PETALING JAYA: The proposed subsidy reduction will not deter the Government from fighting corruption, removing wastage and curbing inefficiencies.
Minister in the Prime Minister’s Department Datuk Seri Idris Jala said this was clearly spelt out in the Government Transformation Plan (GTP), where one of the national key result areas (NKRAs) was to combat corruption.
He cited the approval of the Whistleblower Protection Act in Parliament and the conviction of 97 offenders for corruption as examples of work in progress.
In an interview, Idris reassured low-income earners that the poor would continue to be protected.
The Performance Management and Delivery Unit’s (Pemandu) proposal to reduce subsidy last week had stirred a strong reaction from Malaysians, with many questioning the Government’s rationale. Idris, who is also Pemandu CEO, took the questions head on as he explained the rationale behind the recommendations.
Q: Why did you say that Malaysia will go bankrupt in 2019? Have you misled us?
A: During the Open Day, I presented some salient facts about the economy. For the last 10 years, we have been running a fiscal deficit which has been growing progressively from RM5bil in 1998, to a record high of RM47bil in 2009. This was due to Government expenditure, including subsidies, escalating whereas Government revenue has not kept pace as our GDP grew at only 3% per annum. Consequently, the Government has to borrow a lot of money to cover for the shortfall. Our Government debt in 1997 was RM90bil and has grown at a rate of 12% per annum to reach a record RM362bil in 2009.
In addition, as a proportion to GDP, Malaysia is one of the world’s highest subsidised countries with 4.7% of GDP compared to Indonesia 2.7%, Philippines 0.2% and OECD countries at 1.5% on average. (See chart 1)
To be clear, I said we could go bankrupt IF, and I repeat the word IF, we continue with the same trend as in the past 10 years. Based on an annual increase of 12%, our debt will reach 100% of GDP in 2019 (a staggering RM1.158 trillion) and we could potentially go bankrupt then. Together with escalating fiscal deficit exceeding 10%, we could end up in a similar economic situation like Greece. (See chart 2)
According to studies conducted by Boston Consulting Group (BCG), countries get into sovereign crisis (bankruptcy) when:
> Government debt is more than 100% of the GDP,
> Fiscal deficit is more than 10% of GDP.
This is because Government revenue is not enough to service its debt and it does not have any money to operate.
All economists make assumptions and I did not say Malaysia will go bankrupt without qualifying it with certain assumptions. These assumptions are:
– The GDP continues at a rate of 3% per annum;
– Our deficit continues to balloon; and
– Our Government debt continues to increase at a rate of 12% per annum.
The outcome of this projection is that by the year 2019, our debt will be 103% of GDP and our fiscal deficit will reach RM449bil (38% of GDP).
Unfortunately, some of the reports about Pemandu’s bankruptcy projections did not state these assumptions and therefore can be taken out of context.
Some people question whether our assumptions are realistic. I think it is fair to make projections into the future based on our historical trends over the last 10 years.
It is on this basis that Pemandu made its assumptions and therefore its projections.
These assumptions are used by Pemandu to make forecast about the future.
In reality, as a country, we will have to do everything we can to avoid this from happening. The Prime Minister has laid out four strategic pillars which make up the country’s roadmap to achieving Vision 2020 i.e.
> 1 Malaysia, People First, Performance Now;
> Government Transformation Programme;
> New Economic Model; and
> 10th Malaysia Plan.
The future is clearly in our hands. And if all of us Malaysians work together, we can achieve Vision 2020. This involves concerted effort to grow our economy and be prudent in our spending.
> Surely there must be some positive things that are happening in our economy? Why are you not highlighting them?
Actually I highlighted those positive aspects of the economy. Firstly, I said our economy is rebounding in the first quarter of this year by 10.1%. This is the highest quarterly result in a decade. Our international competitiveness ranking has improved from 18th to 10th position. This is a phenomenal jump of eight places in one year. This should give us, as Malaysians, the comfort that we can shape a better future for our country.
> The Government should focus on growing the economy (thereby increasing Government revenue) rather than reducing the subsidies.
As I explained during the presentation, the Government will conduct 12 laboratories on National Key Economic Areas (NKEAs) to recommend ways for us to increase our economic growth (GNI per capita) from US$7,000 to US$15,000 by the year 2020. This will help to potentially increase Government revenue in the next 10 years. These laboratories, which run from June 1 until the end of July 2010, comprise more than 400 representatives from the private and public sector, facilitated by Pemandu. Once these laboratories are completed, we will conduct open days to exhibit the labs’ recommendations to the public. (See chart 3)
The Subsidy lab’s view is that growing the economy is necessary, but not sufficient.
We have to take a holistic approach by addressing both economic growth as well as expenditure/subsidy reduction.
> The Government should cut its expenditure rather than focus on subsidy reduction.
As part of the measures to reduce Government expenditure in the 2010 budget, the prime minister has announced a RM24bil reduction in expenditure and a projected reduction in fiscal deficit from 7.6% to 5.5% of GDP.
The prime minister also emphasised that all Government projects deliver “value for money”. Going forward, the Government will continue to adopt a prudent approach in terms of its spending and this will be apparent in the 10th Malaysia Plan.
> Why didn’t the Government conduct independent polls from the rakyat to gauge public feedback on the subsidy rationalisation?
That was exactly what we did. Before the Open Day, we asked Maxis to send an SMS blast to their phone subscribers asking whether Malaysia needs to reduce its subsidy bills.
Some 190,152 people responded, which showed that 115,246 people (61%) agreed for Malaysia to reduce subsidies and 123,557 people (67.5%) suggested to reduce subsidies gradually over three to five years.
During the Open Day, 1,899 people who attended responded.
Of which, 1,712 people (90%) agreed that we should reduce subsidies and only a small minority (187) opposed the subsidy reduction.
> Why are we not protecting the poor and the low income in this Subsidy Rationalisation proposal?
For every subsidy reduction proposal, the lab has recommended mitigation measures to protect the rakyat, particularly the poor.
For example, in the case of increases in the electricity tariff, the mitigation measures are as follows: For those whose electricity consumption is less than 100 kWh per month, the Government will continue with the current practice of giving it free of charge. For those who consume between 101-200 kwH per month, the existing tariff apply (no change). Based on our statistics, these two categories constitute 56% of all consumers.
In the case of fuel price increase, the mitigation measures include cash rebate of RM126 per year for owners of cars less than 1,000cc and RM54 per year for owners of motorcycles less than 250cc.
Car and bike capacity is used as a proxy to determine the low income and the poor category.
In the case of flour, sugar and cooking oil and LPG cooking gas, the mitigation measure will include a cash rebate of RM20 per person per year.
For a family of five, they will receive RM100 cash per year.
> We should not remove subsidy on Education, Health and Agriculture.
The lab agrees. Education is indeed an investment in Human Capital. We will continue to provide subsidies on education such as scholarship, text book assistance, food, etc. However, we will remove wastage and abuse, such as abolishing the subsidised fee for foreign students. For Health, we will continue to provide subsidies but with nominal outpatient fee of RM3, which incidentally is one of the lowest outpatient fees in the world.
For Agriculture and Fisheries, the subsidies will continue but we will improve implementation so that the subsidies will reach the target audience.
> Instead of subsidy reduction, the Government should focus on fighting corruption, removing wastage and improving efficiencies.
Under the Government Transfor-mation Programme (GTP), one of the six National Key Result Areas (NKRAs) is fighting corruption. To date, we have implemented several key initiatives to address this. For example, since January this year, we have passed the Whistleblower Protection Act in the Parliament, we have convicted and published 97 offenders in the Malaysian Anti-Corruption Commission (MACC) website.
In the spirit of transparency, we have published 2,665 Government contract awards in the procurement portal and we have issued clear guidelines to prevent supporting letters from being abused.
In addition, we are implementing the Integrity Pact as recommended by Transparency International in Government procurement contracts. The Government is following up on the findings and recommendations of the Auditor General’s report.
> The Government should app-oint a high-powered team to renegotiate existing contracts with the Independent Power Producers (IPPs) and Highway Toll Conces-sionaires.
This is a fair suggestion. The lab will recommend this to the Cabinet.
> Don’t you realise that this is a very unpopular action by the Government that will cause Barisan Nasional to lose votes.
During the Open Day, we acknowledged this is the most unpopular action that the Government would have to take since independence and understandably, people will be shocked and angry.
The lab is of the opinion that we should not be partisan in addressing the issue of subsidy rationalisation. Indeed, in our panel discussion during the Open Day, we also invited DAP’s Tony Pua as a panellist.
However, we have to face realities and now we have to make the sacrifice for our future generations.
If we ask all Malaysians who are not yet born to participate in a public vote, we are sure that all of them would ask us to implement subsidy rationalisation now and they will condemn us for not having the courage and foresight to take this bold step.
The lab’s view is that we must take into account the views of both the existing and future generations of Malaysians.