Last updated Saturday, December 10, 2016 6:29 pm GMT+8

Wednesday October 19, 2016
11:28 AM GMT+8

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OCTOBER 19 — There are several things that can prove that our government's financial quandary has reached a rather serious stage. For instance, the education ministry has from August stopped giving out pocket money to poor students, and due to lack of budget provisions, some of our foreign diplomats have to drive on their own instead of being driven in a chauffeured car while others are unable to present their credentials to the heads of state of their host nations.

Thanks to insufficient allocations, the operation of some local universities have been affected and postgraduate students at some faculties are forced to give up their studies.

There are two reasons for the sorry state of the national coffers: The exorbitant government administrative and salary expenditures, and the poorer-than-expected tax revenue.

Of the total RM265 billion operating expenditures set aside for the 2016 Budget, remunerations for the country's 1.6 million-strong civil servants alone take up RM70.49 billion or 26.6 per cent of the total. Given the salary increase effective from this July, salary expenses for the coming year will only go up further.

At the same time, tax revenue has been dwindling. Other than the RM10 billion shortfall contributed by Petronas, the second quarter GST collection also slipped to RM7.2 billion, down by RM3 billion from the previous quarter, making the whole year target of RM39 billion collection a tall order.

Due to expenditures outstripping revenue, budgetary deficit for the first half of this year stood at a staggering rate of 5.6 per cent of the GDP, against the government's whole year target of 3.1 per cent.

And since the deficit far exceeded the limit during the first half of this year, it looks like the government now has to work very hard to cap the expenditures. This probably explains why poor students have been denied their allowances and public universities are short of research funds.

The six per cent GST has adversely affected the consumer sentiment, and along with the government's belt-tightening policy, the overall market sentiment has been dampened.

As such, it is imperative that the prime minister offer several solutions that will stimulate the economy when tabling the 2017 Budget in the Parliament later this week in a bid to avert another catastrophe if a recession strikes.

Among the risks is the fact that massive shopping malls and office towers are still being constructed in Kuala Lumpur, and the entire financial system will be impacted if the property bubble bursts.

The government can boost the national economy from several aspects. First and foremost, trim the redundant public service sector and cut down the remuneration payouts so that the government can lower the GST and corporate tax rates to boost market sentiment and investor confidence.

Secondly, all unnecessary white elephant projects must be deferred or halted and the resources be diverted to more important areas. The RM650 million Taman Tugu project, for example, should be scrapped or put on hold.

Allocations for the prime minister's department, which has soared from RM13 billion in 2012 to RM20.3 billion this year, must also be slashed. Meanwhile, education allocations should be restored to the original levels as education forms the basis of the country's continued prosperity.

Thirdly, corruption-busting efforts must be stepped up to prevent further loss of our resources. Perhaps we can take cue from Indonesia's tax amnesty policy to repatriate oversea assets back to the country.

Reports show that Malaysia's “black money” outflow is in the region of trillions of ringgit. Some US$418,542 million (RM1.753 trillion) has been siphoned out of the country since 2004, US$48,250 million in 2013 alone.

Corruption, capital outflow, GST and fund remittances by migrant workers have gradually dried up our market cashflow.

The government must further liberalise the economy and abolish the outdated protective policies in order to attract more foreign investments and implement the economic transformation programme.

That said, trimming the administrative team, opening up the economy and cutting political expenditures all require a whole lot of political courage. The primary agenda of Umno leaders today is to keep the incumbent administration continuously in power, all others being of secondary importance.

Umno seems to be self-contradictory when it comes to politics and economy. For instance, they are well aware that protecting the national carmaker will not augur well for the development of the country's automotive industry, but they are simply unwilling to let go of the protective measures just because more than 60,000 people have to look to Proton for living. In the end, Umno has opted politics over economy.

As a matter of fact, politics and economy are inseparable. If politics is on the right track, the economy will get a definite lift. Similarly, if the economy is in disarray, politics will also suffer, and fundamental support base will be in tatters.

Umno is reluctant to put aside its political interests as it stubbornly sticks to the deficit target without introducing quantitative easing measures that will release more fund into the market, or implementing the necessary structural reforms. The economic prospect will only get murkier with ordinary Malaysians taking the brunt of it. — Sin Chiew Daily

* This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail Online.

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