4 Policy Highlights
4.1 Spending RM220 billion more effectively, while reducing the deficit
The global uncertainties and prospect of lack-lustre private demand would ordinarily call for pump-priming and stimulus measures by the government.
However, Malaysias finances, after 13 consecutive years of budget deficits by the Barisan Nasional government, no longer permits massive stimulus packages. On the contrary, the recent experiences of crises in countries with massive deficits eg the United States, United Kingdom and Greece, calls greater attention to reducing budget deficits.
Against this backdrop, Pakatan Rakyat will strive to maintain the total level of federal government spending at RM220 billion10 in 2012. Pakatan Rakyat practices of competency, accountability and transparency will result in:
Effective spending that generates for the rakyat at least 20% more in benefits.
The Barisan Nasional government has a record of wasted, misdirected and inefficient spending. Cutting corruption and improving efficiency will contribute additional benefits for the same amount spent.
For example, the Barisan Nasional government paid RM42,000 for a laptop11. Pakatan Rakyat policies will instead secure the best price. So, for a market price of RM2,500, the same amount of money will buy 17 laptops instead of just one.
The budget deficit will be brought down by measures including:
Maximising revenue collection (Selangor under Pakatan Rakyat administration has been consistently ranked as the best revenue collector by the Auditor General);
Auctioning APs (Approved Permits);
Minimising cost over-runs and completion delays.
This combination of revenue and expenditure measures together with economic growth will narrow the deficit as a percentage of GDP to 4.4% from an estimated 6% in 2011 under the tutelage of the Barisan Nasio! nal Gove rnment (2010: 5.6%; 2009: 7.4%).
Over the medium-term, Pakatan Rakyat policies will aim at restoring fiscal space for meeting unexpected future contingencies.
4.2 Prosperity through higher skills, incomes and opportunities
While the Prime Minister lectured the people on kicking the addiction to subsidies12, his government has displayed a more benevolent attitude towards influential cronies and concessionaires that benefit from myriad corporate subsidies. This has caused a sharp deterioration in the nations finances and compromised its competitiveness.
But instead of explicit multi-prong policies to address the root causes of the need for subsidies and price control measures, the federal government has allowed subsidies to rise by nearly ten-fold in the last decade, from RM2.6 billion in 2000 to about an estimated RM22 billion in 2011. Even so, this amount excludes subsidies provided by other government agencies, such as Petronas. Government direct and indirect subsidy support to industry is several multiples of those enjoyed by the people.
Table 1: Selected Consumer and Industry Subsidies, 2006-2010
20062007200820092010Federal Government SubsidiesRM10.1bRM10.5bRM35.2bRM20.3bRM24.9bPetronas Gas SubsidiesRM7.4bRM14.2RM19.7bRM19.5bRM18.9bPower Sector SubsidiesRM6.2bRM11.5RM13.8bRM12.7bRM11.2bNon-Power Sector SubsidiesRM1.2bRM2.7bRM5.9bRM6.8bRM7.7bSources: Economic Report 2010/2011, Ministry of Finance, Malaysia and Petronas Group Financial Results, FY2006-2010.
Pakatan Rakyat recognises that the root causes of the need for subsidies and price controls are the stagnant incomes of the rakyat arising from the failed policies of the Barisan Nasional. This is compounded by the increasing costs of living from rising prices of other essential products and services not covered by subsidies or controls, again reflecting in part the distortions in operations of markets perpetuated by the Barisan Nasional.
Pakatan Rakyat accepts! that th e current subsidy and price control polices would need to be kept in place while a holistic approach is developed that reduces the coverage and public costs of the national subsidies and distortions of the price controls system.
Pakatan Rakyat will prioritise policy initiatives aimed at raising the income levels of households and reducing the constraints on businesses and industry to dampen their costs and thereby diminish the unrelenting increases in the cost of living before the strain on public finances by subsidy payments can be diminished. This will require:
Policies to promote better salary or wage setting mechanisms to reflect labour productivity and to generate better paying jobs in higher value-added knowledgebased industries;
Emphasis on technical and vocational training to expand and upgrade the skill base of the workforce;
Reducing barriers for industry to increase investments and creating a greater competitive environment in sectors for new sources of growth to prosper and spawn high-income jobs;
More effective government expenditures on education, health, transportation and infrastructure to raise income and facilitate cost-effective worker mobility;
Emphasis on increasing use of green and environmentally friendly technologies to foster better energy use, efficiency and savings for the rakyat on utilities and other household expenses and for industry to raise productivity and profitability.
The Barisan Nasional government says it offers subsidies out of concern and care for the rakyat. Pakatan Rakyat agrees that the poorest and weakest in society must be helped. However, Barisan Nasional propaganda perpetuates the misperception that subsidies are largesse to be distributed by a benevolent government to the rakyat who must be grateful for any tidbits received.
Pakatan Rakyat will show leadership and take brave and bold steps to restore dignity to Malaysians. Malaysians have proven time and t! ime agai n our ability to overcome great challenges. Pakatan Rakyat is fully confident that the collective resolve of Malaysians to build skills, capabilities and incomes will bring us dignity, pride, confidence and independence.
4.3 Subsidy policy to be overhauled: The poor to be uplifted
Subsidies should be directed towards the most needy segments of the community including women and the disabled. The existing subsidies are poorly delivered.
This calls for an overhaul of the subsidy regime. For this, three basic questions must be answered:
Who will be receiving subsidies;
In what form should they receive these subsidies; and
Should there be a time limit for these subsidies.
The key characteristics of the disadvantaged groups requiring support and the policies to meet their needs should be made known publicly:
The Ministry of Women, Family and Community Development, working with state and local government authorities, will be tasked with further expanding, improving and updating the existing database to encompass the poorest 40% of households.
The Ministry will consult with stakeholders community leaders, nongovernmental organisations and other interested groups to formulate an enhanced social safety net that includes nutrition, housing, healthcare, direct cash payments, micro-financing, child-care, educational support and skills training.
The framework of subsidy and price control policies on consumer products and services would be gradually adjusted to rationalise government expenditures.
General subsidies to industry would be phased out. However, start-up incentives including tax expenditures (mainly tax and duty exemptions for selected industries) will continue to be granted to attract high-valued added industries. Subsidies to monopolistic corporations will be stopped;
General subsidies will be restructured to benefit directly the needy ta! rget gro ups.
In the meantime, the existing subsidies on goods and services will be maintained. However, some changes will be made to improve the fairness and efficiency of the system and make the subsidies stretch further. Accordingly, assuming energy and commodity prices in 2012 remain similar to 2011 levels, the Pakatan Rakyat Budget will allocate a similar amount of RM22 billion13 for subsidies.
4.4 Immediate Measures to Help Malaysians
It is obvious that it will take time for Pakatan Rakyats policies to take hold in overcoming the root causes for the need of subsidies by raising the income of the rakyat markets for essential goods and services.
In the meantime, because Pakatan Rakyat shares the anxiety of the rakyat in confronting the demands of daily life, an assortment of immediate financial support for the most vulnerable segments of the community will be introduced. Pending continuous consultations with the affected communities for urgent additional support, the following immediate measures are proposed:
A senior Malaysian bonus for the elderly;
Support for homemakers;
Supplementing income of the hardcore poor.
4.4.1 Senior Malaysian Bonus for the elderly
Among the more vulnerable of the disadvantaged segments of the population is the elderly group of citizens. In 2010 8.4% or 2.2 million of citizens were aged 60 years and above, of which half were female.
In particular, elderly citizens in the lower spectrum of the income range are disproportionately exposed to the vagaries of the rising cost of living; the limitations of a fixed income, if any; the demands of rising needs for medical services with aging; and an increasing disappearance of family and community support, particularly in an indifferent urban setting. Pakatan Rakyats inclusiveness will give recognition to the past contributions of the elderly during their working lives and not allow their desires to be ign! ored.
Pakatan Rakyat proposes a financial aid programme of RM1,000 per year for Malaysians aged 60 and older who earn RM18,000 or less annual assessable income and do not own property worth more than RM150,000.
It is estimated that this will cost RM1.7 billion14.
4.4.2 Support for home-makers
A payment of RM1,000 in 2012 will be given to a home-maker (non-working spouse of a working adult) whose spouse earns RM18,000 or less annual assessable income and where there is at least one child under the age of 18 in the family. This will be channeled directly to the EPF account of the home-maker for immediate withdrawal. This exercise will also encourage more Malaysians to maintain an EPF account, irrespective of whether they are wage earners or self-employed.
It is estimated that this will cost RM2.0 billion15.
4.4.3 Eradicating hardcore poverty
The Penang State government under Pakatan Rakyat has successfully implemented a policy aimed at eradicating hardcore poverty.
This was achieved by implementing a policy to top-up the income of hardcore poor families to ensure that each family would have a minimum household monthly income of RM500.
It is proposed that this policy be extended nationwide, with the bar raised to RM550 per family. We propose an allocation of RM200 million for this exercise.16
______
10The federal government initially proposed a RM211b budget for 2011, as published in the Economic Report. However, the federal government over-spent, as usual and the total spend for 2011 is likely to be in the region of RM230b. Pakatan considers the RM220b mid-point as an appropriate base-line.
11RM42,320 for a laptop. The Star, 22 Oct 2009.
12Prime Minister Datuk Seri Najib Razak told an audience at Oxford Universitys Centre for Islamic Studies in May, 2011 that Subsidies as a whole are like opium. Once you take opium its hard to kick the bad habit.
13BN originally allocated RM20.9b for subsidies in 2011. In May! , Prime Minister Datuk Seri Najib said fuel subsidies, which make up the bulk of the total subsidy bill, had been revised upwards by RM7b from RM11b to RM18b due to high global crude prices. However, fuel prices subsequently fell.
14Assuming 75% of the 2.2 million senior citizens aged 60 and above are eligible. Pakatan Rakyat recognises difficulties in the administrative framework for implementing this initiative, and will work with local authorities and NGOs for effective distribution, particularly in the rural areas.
15Based on 2 million home-makers in this category.
16Based on an average RM300/month per family up to an estimated 60,000 families. Family and Community Development Minister Datuk Seri Shahrizat said there were 32,271 hardcore poor families in 2010. Reported in Better lives for the hardcore poor, the Star 27 May 2010. The Government Transformation Plan defines hardcore poverty as households with incomes less than RM440 per month. We use 60,000 families due to our higher threshold of RM550 per month.
[Pakatan Rakyat Budget 2012 released by Datuk Seri Anwar Ibrahim on behalf of PR in Kuala Lumpur on 4th October 2011. Part 5 of 10]
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