Stronger Opposition in Parliament even  more crucial to ensure that there is no  corruption and misuse of "goodies" in the election budget

Speech (6)
- Budget 2000
Lim Kit Siang

(Dewan Rakyat, Monday): Barisan Nasional leaders and MPs have been very cocky in striking the attitude that nobody else apart from Barisan Nasional is capable of preparing and presenting a budget.

Let us look at a financial analystís comments of the Barisan Nasional and Barisan Alternative budgets:

(1) BA budget is faster and better

The BA had earlier, on 27/10, proposed the same low-tax, pro-consumption, deficit-spending, pro-business, budget with salary hikes for civil servants. The government media would not give it any coverage because the BN does not want the people to know the people have a better alternative.

The BA budget is similarly pro-consumption, pro-low tax, but the difference is that the BA budget emphasises sustainability of long-term growth. How? By emphasising meaningful banking reform, government transparency, incentive-linked raise for civil servants, review and cancellation of mega projects. Even details are covered: BA had proposed that TV license fee be  cancelled because TV stations have been enjoying ads revenues for years.  The purpose here is to eliminate waste, increase effectiveness, and make sure the banking system can support the kind of growth that Malaysia needs in order to generate the surplus in the future to cover today's deficit.

In several areas, BA proposed more generous tax exemptions, such as RM12,000 personal tax exemption, but government budget is RM8,000;  tax rebates for export-oriented industries, and another 100% increase in tax exemption for educational expenses.

The BA budget is also different in that it propose increases in the "sin" tax, such as on gambling, tobacco, and liquor, while reversing tax exemption for luxury yacht, private jet, antique cars, race cars, etc. The reason is there is still a high risk that tax revenues will not roll in 2000-2001 as much as expected. It is prudent to bring in some revenues immediately from unproductive areas while aggressively cutting tax at productive areas.

The BA budget  gives an excellent and balanced account of what really led to our economic crisis. It then makes constructive specific suggestions of the budget, many of which are also included in the BN government's Budget 2000.

(2) No matter how the government denies it, the BN budget is  an election budget, full of goodies. Short-term thinking in government will turn out like "lycozat" or "red-bull", which is a caffeinated, energising drink that cannot have lasting effect to sustain Malaysia's long-term growth and continuous wealth accumulation.

The goodies have a short-term ring to it. How do you make civil servant salary increase sustainable, for example. Why wait every five years, until just before the election, to raise the pay? (BA's answer is: give incentive to increase productivity, and reduce deficit with long-term growth)

The long-term measures, on technology, SMI, education, are either vague or basically the same old wine in new bottle. The long-term economic strategy, eg, requires that a think tank is to be set up. There is nothing wrong with studying long-term strategy, but the point is the BN budget is only clearly about the short-term, with the long term thrown in obligingly as an after thought.

Without the ability to sustain growth in the long term, for example, the goodies would be a fiscal trap. The businesses investing today because of a small credit bubble created by all these goodies would find the future not so friendly, and may not be able to pay back their loans 2-3 years down the line. The housebuyers who are encouraged by low interest rates today to buy the houses may not be able to hold on to their houses later, or might be forced to sacrifice their children's education. The Malaysian government who borrows now may not be able to generate the  surplus in 2-5 years time.

(3) More goodies need stronger Opposition to monitor leakages

There are so many billions of ringgits that will be spent on health programmes, small plantation holding, older folks, small and medium size industry funds, and highway projects. The compassionate use of national resources is welcomed, but they must be used smartly and effectively.

We do not want any misallocation to well-connected groups, unbid and expensive contracts for hospitals or roads, siphoning of resources, and the wastages of the past. The amount meant to benefit ten  families, eg, should do exactly that, and not two  families and two  cronies. We cannot tolerate the leakages like the alleged 40% leakages of water pipes in the Klang Valley. By the time the water reaches the people, there is shortages and rationing.

Because the beneficiaries of these plantation, SMI, housing, highway programmes will be many individuals spread-out every where, they individually cannot tell whether the government funds are fully disbursed and used effectively.

Therefore, there must be strong Opposition MPs to watch over the spending in Parliament, taking a top-down perspective. The Opposition is there not only to stop abuse, but to increase the speed of disbursement by eliminating the chance that anyone try to benefit by complicating and delaying the procedure.

The people should realise that the  larger the size of the goodies, the stronger must be the Opposition presence in Parliament.

(4) Better governance will automatically lowers business costs even before spending any money

(a) Transparency and good governance are crucial to reduce costs

Technology and lower business costs need open and transparent government. Without good governance, transparency, any BN talk about IT technology, global competition, knowledge-based industry will end up as talk only.

There will never be any progress on the knowledge industry if free flow of information, ideas and opinions in the society, mass media and university continue to be seen as no-no, banned or suppressed.

Fear-based laws (ISA) and the lack of Freedom of Information Act mean no competitive environment for ideas.

The BN government is already defeating its own objective of a knowledge-based society by not letting people's ideas and initiatives bloom, by restricting the public's access to information through the media or on government operations and contracts.

(b) Reduce corruption to reduce costs.

To reduce business cost, the first thing to do is eliminate corruption and unbid, expensive infrastructural projects. Corruption exacts a cost. Two recent international surveys have found Malaysia significantly corrupted in business and that the situation is deteriorating as well. Unbid contracts inevitably lead to higher cost for business, eg, through transport, utilities, administration and labour costs.

(c) Consistent and composed leadership and policy will reduce business and capital costs.

One reason investment risks, risk premium and required return in Malaysia have gone up is the Prime Minister's tirade against foreigners, flip-flop policies (exchange control, stock market, banking, Bank Negara changes), and the low respect for property rights (forced bank merger, change of stock market rules, CLOB hostaged stocks, change in rules). If the government would shut up and be consistent, and respect people's decision and property, the capital cost would fall very quickly without any spending.

Three government mistakes

None of the "strengthening fundamentals" are real or, if real, can be credited to the BN government. Export growth, low inflation, investor confidence, better job prospect and banking system? Export growth is due to weak exchange peg and US strength. Low inflation is same everywhere in Asia, in fact deflation in HK and China. Investor confidence has not come back yet, as evident in  the stock market and foreign direct investment. Better job prospect? Only delayed restructuring, just like the bank employee situation. Banking system? Confused and delayed restructuring.

There is also the risk that  growth next year  would be lower  than 5%,  after 4.3% GDP growth in 1999.

Three  government mistakes lead to the key problem of the economy - weak domestic demand. Whatever the government is trying to do to coverthat up will end up in  failure

 (a) The first mistake is exchange control at undervalued rate. This kills demand for imports, because of more expensive imports.

 (b) Delayed and confused banking restructuring. The banks know that they are in much deeper hot water than official statistics show - that their capital base is eliminated or in the negative. So they don't lend and businesses cannot secure loan to grow.

(c)  Crisis of confidence. Foreign investors would not come to invest to create employment and demand. Local investors figure Danaharta will have a lot more bad loans and assets to dispose off later at cheap rates, so why invest too aggressively. Individuals are unsure of future under confused and flip-flop government policy. Bank employees, eg, are unsure of their jobs no matter what the government says. So why should anyone invest and buy?

There is a high risk that the export market in US will slow down in 2000, taking away Malaysia's growth source of 1999. That is why domestic demand is so important. But as has been  pointed out, weak domestic demand is the result of Barisan Nasional governmentís misguided policies.

The above are the comments and prognosis  of a financial analyst responding to the Barisan Nasional and Barisan Alternative budgets, and his views deserve serious consideration by the Finance Minister and the economic policy-makers in the country.


*Lim Kit Siang - Malaysian Parliamentary Opposition Leader, Democratic Action Party Secretary-General & Member of Parliament for Tanjong