Improving budget management: Our obssession with the 55% debt ceiling

– Sakmongkol AK47
The Malaysian Insider
October 27, 2013

MPs were supplied with voluminous documents relating to the state of the economy. We were ploughing through the documents to analyse the management of the economy while Najib drone on waxing lyrical, poetic and at times, waxing sarcastic over his thematic budget. 2014 has another theme. The theme of the 2014 budget is ‘Strengthening economic resilience, accelerating transformation and fulfilling promises’. If that makes him happy, so be it. Giving an artful theme to the budget does not make it a better budget. The devil is in the details.

But where is the promise of giving RM1200 BR1M which he sold the voting public in last May’s elections? Where is the promise to narrow the gap between the rich and the poor?

Najib has reneged on this promise and stated poker-faced about paying out reduced BR1Ms. The scaled down BR1M hand-outs are downsized by the financial capacity of the government. Finally the chickens come home to roost. He has to face reality something the opposition MPs have warned continuously- that out of control spending is bad for the economy.

Public debt is now more than the 55% legislated debt ceiling simply because this government hides the real debt by various tricks. Eventually the weight of public debt will come down crushing. In 2013 alone, the deficit incurred by some GLCs amounted to RM93billion. When opposition MPs say this budget is for the rich, it wasn’t said out of spite. In 2013, the BR1M given to poor people amounted to RM7 billion.

Compare this to the freedom given to some GLCs to overspend by RM93 billion. The people who should be grateful are not the ordinary rakyat but the BN politicians and their corporate conspirators for being able to hide from the rakyat the magnitude of their extravagance. They should be grateful the public hasn’t turned on them yet. Maybe we should do a Louis and Marie Antoinette on them and that is not even Islamic law.

In the coming days, we will dissect his budget. Apart from minor jeering, we did not steal the Finance Minister’s thunder. We jeered only when he made political capital of certain portions of his presentation.

Improving budget management

The two most important things about a budget are to reduce the deficit and cut down public sector debt. Apply some common sense- something the PM and his government has been preaching on. Spend within one’s means. When giving out BR1Ms- what was the pious message that he and his ministers gave? With this RM500, spend thee wisely. So why not as an example, the government applies this advice on themselves first- spend wisely and spend within your means.

How does this government plan to better manage the budget? It is now aiming to reduce fiscal deficit gradually achieving a balance budget by 2020. Well, the Pakatan Budget plans to achieve a surplus budget by 2018. BN is trying to get a balanced budget by 2020.

What is the tactic? The tactic is to ensure public sector debt does not exceed 55% of the legislated debt ceiling. It is lying to us. It has already breached this now. Official federal debt is now RM540-550 billion. If you add the deficit from GLCs which has gone beyond RM100 billion, then you end up probably with 650 billion. We can now safely assume public sector debt has reached 65% of our GDP.

Our economy is debt driven. This government fiancés it Business Plan aka budget by taking on increasingly larger debts. Each year it tops up its spending money with borrowings. 2014, it will top up 35-40 billion to make up for the insufficient revenue.

Imagine this. If the interest charged on public debt is 4%, on a debt of 650 billion, the government is paying RM26 billion a year servicing the debt.

So the government manages its sources of deficit around the magical 55% legislated debt ceiling. It looks at the sources of deficits and chooses the deficit-centres which have the weakest and least retaliatory voice- expenditure on the uncoordinated rakyat. Take away subsidies from them under the grand sounding name of subsidy rationalization. Although many, the voice of the rakyat is uncoordinated and they are not capable of mounting strong focused pressures unlike big businesses such as IPP, big monopolies and centres of crony capitalism. These are untouched.

Take always sugar subsidy and the minister rationalise that as something good for the health, prevent diabetes etc. take way diesel and petrol subsidy- the move is rationalised as preventing unqualified users benefiting from the subsidy. Taking away subsides from the rakyat is easier as they can’t mount a forceful retaliation.

Our energies are dictated by the near mythical figure of 55% debt ceiling and so we take measures to circle around the figure. The government has a trick up its sleeves- it circles around this limit by allowing deficits that don’t appear on the balance sheet and our national accounts- the debt and liabilities incurred and made by GLCs. Some of these GLCs are allowed to issue bonds guaranteed by the government because, they are in fact the government. So as long as the Big Spending government can argue that its spending is not beyond the 55% limit, the economy is sound.

This obsession of managing the debt ceiling is the main cause for the out of control spending. We don’t control the spending, but focus instead of controlling the debt limit.

To me this isn’t right because it violates the basic principle of sound budgeting- spending within your means. By focussing on managing the debt ceiling, we give excessively large space for discretionary spending and the results are what we got as reported by the Auditor General’s Report.

How to make rectify this kind of spending? By setting rules instead of giving room for discretionary spending. It is because we allow in situ discretion, the little napoleons and stalins exploit their empowerment and did all sorts of funny business. If we retain that kind of spending regime, the 2014 Budget will be riddled with the same misdeeds.

The government does not address this kind of deficit-causing centres. They don’t plug corruption, they don’t plug rent-seeking pricing of government purchases and they don’t control project spending.

So instead of making circles around the 55% debt ceiling, why not we specify our budget as a specific percentage of our GDP and then make sure spending does not go beyond this percentage. How to select which percentage?

Look at our economy for the last 10 years and identify which year our economy performed best. In that year what was the budget? For example during those years when our economy grew on an average of 8%, what was the average budget? 22%? If this was the budget in the best year, use 22% as the limit. Make a rule that our budget from now on shall not be more than 22% of our GDP. Then our budget is not made dependent on a near mythical figure of 55% debt ceiling but is made a function of the GDP. Our energy will then be on the GDP i.e. on the economy as a whole.

Once we set our budget as a rule, we adhere to it. For 2014 for example, our GDP is 1,100 billion. Using 22% as the rule, our budget should be around RM220 billion. As our GDP grows, the budget grows too in line with the overall economy. Our focus isn’t about ensuring federal debt level will remain low and not exceed 55% of GDP. –, October 27, 2013.

* Sakmongkol AK47 is the nom de guerre of Datuk Ariff Sabri Abdul Aziz who is the Raub MP.

  1. #1 by Bigjoe on Monday, 28 October 2013 - 8:48 am

    If UMNO/BN think that the people, even the rural Malays, Sabahan and Sarawakians will not blame them for price rises they are sadly mistaken..

    Just as they don’t undertand that debt has to be taken for productive reason, they will blame UMNO/BN for price rises..They know UMNO is corrupt, they know they abuse their power. Its a question when they want or feel they can blame them and with price rising so quickly while they don’t see any change in UMNO/BN behaviour even worst leadership then what they were used to in the past, they will blame UMNO/BN and THEY ARE NOT WRONG..

    • #2 by cemerlang on Monday, 28 October 2013 - 11:22 pm

      Sugar is very much tied to trade and profits. Sugar can cause diabetes but at the same time it is used to make foods which sell and make money. It is one of the top trading commodities and there is no such a thing as zero sugar. Try taking your everyday kueh sugarless.

  2. #3 by bangkoklane on Monday, 28 October 2013 - 10:04 am

    Not to worry, as our economy continues to weaken, cost of living continues to rise and our daily spending power weakens, UMNO-BN dominance will continue to wane. By the next GE bye-bye DUMNO-BN…

  3. #4 by Winston on Monday, 28 October 2013 - 10:18 am

    So, ordinary Malaysians will have to keep tightening their belts while those in the ruling party can keep loosening theirs!!
    All Malaysians must make it their mission in life to kick UMNO/BN out of Putrajaya.
    Nothing less will do!!!!

    • #5 by cemerlang on Monday, 28 October 2013 - 11:24 pm

      BMI is one of the indicators in position advancement. The more you sit, the more your BMI will increase.

  4. #6 by yhsiew on Monday, 28 October 2013 - 10:52 am

    It is reported in today’s Oriental Daily News that businessmen are already planning to raise prices of their goods which contain sugar content. Sugar is selling at RM1.70 in Thailand. How come it is selling at RM2.84 in Malaysia (after taking away the subsidy)?

  5. #8 by bangkoklane on Monday, 28 October 2013 - 11:51 am

    Monopoly, let’s boycott monopoly. Save for the future of rising prices and stagnant wages…

  6. #9 by undertaker888 on Monday, 28 October 2013 - 2:34 pm

    However you name BN, it doesn’t sound good.

    Bankrupt Nation
    Barang Naik
    Bangsat Negara
    Big Nothing

  7. #10 by undertaker888 on Monday, 28 October 2013 - 2:35 pm

    However you name BN, it doesn’t sound good.

    Bankrupt Nation
    Barang Naik
    [email protected]@t Negara
    Big Nothing

  8. #11 by ENDANGERED HORNBILL on Monday, 28 October 2013 - 3:57 pm

    His ministry has a RM’billion -ringgit budget.
    His aeroplane costs the nation $’millions to maintain.
    His residence electricity/water bill alone costs RM2million.

    Who is he?

    Your beloved Prime Minister of Malaysia.
    And he tells the nation to cut down sugar… bad for libido!
    What about the children who go without meals, water and electricity and walk through mud puddles to school?

    Think, beloved PM, think-lah, think before you spend.

    • #12 by cemerlang on Monday, 28 October 2013 - 11:45 pm

      The norms of a society is when you are of a certain status, you must live according to that status you are in. You should be driving a foreign brand car, not the country’s own car. You should be wearing some branded shirts, not RM 10 ones. And everyone will judge your looks and tell you to be like this and like that. One day when you reach this status, you cannot be like now. And even the poorest of the poor will want you to look powerful and great.

  9. #13 by Noble House on Tuesday, 29 October 2013 - 4:41 am

    Budget is over and done with. The issue of environmental meltdown is next… :)

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