THE world economy is still feeble and, as stated by the latest edition of Economist magazine, “it is weaker than it looks”. We, therefore, have to nurture a stronger domestic economy.
This is what the recent budget is aiming for, indirectly, other than to rein in the deficit so that by next year, the deficit is about three per cent of gross domestic product. The implementation of the Goods and Services Tax in April is a necessary measure.
In addition, the need to address potential inflation — expected to be about three and four per cent next year, as forecast by Bank Negara — is also a key element in the preparation of the 2015 Budget. The budget can only do so much to contain inflation, because a better instrument is monetary policy, which is mainly within the ambit of the Central Bank.
Students of public policy might remember that policy formulation, which includes budgeting, is, to quote Charles Lindblom, a “science of muddling through”.
This is an apt expression as we know that there is so much uncertainty surrounding the economic scenario under which various economic forecasts are made in a national budget, and the many competing demands that the budget hopes to address, given the various stakeholders.
For big countries like the United States, budgeting is often labelled as a political process given the need to satisfy so many competing demands, the defence and social security needs in particular. Additionally, if Congress has a majority of one party while the president is from another, the approval of the budget presented by the executive may be delayed and, in its place, only “resolutions” are provided for.
Preparing the national budget is indeed an exercise to meet many social, business and political demands. Many public sector officials or civil servants would like to believe it is a rational and objective exercise, as many of them view it mainly from procedural perspectives.
The government has undertaken various consultations, from non-governmental organisations, academics and researchers, to party leaders, and, finally, to the legislative assemblies.
In this new budget, the government proposes to implement several new infrastructural projects within the next few years, thus helping domestic construction activities. House ownership, especially affordable homes, will be facilitated, especially among the youth, while further promoting the growth of construction-related industries, including finance and other services, such as legal and architectural.
The budget also aims to enhance training facilities, beef up security in east Sabah and provide financial assistance to low-income individuals. This is collectively good for society and cannot be faulted, except for professional differences in opinion.
It also proposed to reduce income tax by one and three per cent, a move that is laudable given that our pockets will be impacted by GST implementation next year. In the United Kingdom, when its Value Added Tax was introduced, it was accompanied in the early years with some reduction in income taxes.
The 2015 Budget aims to support domestic economic activities, in particular construction, to help strengthen the fiscal position of the government, assist the low-income group, who can be impacted by the rising cost of living, and help youths acquire homes and skills.
It is right that the budget is concerned with inflationary pressure, the ability to purchase houses and the need to assist our youth, who are now facing employment uncertainty and difficulty purchasing houses, given the slow rise in income amid rising price pressures.
At this moment, the government is seeking ways to promote job opportunities among the youth through self-employment and setting up of own enterprises. The Malaysian Global Innovation & Creativity Centre, or MaGIC, the agency set up by the Finance Ministry to examine and carry out this concern, is a new model or approach to complement the traditional approaches of creating jobs.
As expected, there may be critiques on the budget. For those who expect much more, in the sense that the budget should address more structural issues, such as social inequality, they may be disappointed. Annual budgets are short-term policy instruments of the government.
The budget is, therefore, a programme to address short-term issues (and this is what most budgets are, anyway) while putting in place a new source of revenue, the GST. The long-term issues, often structural and fundamental in nature, are therefore expected to be delved into in greater detail elsewhere, and in our context, the forthcoming 11th Five Year Plan, beginning in 2016.
Some people may think that the GST is not too adequate a prescription and instead suggest the Capital Gains Tax. There may be reasons for both arguments. However, one point is clear: CGT may affect our investment climate at a time when we need investments to power our economic growth, and it may stall our efforts to strengthen our capital market. It would not be too good to small time investors, too, if any little profit they make from sales of shares, will have to be taxed.
Let us not derail the government from carrying out the proposed GST, but let us make use of the available concession to ameliorate us from the expected rising prices. For business operators, helping the authorities to control prices and conducting business in more ethical ways would help create a more friendly business environment for the good of all.