Cutting expenditure by clamping down on graft

AS the government strives to achieve its balanced budget, a key focus area to drive down expenditure is through the clamping down of corruption.

Socio-Economic Research Centre executive director Lee Heng Guie is confident that the new government will put deficit and public debt firmly on a downward path.

“This will be achieved via the rationalisation of expenditure between priorities and non-priorities; cost-savings through transparent and competitive open or public procurement to reduce corruption as well as the rationalisation of overlapping government activities to plug leakage and wastage,” he says.

Hence, the government should ensure that a proper open tender system is in place, to avoid direct negotiations.

Lee adds that a disciplined and financially prudent government is not only credit positive to Malaysia’s sovereign ratings, but also positively impacts investors’ confidence on the nation’s fiscal management.

“Fiscal stability is one of the key aspect of maintaining sound and credible macroeconomic management policies to support the ringgit, along with anti-inflationary monetary policy to help promote a strong ringgit.

“A stable and strong government, with a well-established rule of law and constructive economic policies are conducive to investments that would promote a strong currency,” says Lee.

Meanwhile, Alliance Bank chief economist Manokaran Mottain says the government has to trim its operating expenditure and expand development expenditure as a means to generate income for the future.

“Revenue to the government will increase through higher tax collection, and when that surpasses the expenditure, the federal government will then be able to register a surplus in its budget.

“Hence, the government should also tighten its grip on tax dodgers,” he says.

According to Manokaran, another area the government can look at to generate economic activity is in infrastructure projects or the construction industry.

This is because the construction industry has a high multiplier effect on consumption.

The previous federal government had allocated a budget of RM280.25bil for 2018, of which RM234.25bil is for operating expenditure and RM46bil for development expenditure.

The development expenditure entails the economic, social,and security sectors, while the operating expenditure comprises emolument, supplies and services, fixed charges and grants, other expenditures, as well as the purchase of assets.

Despite such proposed measures, Manokaran says it is impossible to trim the government’s operating expenditure overnight.

“For example, cutting the salaries of civil servants will backfire consumption, which is not good.

“It is a challenging task for the new government (to achieve a balanced budget) and it looks like there is another three to four years to go (2021-2022),” he says.

In the event that the government achieves a balanced budget in time to come through expenditure rationalisation, Lee believes that some forms of tax reductions are still needed to incentivise targeted sectors or investment.

“Reform of the budget process is essential to restoring fiscal discipline.

“It contains a mix of spending reductions and tax increases, sufficient to achieve balance in the years ahead, while preserving room for some high-priority new initiatives,” he says.

Lee adds that even as cuts or rationalisation of public spending occurs, there is every chance that growth can resume if plans for fiscal and debt consolidation are credible and involve structural reforms.

It remains to be seen how the new administration will achieve the intended outcome, from its fiscal management strategies.

Combating corruption, while rationalising the government’s expenditure at the same time, is a two-pronged approach that shall bring the nation’s fiscal position to a balance going forward.