First and foremost, let me say that being a non-politician and no affiliation with any interest groups gives me greater flexibility with the approach I would take in giving my views. The theme of the Budget 2024 is “Reformasi Ekonomi: Memperkasakan Rakyat”. The total allocations amounted to RM393 billion. The three main focuses of the budget are:
- Best governance for service agility;
- Restructure the Economy for Accelerated Growth; and
- Improve Peoples Living Standards
The following framework can be used to discuss the Budget 2024.
Subsidies that makes us almost a Welfare State
The analysis of the Madani Budget for 2024. The amount of subsidies given the Government is to the tune of RM64 billion and this is similar to the case of the above question.
The amount of subsidies that are being dished are so large that is takes 16% of the budget. We seemed not to be constrained by a budget when we decide on subsidies. Perhaps this to improve the living standards of the rakyat. Then again the subsidies are for everyone including the well heeled and the poor. What more when we have a budget deficit of 4% to 5%. Subsidies are inefficient when applied across the board and can result in gross miss allocation of resources. Resources may not be utlised efficiently as the costs are lower that what market dictates, resulting in wastage. Pardon me, I am not sure how a society depending on such high rate of subsidy can be made “perkasa”. On the flip side society becomes depended on the Government and unable to manage economic shocks such price increases. This does not auger well for political and social stability of the country. Political parties that favour subsidies will be voted in until we reach a point of no return. (Malay Mail, RinggitPlus)
What can be done is the removal of subsidies and replace them with direct cash assistance. Up to RM30 billion can be allocated for this. This will bring down the overall deficit and reduce the budget deficit by RM33 billion. The RM30 billion allocation into cash incentive will translate to RM1,000 per citizen. (Based on population estimate of 30 million) The incenstives will empower their lives. The amount can be disbursed over four payments in a year. A family of four can be paid RM4,000 a year. How they spend this amount is up to them. This will also reduce the distorted spending on goods and services and also increase the direct spending and service taxes collected by the Government.
The final cost to the Government will be lower. Resource allocations will be efficient as goods and services are priced at market prices. The amount of subsidy can be gradually be reduced over a period of 5 years. In other words, over a period of 5 years the subsidy malaise can be put to rest once and for all. Subsidies on petrol have a bias towards those who own cars that run on petrol and exempts the poor who does not own cars. The subsidy also helps the rich who may not need it. The removal of subsidies will drive the economy towards one that is based on productive employment of resources and there will be less wastage.
Bonus Payments for Civil Servants
The Budget 2024, has provisions for bonus payments for civil servants. Under the proposed budget 2024, civil servants at grade 56 and below will receive a RM2,000 incentive payment. Allocations such as the bonus payments for public servants are not based on achievement of Key Performance Indicators (KPI) and are paid on a blanked basis. Is this a well thought out strategy? Granted we have a large pool of civil servants that are underpaid compared to their peers in the private sector. How can KPI’s be used to increase performance and drive efficiency? The budget should have touched on this by allocating a two tier bonus’ a fixed half month and a variable bonus that is tied to a performance scale. A bonus of half a month fixed component and variable component with a maximum of three months for top performers. This can drive the culture of service and performance. There are many selfless civil servants who deserve more than the proposed two months and some who deserve less and to cap their bonus at two months are a gross injustice to the performers and is not equitable.
Spending of Education and Lack of Efficiency
Let’s look at the second part that involves Constrained Spending. The education sector takes a total of RM75 billion out of the budget. The total allocation to Educaction and Higher Education Ministry amounts to 19 percent of the budget for 2024. We have graduates who are not employable and prefer becoming delivery riders as the rewards are better at the start. What has happened to the “sakit-sakit dulu sebelum senang” mind set? The Rakyat Post (22/06/23) reported “SPM 2022 reveled that 77,000 of students of the total 370,000 candidates who sat for the SPM, either failed or received a grade E in their exams and 14,858 candidates failed to attend the exam”. This is of course a thorny issue, a higher budget allocation does not address. What about the failure rates in Universities and Polytechnics? We do not have the numbers published. This is a huge wastage but any reductions in the budget amounts will be called a sin and condemned. The very same people may also accept the race based selection of candidates to universities and deny the qualified students a place. How are we going to address them? Best investment in the future or wasted investment into the future? That is a question that requires an answer! The statistics are in support of the latter statement.
The Government should reconsider direct promotion of students to the next form when they are 15 and some introduced the TVET path for those who are not academically inclined and adopt policies that can produce employable graduates. For students who don't show progress in academic subjects their decision could be made at the age of 12 by parents. We need to also ask what is the incremental capital out-put ratio for the amount allocated for the Education Sector.
Our schools are yet subjected to so much criticism for poor quality of education, poor mastery of the English language and lack of interest in STEM subjects. Yet the debate around our education is often about how our schools are not being inclusive for all. Too much religion and the use of Mandarin and Tamil in National Type Schools. The National type schools are also popular with Malays. Our hot debates have been not mainly focused on the quality of education but time allocated for religious studies, racial discrimination and introduction of “Khat” in schools.
The dissatisfaction with our education system is good and can be used to find solutions. Some parents as stake holders will be willing to take over the cost of running schools If given the choice and teachers are evaluated by the headmaster or headmistress, parents and students. This is the model used in private education and international schools and can drive our educational achievements towards excellence. The Government can privatize selected schools when the teachers and syllabus are decided by parents thus keeping them aligned towards National Interest and International Standards. In other words liberalise the education system. The Government can lease the school infrastructure at a very low rate. Parents can choose to pay half or a percentage of the cost of the school and teachers can be hired and paid in line with the cost of living in the areas where they are teaching. The supervision can be carried out by the Education Ministry. Do we know the costs of running a school? This may vary from school to school. Teachers in rural areas may receive the same salaries and in real terms may be paid more. This anomaly can be adjusted by indexing teachers' wages to the cost of living. For starters start publishing the costs of running each of the many thousands of schools in Malaysia and benchmark them.
Spending on Public Health
The next is the amount allocated to the Health Ministry. The budget allocation of the Government is to the tune of RM42.1 billion. The actual market value of the services provided by the Health Ministry may well be estimated to be beyond a RM200 billion. Having studied Health Economics, the debate about private and public health systems is something that cannot be reconciled easily due to moral and ethical reasons. The rich and poor should have the same access to healthcare. Is this true? This may be a moot argument as it is common knowledge that the educated and better positioned individuals financially have better access to health facilities.
Market based health solutions are faster in providing solutions. Perhaps it is time for the Government to consider fully privatizing few selected Government hospitals. Room and board can be determined based on amount the patient is willing to pay. The facilities can be owned by Khazanah National or via a private and public partnership. If the returns are good even the public can be allowed to participate as investors. There is always demand for facilities that have a low patient ratio per floor and privacy. The determination is already in practice where patients get to choose the class of ward the choose to stay in. The treatment, access to doctors and medication can be the same for the paying and non-paying patients. This will reduce the Governments burden of maintain the infrastructure and cost of building health care facilities. Over a period of five years the cost of healthcare to the Government can be reduced by at least 50%, hopefully and health care professionals be better compensated compared to peers in private practice. This depends the cost of maintaining the infrastructure and building them and the additional revenue from the room and board operations. The University Hospital in Petaling Jaya, has a private wing and this can be expanded to all public hospitals in the country. Perhaps a more holistic approach can be adopted on a nation wide initiative.
Low Employment with Low Wages - Not that good
We have always taken pride in the low unemployment rates we have had. Is unemployment rate a true reflection of citizens welfare? We are a country where graduates are underpaid to match their qualifications. The introduction of a minimum wage in fact encouraged business establishments to pay graduates the minimum wage of RM1,500. This was highlighted in the NST (4/08/23) under the heading “Don't use minimum wage as starting pay for skilled workers” Rafizi Ramli. He added that the Minimum Wage Policy cannot be used to drag down fresh graduates salaries. The Budget can address this by providing policy directions on how to measure employee productivity. Therefore, low employment may not be the right indicator or the only indicator to look at.
We need to seriously re-look at the many issues that are highlighted. Looking into the lumpy budget expenses is where we can start from. The question is are our policy makers ready to do what is right compared to doing what is popular compared to efficiency and effectiveness?
Sivanesan Muthusamy is a Financial Markets Professional, Fintech and Startup Roll Out Strategist. He holds a Master's in Economics (Monetary Policy - Term Structure Analytics) and a degree in Economics (Hons.) Analytical Economics from the University of Malaya. His interests are in various fields and current issues. He is a strong believer in Malaysia and its potential.
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