Business

Tuesday November 3, 2009

A ‘learn how to fish’ budget?

Singular Vision - By Teoh Kok Lin


It’s harder not to give short-term goodies in return for long-term benefit

BUDGET 2010 was, shall we say, not that warmly received by the man in the street. Some pointed out that the budget gave few goodies to the rakyat or businesses compared with previous years, hence it was not as good and that’s why the stock market was down 0.5% last Monday.

I believe a slight disappointment with the budget played a small role, if any, in the stock market. However, I am perplexed how one can infer from “one-day” stock market movements whether the budget is good or not.

I believe the annual budget is the Government’s strategy to tackle economic challenges at this point in time while balancing the short-term desires versus long-term benefits to the nation.

To be fair, it is easy for the Government to give short-term incentives but there is always a cost to be borne later. It is harder not to give short-term goodies in return for the long-term benefit of the nation.

The current Government led by Prime Minister Datuk Seri Najib Tun Razak will be facing another general election in about three years. It would be tempting for Najib to map out the next three years with rakyat-friendly budgets to woo voters.

Technically, Malaysia can afford to run large budget deficits of 7% or more of gross domestic product (GDP) for the next few years in the name of economic revival and growth. The United States, for example, is running a budget deficit of 12.3% of GDP.

To run a budget deficit, a country must have the capacity to carry public debt. Malaysia’s public debt to GDP is 48.6%, still below the globally acceptable benchmark of 60% and relatively smaller compared with that of the United States which is at 63%, Japan at 170%, and Europe at 70%.

Given the options available, Najib has chosen to table a brave and, I believe, commendable budget aimed not only at reducing the fiscal deficit but also focusing on long-term structural reform by emphasising on the services sector and human capital.

Key observations worth mentioning include a smaller allocation of RM192bil (-11%) made for Budget 2010.

With that, the Federal Government budget deficit is projected to fall to RM41bil (or 5.6% of GDP) in 2010, from 7.4% of GDP in 2009. The reduced budget deficit is a positive surprise to many as market consensus had expected next year’s budget deficit to be around 7.3% of GDP.

One interesting fact of this budget was that data from 1970 onwards show that there was only one reduction in operating expenditure before and that was in 1998 due to the effects of the Asia financial crisis; it was reduced by a mere 0.2% compared with the huge 14% reduction today. Therefore, we can say this is the first real meaningful government operating expenditure cut in 40 years.

Coincidental or not, the Auditor-General’s report of his audit of government ministries and agencies released just prior to the budget contained the annual litany of mismanagement, abuse and wastage.

Highlighted was the fact that one department saw fit to pay RM42,320 for a computer laptop. Budget cuts or not, there is certainly room to cut out excesses and wastage.

One key area of the budget is the development of the services sector – from tourism, information and communications technology, Islamic finance and banking, halal industry, developing green technologies (my favourite) to foreign direct investment, including making it easier to hire foreign talents and their families to stay and work in Malaysia.

Najib also referred specifically to the Middle East, China and India markets a couple of times, focusing on tapping these emerging markets not only for FDI but also for My Second Home programme.

It is obvious to Najib that’s where we have the natural advantage in terms of cultural affinity, language skills and market familiarity and also because that’s where the economic growth will be going forward.

Likewise, it is a good strategy to emphasise on education and enhancing the skills of the workforce. Among the notable measures of enhancing the quality of education are expanding access to quality and affordable education, creating high-performance schools, recognising and rewarding school principals and head teachers on merit and awarding national scholarships to top 30 students based strictly on merit.

Skilled human capital is the most important aspect to move up the value-added chain. To move to a higher-income services economy, you need trained and knowledgeable work force with the right mindset and attitude.

Another interesting part of this budget mentions the better utilisation of assets, including land and buildings of the Government, which can be jointly developed or sold to government-linked companies. While it is good news that the Government proposes to make use of idle assets, one alternative would be an open auction or tender of government land and buildings.

For example, open tender of government land in Hong Kong and Singapore has been carried out transparently and successfully for many years. They generate significant revenue to the government coffers very efficiently (Hong Kong’s land sale revenue in 2008 was HK$62bil or 17% of total government revenue while Singapore’s land sale revenue for the fiscal year ended March 2009 was S$7.3bil or about 22% of total government revenue).

The goodies of this budget are not the RM1,000 personal income tax relief or RM500 deductible for broadband; it is the strategic way forward for the nation.

The direction is set but success hinges on implementation as always. The support of all stakeholders of the nation, especially civil servants, private companies and the rakyat, is needed but crucially, the political will must be there to carry out the plan.

Instead of giving us a fish to feast for the day, this Government plans to nurture the proper conditions so that the rakyat will have multiple opportunities to learn how to fish. The question is: For the future prosperity of the nation, can we get enough rakyat to learn how to fish?

·Teoh Kok Lin is the founder and chief investment officer of Singular Asset Management Sdn Bhd. Readers’ feedback to this article is welcomed.

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