Budget 2020: Spending other people’s money


  • Vital Signs
  • Wednesday, 31 Jul 2019

THE Federal Budget is like our monthly family budget: nothing comes for free, we should spend less than we earn, and we must make good spending decisions.

There’s only one huge difference: the Federal Budget has six to seven more zeroes than our family budget.

That Budget is a crucial part of our democracy and social contract. It determines where, when, how and who receives what public goods and services; reflects government priorities and ideologies; and allows us to hold the government accountable for its promises (including any future debt that our children will inherit).

Therefore, a good budget has a clear idea of the size and role of government, balances sources and uses of funds in a disciplined way, and promotes social justice.

Just like our families, the government shouldn’t spend more than it earns – if it has to borrow money today, then it must consider the interest rate tomorrow.

Just like families with more than one person, Budgets are politically sensitive and logistically difficult, with everyone always clamouring for more allocations and thinking, “My ministry is more important than yours”.

It’s easy to ask the government to pay for everything, but that’s impossible. Health and healthcare in particular are expensive.

It’s also easy for us to be armchair critics of any Budget and opinions will always differ, except one: We all believe that we must always spend more money, especially for the Health Ministry.

Unfortunately, everyone wants to spend, but no one wants to pay. More money is also a bad solution if you waste all of it.

How much is enough?

Currently, Malaysia spends 4.5% of our GDP (gross domestic product) on health – 52% from general taxation, 39% out-of-pocket payments, and 9% voluntary insurance.

The OECD average is 9% of GDP – 36% from general taxation, 36% compulsory insurance, 20% out-of-pocket payments, and 6% voluntary insurance.

In 2019, our government allocated 9.1% (PDF) of our total government expenditure to health. The other 90.9% pays for schools, roads, rural electrification, the police and fire departments, debt interest payments (approximately RM33bil, or 10.5% of total government expenditure), and other public goods.

That 9.1% is a historical high, with health receiving only 4.8% to 6.7% of total government expenditure from 1997-2015 (PDF).

The RM28.7bil allocation in 2019 is also a historical high, from RM3.8bil in 1997.

Of course, the population has grown bigger, older and sicker, but the health allocations have also grown bigger in absolute and relative terms.

And of course, it’s always possible (desirable?) to spend more and more. Although Malaysia is “under-spending”, our health outcomes are generally excellent value for money.

In an ideal world, Malaysia can (must?) still spend more on health (from 4.5% to 9% of GDP?), and the government can allocate more to health (from 9.1% to 15% or 20% of total government expenditure?).

The bracketed questions above indicate that these are not straightforward decisions. Each question represents large and endless debates surrounding our political choices and social contract.

They are uncomfortable questions of how much spending is enough and who will pay for it.

Any increase in health spending will require trade-offs: higher taxes, more debt, compromising other public goods, or higher government clinic and hospital fees than the current RM1 and RM5 (unchanged since 1982).

Many of the same proponents of increased health spending may baulk at these trade-offs, even after we achieve a system with no waste or corruption.

The real question is: given that healthcare needs are infinite and society’s ability and willingness to pay is finite, what trade-offs are we willing to accept?

Better health with less money

It’s true that the health system is under-funded, and more money is needed. However, we must be realistic and accept that money is only one part of the solution.

Other parts of the solution are a multi-year reform of the Health Ministry (MOH) organisational structure, transforming primary care, enhancing public-private partnerships, and moving towards financial risk-pooling and cross-subsidies.

The end objective should always be improving health outcomes, not just increasing the budgetary allocation.

Merely increasing funding without these other solutions is like throwing money into a black hole without guaranteeing better health outcomes. It will magnify the inefficiencies built into the current MOH structure.

Indeed, a large increase in allocation may test the capacity of MOH to absorb the surge, with no guarantee of effective and impactful use.

This challenge of “absorptive capacity” applies to everyone, not just MOH.

Imagine suddenly giving your teenager a much larger monthly allowance, or your subordinates a much larger marketing budget. Those are bad ideas because it’s likely that the money will be wasted.

It’s really only one part of the basket-of-solutions to improve health outcomes, which is the end objective.

Having said that, we do need more money for our health system, but to spend in specific areas that are under-resourced.

In other words, we should focus on targeted increases, instead of only on an across-the-board increase, thinking that the problem will be magically solved.

As a master example to support targeted increases, Budget 2020 should specifically and meaningfully increase MOH operating and capital expenditure (e.g. services, medicines, building hospitals).

Focusing solely on an increase in total allocation alone could be misleading because of the salary component.

Salaries for MOH staff comprise 56% of the ministry's total allocation (PDF), leaving only 44% for operating and capital expenses.

Now, one may think that the 56% figure is too high, and we must trim the civil service and increase efficiency.

On the other hand, hospitals are over-crowded and under-staffed, good salaries are needed to retain doctors and nurses, and these salaries reduce inequality by creating a middle class.

Next week, I will propose a realistic and predictable mechanism for generous MOH allocations that gradually increase based on government tax revenue.

This mechanism will consider more money as one solution in a basket-of-solutions to improve our health system, as well as set the stage for a discussion on stewardship, and six specific areas of targeted increases.

Dr Khor Swee Kheng has postgraduate degrees in internal medicine and public health, and has worked in five health sectors across three continents. He is currently specialising in health systems and policy in a public university and a local think tank. The views expressed here are entirely the writer’s own.

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