Budget 2011 – Unable to stimulate necessary growth to meet high-income nation objective

By Tony Pua

Budget 2010: Government failed to keep a lid on sky-rocketing operating expenditure

The Prime Minister in his speech announced that the Government will be on track to meet the projected budget deficit of 5.6% for the fiscal year 2010 giving the appearance that the Government was able to meet its financial commitment and targets. However, the meeting of the deficit target masks the fact that the Government had in fact substantially overspent its allocated budgets, and was “saved” only by a higher than expected collection of tax revenues.

Last year when the budget for 2010 was announced, the Government promised a commitment to trim operating expenditure to reduce wastage and to generate greater value for money returns with the tax-payers’ money.

We had in fact applauded the Government’s decision to reduce operating expenditure by a significant 13.7% from RM160.2 billion in 2009 to a budgeted RM138.3 billion. The government’s operating expenditure includes salaries and pensions for the civil service, purchase of government assets, supplies and services, rentals, various subsidies, debt repayments, toll compensations and “other” expenditures. A government’s “operating expenditure” is not expected to generate high economic multiplier effects, as opposed to “development expenditure”.

However, in the Budget announcement today, it has been announced that the Government’s operating expenditure is expected to hit RM152.2 billion, or a massive RM13.9 billion (10.1%) over budget.

This clearly demonstrates the government’s inability to impose financial discipline on its expenditure to ensure that the country’s financial objectives are met. It is also not the first year the Government has overspent its budget. In fact, the Government has consistently overspent its budget by at least 5% as far back as 2000, with the worst year being in 2008 when the budget was exceeded by 17.2%. This is shown in the table below.

Table 1: Government Operating Expenditure – Budget v Actual (RM billions)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Budgeted 52.4 60.7 65.3 71.7 80.0 89.1 101.2 117.0 128.8 154.2 138.3
Actual 56.5 63.8 68.7 75.2 91.3 97.7 107.8 123.1 151.0 160.2 152.2
Overspend 4.2 3.0 3.4 3.5 11.3 8.6 6.5 6.1 22.2 6.0 13.9
Overspend % 8.0% 5.0% 5.1% 4.9% 14.1% 9.7% 6.4% 5.2% 17.2% 3.9% 10.1%

Comparatively, the Government’s development expenditure only exceeded it’s budget RM51.2 billion by RM2.9 billion, which is acceptable on the basis that the economy had required additional stimulus spending.

Therefore, Datuk Seri Najib Abdul Razak, who is both the Finance and Prime Minister must explain the cause of the continuing and possibly worsening financial indiscipline. The increasingly endemic financial ill-discipline in government departments must be halted to ensure that every cent of the rakyat’s money is properly expended in accordance to approved and budgeted limits.

Otherwise, the complete lack of regard to the annual approved budget in parliament over the past 10 years have rendered the budget debate nearly meaningless as whatever allocations approved by the Parliament gets completely ignored, and the actual expenditures are significantly different from the one approved. Datuk Seri Najib Abdul Razak must also at the same time announce specific steps to be taken which will rein in the reckless disregard by the Government departments to ensure that the targets and objectives of the Budget are met, instead of just relying on the age-old rhetoric like “unlocking the real value of government assets” and ““value for money” in its spending without any follow up concrete actions.

Hence, we are fortunate that in 2010, our actual revenues to be collected, RM162.1 billion is significantly higher than the expected RM148.4 billion, or our deficit would have worsened substantially than the projected 5.6%.

Budget 2011: Disproportionate increase in operating expenditure and a reduction in development expenditure fails to give confidence that Budget 2011 will be able to stimulate the necessary growth to meet our high-income nation objective.

Prior to the announcement of the Budget 2011, the Prime Minister has announced a whole series of measures and projects under the Government (GTP) and Economic Transformation Programmes (ETP) which are designed to take Malaysia to meet our high-income nation objectives by 2020.

It is hence a surprise that in the Budget 2011, the Government has once again fallen back to the same budget formula employed by the former premier Tun Abdullah Ahmad Badawi which had resulted in a budget crisis in 2009/2010 where the deficit hit a high of 7.4% which had required the Government to impose a series of belt-tightening measures to reduce expenditure.

Instead of increasing the allocation for “development expenditure” to invest in the various critical projects under the National Key Result Areas (NKRA), GTP and ETP, it has been reduced by approximately RM4 billion (xxxx) from RM54.0 billion in 2010 to RM51.2 billion for 2011.

On the other hand, the “operating expenditure” of the Government is budgeted to increase by a massive RM10.6 billion or 7% from RM152.2 billion in 2010 to RM162.8 billion. This has yet to take into account the fact that the original operating expenditure for 2010 was only RM138.3 billion. If this original budget figure is used as the benchmark, the 2011 budget for operating expenditure will increase by massive 17.7% or RM24.5 billion.

The question arises as to why does the Government need to increase its operating expenditure by such a large amount when just not too long ago in 2004, the Government’s operating budget was only RM80 billion or less than half the budgeted amount for 2011?

When the expenditure for operating expenditure is analysed further, the category of expenditure which is budgeted to increase the most is for “supplies and services”. This will increase from the budgeted RM20.8 billion for 2010 to RM28.2 billion for 2011 or a 35.6%. This “supplies and services” expenditure is also the 2nd largest category at 17.3% of the total operating expenditure.

At the same time, the budget for emoluments remain the largest component of operating expenditure at 28.0% or RM45.6 billion. This figure is also a RM3.4 billion increase from RM42.2 billion budgeted for 2010.

More worryingly, the ratio of operating expenditure to development has continued to increase despite the fact that the budget for 2011 is our highest ever at RM214 billion which signals the fact that we are not allocating our resources to the most productive use. Instead of declining, the proportion of budget used for operating expenditure has increased from a low of 68.5% in 2003 to a record high of 76.8% budget for next year, despite a total increase in total expenditure from RM104.7 billion to RM214 billion. This is shown in the table below:

Table 2: Government Operating v Development Expenditure (RM billions)

2003 2004 2005 2006 2007 2008 2009 2010 2011
Operating Expenditure 71.7 80.0 89.1 101.2 113.0 128.8 157.1 152.2 162.8
68.5% 73.4% 76.4% 75.6% 72.9% 76.7% 75.3% 73.8% 76.0%
Development Expenditure 33.0 29.0 27.6 32.8 42.0 39.2 49.5 54.0 51.1
31.5% 26.6% 23.6% 24.4% 27.1% 23.3% 24.7% 26.2% 23.9%
Total Expenditure 104.7 109.0 116.7 134.0 155.0 168.0 204.7 206.2 213.9

Hence, we call upon the Prime Minister to explain why these worrying trends have not been addressed in the upcoming budget debate.

In order to ensure that Government expenditure is effectively utilised and is best able to generate the high economic multiplier impact for the country, the Government must ensure that its operating expenditure is restrained while the focus must be on development expenditure on projects which will bring high economic benefit for Malaysians throughout the country.

  1. #1 by k1980 on Saturday, 16 October 2010 - 3:56 pm

    The 2011 budget for operating expenditure will increase by massive 17.7% or RM24.5 billion.

    Is this RM24.5billion allocated to the PM’s Department for buying votes in next year’s 13GE? RM24.5billion is a very small price to pay for the privilege of staying in power for another 5 years.

  2. #2 by k1980 on Saturday, 16 October 2010 - 4:09 pm

    Rate of service tax be increased from 5% to 6%.– increase in everything such as handphone bills, transportation, medical expenses, food and so on. Well, inflation is set to go up by at least 6%

    New 6pc service tax for paid TV broadcasting service such as Astro

    So by paying more money for service tax, the average Malaysian will move up into the higher income category? How can this be since more money will be flowing out of his pocket rather than into it?

  3. #3 by boh-liao on Saturday, 16 October 2010 - 4:26 pm

    Budget 2011 meant 4 UmnoB/BN n their cronies 2 sapu more $$$$ b4 d next GE
    Certainly we r on d slippery road 2 bankruptcy by 2019

  4. #4 by limkamput on Saturday, 16 October 2010 - 5:16 pm

    Tony, need to highlight one point which may contradict your observation. There are operating expenditures which are development in nature. For example, salary of teachers and medical care professionals are operating expenditure but their output is skilled manpower and healthy worker force which are essential for the country’s development. On the other hand, there are lots of so-called development expenditures which are not really developmental in nature. For example the bulk of development expenditure on education and health care is spent on overpriced schools and hospitals which benefit mainly the construction industry and not really on manpower development and health care.

  5. #5 by yhsiew on Saturday, 16 October 2010 - 6:04 pm

    ///The question arises as to why does the Government need to increase its operating expenditure by such a large amount…..///

    Ai-yah, bigger budget, bigger support for BN in the 13th GE mah! The government is not looking at the budget but the support that it could garner in the coming GE through proposing an attractive budget. Even if PR takes over federal government after the 13th GE, BN has nothing to lose by coming up with such a generous budget because BN will then pass the buck to PR who will have to finance the expenditure laid out in the budget!

  6. #6 by gofortruth on Saturday, 16 October 2010 - 6:14 pm

    These people are so well groomed by Mahathir of the ways & means of ripping off our nation’s coffer through inflated expenditure it has become rampant practice in the gomen bodies ( Remember the 5000 ringgit screw driver etc etc etc? ). Just look at the ‘study tour’ bill of Toyol & company exposed by RPK. One can’t help wander how much have slipped through the Petronas book!!!

    This is a solid reason why a new Federal Government must be voted in to stop these cancerous acts.

  7. #7 by boh-liao on Saturday, 16 October 2010 - 7:22 pm

    Even d self-declared 1st Lady has a big fat allocation
    Never in d history of our nation has d wife of PM been so greedy of power n so ‘C ai bin’
    MPs shld ask in d parliament Y big fat Loh Si Mah called herself 1st Lady, robbing d queen
    Y is d wife of PM entitled 2 operating funds?
    Who gave her authority 2 commit d nation 2 host d next 1st Ladies Summit? Jialat lah

  8. #8 by bennylohstocks on Saturday, 16 October 2010 - 7:26 pm

  9. #9 by Loh on Saturday, 16 October 2010 - 7:31 pm

    ///The question arises as to why does the Government need to increase its operating expenditure by such a large amount when just not too long ago in 2004, the Government’s operating budget was only RM80 billion or less than half the budgeted amount for 2011?

    When the expenditure for operating expenditure is analysed further, the category of expenditure which is budgeted to increase the most is for “supplies and services”. This will increase from the budgeted RM20.8 billion for 2010 to RM28.2 billion for 2011 or a 35.6%. This “supplies and services” expenditure is also the 2nd largest category at 17.3% of the total operating expenditure.

    At the same time, the budget for emoluments remain the largest component of operating expenditure at 28.0% or RM45.6 billion. This figure is also a RM3.4 billion increase from RM42.2 billion budgeted for 2010.///– Tony Pua

    The simple answer to all these three questions is to buy votes.

    Malays form 90 plus per cent of the civil service. Unless they are happy, they will not vote for UMNO. So UMNO have to ensure the 30% share capital are given to Malays at discount. Not that the rural Malays would gain from the haram source of money, but they shiok sendiri and that translate into votes for UMNO. That is why racial opportunist never failed to claim that the handicap forced on for Malays should be there for ever, perhaps, for 4000 thousand years until Malays have as long as Hans in civilization, now. Then Chinese would have 8,000 years.

    Supplies and services do not even need to have tenders. Remember how 500 million ringgit service contract was offered to Razak Bagina’ company to service the submarine that would not dive.

    Increase in emolument spending increase the take home pay of the existing civil servants where Malays form the lion share, and and an increase in the number of Malays civil servants; they form 90 percent of any additional government service new intake.

    Development expenditures are mainly for the benefit of UMNOputras. That is time sensitive to UMNO party election. So, a balance was needed based on how the President of UMNO views his hold onto the party position, not much to do with economics.

    The GE 13 election will be before April next year. Of course unless emergency rule is announced earlier. Like father like son, they travel along the same beaten path.

  10. #10 by akee on Saturday, 16 October 2010 - 7:38 pm

    They’re not worried, the BN government can alway suck up the rakyat dry to fill those cacat wastage.

  11. #11 by dagen on Saturday, 16 October 2010 - 9:24 pm

    Hey fellas, up your volume now to watch this music video by Beyond.



  12. #12 by House Victim on Saturday, 16 October 2010 - 10:27 pm

    Can the Federal Government affort continuous Deficit and increasing Expenses of up to 152.2+ 54.0 =206.2 billion for 2010 when:
    1. Federal Cash Deposit in BNM is only sufficient for about 2months [1] -P.19
    2. BNM is holding 145 billion of Deposit from Banks and had issued 73 billions of Bonds. Meaning interest on 218billions are subected to be paid, assuming some5% p.a., it will cost 10billion per year. [1]-p.18
    3. Some Tax Income are in fact Payment in Advance.
    3. Many Taxes are not based on an Increase of earning by the Public but expenses and they are merely on the “wish” of the Government to spend more with no contribution to the simulation of economy or improvement of infra-structure or operation.
    4. The Government has 222billion of Foreign Debt in which 72 was short-term loan. [2]
    5. The Tax from oil is expected to reduce.[3]
    6. What had happened to those Development Expenditures? Or, any asset been created from such expenditures over the last 30 or more years?

    Provident Fund [4]
    Upto Dec 2008, 12.07million people had contributed 247,947 million and is having a “Book value” of 349,693million with 96,164million in the hand of the Federal Government and 252,462million invested in Malaysia and 1067.2 million in Foreign Security.
    1. It seems that these figure was not indicated in the Consolidated Statement of BanK Negara.
    2. Where are those money with the Federal Government?
    3. Which Malaysian Companies are these PF being invested and what should be the most up-today and more actual value of this fund? Are they profit generating companies?
    4. What are those Foreign Secutiry?

    The paid-out from those PF is much disappointing when compare with those in Singapore or others. And, had those paid-out been punctual?


    2011 Budget: Transformation Towards A Developed And High Income Nation
    Commentary by EPF
    The Employees Provident Fund (EPF) welcomes the proposed measure by the government on the setting up of the Private Pension Fund (PPF) in Malaysia, which will be responsible for receiving contributions from private sector workers and the self-employed. This will help to diversify and enhance retirement savings for Malaysians.

    Currently, the primary pension savings vehicle in Malaysia for private sector workers and the self-employed is the EPF. Therefore, the setting up of PPF is expected to compliment the EPF in enhancing sources for retirement savings.
    In addition to the announcement on the tax incentive, the EPF looks forward to further announcement by the government with regards to the details of the proposed set up, mechanism, investment mandate and further incentives to support the establishment of PPF.

    The EPF also welcomes the announcement by the government to increase our overseas investments from a mere 7% of its total investments to 20%. This will help the EPF to minimise market concentration risks besides diversifying its investments instruments and income.

    The development of the Sg. Buloh Rubber Research Institute (RRI) land by the EPF is expected to boost the economy and the construction sector in particular. The EPF believes that the government’s decision in selecting EPF to enter into a joint venture with the Federal Government to develop the land has been weighed and deliberated carefully, given EPF’s strong financial position. This move is in line with the government’s aspiration to encourage the public-private partnership in order to reduce its fiscal burden.

    Issued by Norasikin Abdul Hamid
    Chief Economist, Employees Provident Fund
    Any transparency and monitoring in this kind of investment?
    [1] -http://www.bnm.gov.my/files/publication/msb/2010/7/ebook_7.pdf
    [2] -http://www.bnm.gov.my/files/publication/msb/2010/7/xls/3.7.xls
    [3]- http://www.bnm.gov.my/files/publication/msb/2010/7/xls/3.1.1.xls

    All the above can be extracted from


  13. #13 by Taxidriver on Sunday, 17 October 2010 - 4:57 am

    Ordinary wage earners wake up. The government is taking more and more away from your income. Only UMNOputras will benefit from mega projects, not you!

    Vote them out for a better tomorrow.

  14. #14 by waterfrontcoolie on Sunday, 17 October 2010 - 7:44 am

    Where is HER budget? The Warisan Merderka Tower!!!!

  15. #15 by ENDANGERED HORNBILL on Sunday, 17 October 2010 - 12:09 pm

    Let’s face ir. Just as malaysia did not have the rocket science to put anything into space save for a taxi ticket aboard a Soyuz, so Malaysia does not have simple macroeconomics sense to take us out of the craters of economic gloom.

    It’s as simple as that. And it’s not rocket science analysis either.

    BN is just too darn stupid. And this statement has the accuracy of ‘rocket science’.

  16. #16 by k1980 on Sunday, 17 October 2010 - 12:40 pm

    //malaysia did not have the rocket science to put anything into space save for a taxi ticket aboard a Soyuz//

    The great angkasawan is hopping mad. He has just got married and you are dropping his water face. His wife might divorce him once she knows that her hubby is not a space explorer BUT only a passenger in a Russian taxi

  17. #17 by Loh on Sunday, 17 October 2010 - 5:45 pm

    There should be no worry about the use of EPU funds for all kinds of projects or Malaysia boleh schemes. The government has money printing facilities. Should EPU lose money, the government would just print enough to cover the deficit. Over time, RM might worth less, but Najib has shown that since taking over RM has strengthened versus US Dollar. Yes, USA is also working its money printing machines overtime. It is just the RMB which should have a higher exchanged rate, if the Chinese government agreed. RM can continue with its US Dollar pack, but just do not import goods from China. But where else can we buy? That must be why Mamakthir wants to abolish vernacular schools. He wants kill the word Indian so that he would not be reminded of his Malayali race.

  18. #18 by on cheng on Sunday, 17 October 2010 - 8:01 pm

    The 40 billion MRT for K.L, if it is only 140km, it works out to be RM285,000 per metre, China built the super high speed train from Wuhan to Guangzhou, many bridges, tunnels, at only RM56 billion (960km). Following super train costs for comparison, all in RM
    a) Wuhan-Guangzhou, 56 billion, 960 km, 58,000 per metre. Many bridges, tunnels.
    b) Taipei- Kaohsiung, 48 billion, 360 km,
    133,000 per metre, include many land aquisition cost.
    c). Proposed Ho Chi Minh city- Hanoi, 176 billion, 1680km, 105,000 per metre. Vietnam postpone indefinitely, no money.
    40 billion is more than the proposed super train to Singapore.
    Anybody can highlight me for my question? The RM 5 billion building is also way too expensive!

  19. #19 by Ray on Monday, 18 October 2010 - 3:01 pm

    Until now after 50yrs ..BN govt still not done any thing right or good for the citizens Just keen on personal aspiration to stay on in POWER.
    >>What happen to Malaysia today…lagging behind a little nation down under with no natural resources..Malu and dare to answer to yr allah…TDMamakutty…creates more social disparity and public discourse.
    “”Better GoTo Build yr Dynasty Politics for yr sons and daugs.””…by making rakyats life suffers and uncomfortable..
    Goodness Griefs..
    Long time ago should hv MRT instead LRT ,why now Mamak …and you want to protect yrselvf by supporting Jibby najib Mega projects Just to fish for votes Only…for outward look But the reality is ..Social Environment Ignorance >>Its a cancer disease worse than finding a cur for it.
    Umnoist Pig Brains Head Only knows spending
    on Mega Project just to stand out…But Not willing reforming the Inhumane Police forces and the Medeka Constitutional governance instead suppressing the civil soceity by implementing Draconian ISA lawless deeds .
    Pakatan>> Education is the Key thing >>getting Rakyat to read and and is the Recipe for Self Help instaed of CorruptedNEM tongkat ali for allah sake.
    Learn to be optismistic and Prudence that can help Politician to survive rather than yr Umnoist mega stone structure rubbish .

  20. #20 by pauline tan on Tuesday, 19 October 2010 - 2:14 am

    boh-liao :Budget 2011 meant 4 UmnoB/BN n their cronies 2 sapu more $$$$ b4 d next GECertainly we r on d slippery road 2 bankruptcy by 2019

    Why do we have to label, 1Malaysia? What is this means of 1Malaysia?

    For me, I cld say we are only one malaysia. one nation.

    We have to do our part as one malaysia. To be united in one. We shall not say discrimination of other race, as well as we do not like others to discriminate us.

    Historical, Scientifical, Geological, Artistrical and so on.. does not represent anything much…as long as we are united one nation, one malaysia; THIS IS THE FACT.

    We, 1Malaysia should not mentioned about racist label, religion label and …

    We, 1Malaysia shall focus on unity..How?

    Never discriminate ones language, one race, one religion and so on..

    1Malaysia lives only if there is BAPA MAlaysia. Bapa Malaysia will not mind his children’s race, his children’s religion, what kind of language they us, as long as they are united.

    He will give fairly, judge fairly, and most of all treat every of his children fairly. Without one sided race; Without term of religious.

    He will delliver all poor, unfortunate children to a comfortable place, without saying what race, religion or language she speaks.

    Buying houses, he will give discount to all races. If he wants to give discount.\

    If he do not want to give discount, he will not give at all.

    Do not compare Islamic or non islamic; there are still his children. Meaning that this Bapa Malaysia should not compare or one sided.

    Give to CS but not all his children is one sided.

    Berat sebelah! What is the use? It is tearing-off his nation. What kind of slogan 1Malaysia? Of course he is not the BApa Malaysia, He can be one if he change.

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