Tuesday, October 11, 2011

Budget 2012: BN vs PR

It is difficult not to “feel good” after a record-breaking pre-election budget where goodies big and small, were liberally handed out to practically all segments of society. The question is, beneath the sweeteners, are there substantive reforms proposed in the Budget 2012 to make “transformative” changes to our economy to achieve the goal of becoming a “high-income nation” by 2020.

The answer, when compared side by side with Pakatan Rakyat (PR) Alternative Budget is obvious. There is little in the Barisan Nasional (BN) federal government’s budget that indicates a determination to slaughter sacred cows and take the Malaysian economy to the next level.

Both the PR and BN’s budgets had proposed cash grants to various deserving segments of society in order to help alleviate their increasingly heavy burdens. However, PR matched its welfare benefits with policies to rectify the distortions created by the current government to reduce inflationary pressures and the cost of living over the longer term.

PR has called for the abolition of artificial monopolies licensed by the Government such as Bernas which monopolises the sale and distribution of local and imported rice. In addition, predatory market strategies by Telekom Malaysia to stifle competition will be made illegal while the monopoly of satellite and cable television will be abolished.

On top of that we will dismantle cartels in the telecommunication, media, airline, oil and gas as well as other industries to ensure a genuine competitive market which will benefit the man on the street with lower prices.

What’s more, we have promised drastic changes to the current privatisation policies which are opaque, uncompetitive and clearly benefit the concessionaires at the expense of the Government and the rakyat. The 2-prong strategy demands the renegotiation or expropriation of current concession assets such as independent power producers, highway and water companies, while putting in place an open, transparent and competitive framework to ensure only the parties with the best services at the lowest price will be awarded the relevant contracts in the future.

Under PR for example, all Approved Permits to import cars will be auctioned not only to increase government revenue, but also to ensure only genuine businessmen and not rent-seeking middle-men secure the rights.

PR has also committed to transform our labour market in the interest those who are paid suppressed wages by instituting a minimum wage of RM1,100 per month. This will ensure that all workers will receive a humane subsistence wage. The measure will not only stimulate domestic demand in our economy, it will also increase the attractiveness of hiring local workers as opposed to foreign workers while phasing out low value-added industries.

It is only with these institutional and structural changes, can we be assured of lower cost of living in the middle and longer term. The budget announced by the Prime Minister has instead chosen to prescribe pain-killers which will ease the rakyat’s suffering in the short term, without the medication to cure the actual illness.

In fact when comparing the two budgets, had PR used the more optimistic BN revenue assumptions of RM186.9 billion and our planned expenditure of RM220 billion, the projected deficit of PR’s budget would further decline to 3.8%, significantly lower and healthier than BN’s 4.7%. This proves that PR can provide not just the “pain-killers” with welfare grants and “cure” the economy by removing artificial barriers to lower cost of living; we can do it all by spending less, and incurring lower debts than BN.

The above also shows that with good governance and the necessary political will to reform and restructure our economy, there will be no need for the Government to further tax the rakyat via BN’s proposed Goods and Services Tax (GST). Therein lies the fundamental difference between BN and PR’s budget – the former prescribes a sugar-coated placebo that makes you feel good in the short term only to tax you more later, while the latter seek to ease the pain and cure the illness at the lowest possible cost.


AskChong said...

PR is doing the right thing but the more important is to get enough voters to understand. Most rural people, even some urban, still don't understand the basic economy question, who pay for the sweets?

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Anonymous said...

The no. 1 difference between BN and PR budget is that BN will ultimately take back what they give. I don't see how they can avoid GST much longer with such budgeting. Other subsidies will also have to go like gas and hence electricity prices. Its completely meaningless.

The other glaring difference is that its obvious Najib is trading in the political usefulness of Felda to win this election. (How can anyone think the election will be postphone?). Those simplistic Felda settlers don't get it their 'durian runtuh' will be short lived as Felda come under shareholder scrutiny and will have to give up giving 'freebies' to the settlers or the their stock, the 'durian runtuh' will be very cheap.

Anonymous said...

I wonder if they have worked out how much to finance such a big civil servant work force - their salary and pension. I wonder if an actuary can help here.
I just guess the country will go bankrupt with such a scheme without well thought financing plan. Remember those guys up there will siphon away so much if they are still in power

Tze Horng said...

Tony, I think the main strategy in winning this political field here is not to explain economic terms to average Malaysians as they won't really understand what you are talking about. It really takes a lot of advance courses to fully understand economics and finance. Once they understand it, no one will trust any form of government. Instead, PR should focus on the topic of basic needs. Example, food.

Use inflation as one of the topics in winning the election. As you can tell, Malaysia is really horrible in managing its inflation rate. The reason I pick inflation is because it affects all walks of life be it the villagers to city dwellers, which I believe is the majority of the voters. Lets set an example here, what it cost to eat a bowl of noodle in Sabah and Penang? It costs the Sabahans Rm5-6 just to eat it while you can get it for less than Rm3 in Penang depending on the quality of the food. But on average, that's the price standard between these two places. As for KL, I believe the inflation rate will be higher than that of Sabah & Penang. It's not that Sabah is getting its raw materials or ingredients from West Malaysia but the poor management of commodity prices and mismanagement of inflation that causes this. Malaysia should let the price of commodities float so that there is really no reason for them to keep the price high when the price is falling. Although it will expose us to certain risks but in the long-run it will benefits Malaysians.

Instead of making Malaysia into a high income country with a higher minimum wage, I think keeping the inflation rate low is more important as a higher minimum wage will only drive inflation higher. Adjusted to the new equilibrium price. It also puts Malaysia in an uncompetitive position to our neighbors due to higher wages especially during a world recession and it will also cause unemployment for workers who are not productive enough. Besides, a low inflation rate and a steady growth in income is more important as Malaysians have higher purchasing power with the same amount of money they have.

So, I really hope the PR will focus on using inflation to win the heart of the voters. Increasing the competitive rate of companies will follow by when the market system or the business culture is being corrected in the process(it take years to adjust this culture thing).

By the way, debts is really not an issue because government needs to finance the national projects to boost the GDP. It's only bad management of debts that is the scary part.