Budget 2020: Making the Budget as fair as possible

Last week, we discussed the four mega-reasons that could create injustice in Federal Budget allocations: lobbyists, Pakatan Harapan coalition stability, the predictable “it’s who you know”, and the inevitable short-termist decisions of human beings.

This week, we’ll explore a few specific solutions to increase the justice and fairness in our Federal Budget.

Although many of the solutions may appear superficially attractive, we must accept that many of the mega-reasons can never be completely resolved.

For example, we could mandate lobbying transparency or we could encourage longer-term decisions by passing a Parliament Act to tie one-year Budgets to five-year Rancangan Malaysia strategies.

However, these two solutions have their own trade-offs and implementation costs.

They also don’t address facts of life such as the trade-offs of representative democracy (instead of direct democracy) or the intrinsic short-termism of the human species.

We must accept that in any two-coalition democracy, these four mega-reasons will always exist. Replacing democracy with any other system of government (along the spectrum from anarchy to totalitarian dictatorship) will not eliminate these mega-reasons.

The solution to budgetary justice is not to wage a full-frontal war against inevitable facts of life, but to build realistic and strong controls around them.

Control One: Transparency

In my experience, the top three rules to fight corruption are Transparency, Transparency and Transparency.

The same rule applies in the fight for budgetary justice. Although transparency is merely one of many weapons in our arsenal for budgetary justice, its importance cannot be overstated.

Only with adequate information can society see how our Government makes budgetary decisions, so that we can appropriately influence or challenge these decisions.

Transparency is not only about making lobbying activity transparent, but also making most of government transparent.

I’m referring to as many minutes of as many budget meetings as possible, and as much information about the spending categories of each ministry, agency, state, hospital or clinic as possible, for example.

Wherever possible, put it out on social media, record it on blockchain, create a Hansard of appropriate Cabinet deliberations, and so on.

Granted, some things have to be secret (like national security plans) or confidential (like planning workshops to develop our trade policy). However, there are many aspects of government where transparency is an uncontroversial public good.

It would take a courageous, secure and confident government to put a large portion of their deliberations and decisions in the public domain.

Fortunately, the Pakatan Harapan government has transparency written into their PH Manifesto (PDF), especially “Promise 29: Enhance the transparency and integrity of the budget and budgeting process”.

Control Two: Formulas

A second way to increase budgetary justice is to rely on transparent and pre-agreed multi-year formulas.

Although an excellent tool, zero-based budgeting must still face the political reality of different ministries competing for scarce resources and all of them inflating their proposed budgets.

Therefore, the real question is: how to resolve conflicting infinite demands for finite resources.

We can help resolve this dilemma by using a pre-agreed formula calculated by relevant technocrats, e.g. economists, actuaries, poverty experts, public health specialists, educationists or soldiers.

These formulas can be revisited every five years, or during Rancangan Malaysia exercises.

Formulas can account for a specified percentage of government funds (let’s say 60%), with the remainder (let’s say 40%) allocated according to discretionary needs and individual judgment.

The benefits of a formula for funding are threefold.

One, it’s fair, so that pet projects of politicians won’t divert unnecessary resources.

Two, it’s predictable, so that we don’t waste energy defending our budgets every year.

Three, it’s protected, so that the priorities of a country will not be held hostage by the vagaries of the political bargaining process.

I’ve previously proposed one such formula for a predictable and gradually increasing allocation for the Health Ministry.

Many other countries use formulas too. For example, formulas for funding allocations date back to 1862 in the United States.

Today, the United States uses formulas to allocate specific and predictable funding for their national health insurance Medicaid, highway construction, poverty eradication, children’s health insurance and the national school lunch programme.

Such a transparent and robust formula framework can give Malaysia increased budgetary justice.

Control Three: A New Social Contract

A major threat to budgetary justice is the political temptation to make populist allocations based on short-term urgencies.

Transparency and formulas can help make long-term planning more relevant, but citizen pressure can help force the Government to look further into the planning horizon.

Such citizen pressure means a new social contract is needed, especially one founded on principles of mature and long-term stewardship of federal funds.

I’ll look at this in three ways.

Firstly, society must get comfortable with the Government putting aside a certain percentage of the federal budgets (let’s say 20-30%) towards long-term multi-year systems-building.

This is much easier said than done in practice of course, but we must psychologically wean ourselves away from budgeting for operational expenditure alone.

Enabling long-term, invisible and unglamorous infrastructure-building will pay off for Malaysia.

Secondly, that new social contract must accept that there will be winners and losers in the Federal Budget.

While in a fantasy world, the Government will lavishly fund every single cause, this never happens in the real world where we also want low taxes.

It pains me to describe this, but imagine a scenario where you only have RM1 million, but have to decide between protecting children, the urban poor, the disabled, the elderly, the very sick or the orphans.

Of course, it’s not that dire, but no matter the final figure we can spend, difficult choices will ensue.

Our new social contract means that while we must hold the Government accountable for efficiently delivering public goods, society must also hold ourselves accountable to pay our taxes, find more efficient ways to work with the allocations we’ve received, and focus also on outputs and outcomes, rather than just on inputs.

The third and final part of the new social contract is to reduce our psychological and financial dependence on debt.

A full 10.5% of our 2019 Federal Budget went to debt service charges (PDF). Our national debt at the end of last year was either RM741 billion (Bank Negara [XLS]) or RM1.1 trillion (Parliamentary Select Committee). (The debate about the correct number is not useful; the more important point is that we’re addicted to debt).

In the first six months of 2019, Malaysia took on an additional RM58 billion of new debt, to pay off the old debts. How ironic, and sad.

No one doubts that Malaysia needs to continue paying for public goods like healthcare, education and national security, or that debt is helpful in appropriate amounts.

And of course, the ruthless fight against corruption, waste, fraud and abuse must continue.

The more important point is that we are also the governors of our own country, not only the Government. We must be more responsible about debt, and not leave our problems to our children and grandchildren.

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.

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Transparency , finance , governance


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