce the road tax on private passenger vehicles with diesel engines to be the same as those with petrol engines, effective 1 September 2008, to reflect a fairer approach given the current retail diesel and petrol prices.