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Sunday, 27 October 2013

Improving Budget Management: Our Obssession with the 55% Debt Ceiling



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 fianc├ęs 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.

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Friday, 25 October 2013

The DAP Malay and Islam.

I said these things:
I agree to Islamic laws as long as they do not contradict our present constitution. 2) I agree to the bigger agenda of Islamic law of establishing a state founded on the principle of the rule of law. 3. I will not object if the laws do not tyrannize others not of Muslim faith.
How are these objectionable? These are the things I said in response to questions asked by a reporter.
To Muslim conservatives, if these views cannot be pigeonholed into specific categories, it is because of my own shortcomings. To secular politicians if they appear alarmingly Islamist, the fright is unnecessary.
Let me offer a more sophisticated explanation.
There seem to be misplaced furore and confusion over statements attributed to me on the implementation of Islamic laws. As I see statements going around especially from people remote from what actually transpired and the absurd and the manic responses arising thereafter, I am now convinced that in general, there is a morbid and irrational fear about anything said in relation to Islam and Islamic laws. Perhaps this morbidity and irrationality and regrettably manic disposition stem from years of self-induced personal bigotry. But perhaps also because Muslims have themselves to blame for so much negativity about them. But that is another subject matter.
Nasararudin Tantawi the MP for Termerloh, as I understood it, said in Parliament that the government should try Islamic laws in relation to punishment given to hard-core prisoners. He was saying because the current laws of the country are inadequate in dealing with criminals because criminals don’t repent, then Islamic laws should be given a chance to be applied.
I can’t remember anyone rising in that parliamentary session in response to what he said and I took the silence to mean, everyone accepted what Tantawi said to be a matter of his own opinion.  Whether they agree with what he said, how do I know what is in their hearts? We msut understand that Tantawi will take every opportunity available to advance his cause.
A reporter asked my thoughts about Islamic laws in general not necessarily confined to what Tantawi said. I do not read Chinese newspapers but was told that some MCA apparatchiks went berserk and attacked statements that were attributed to me. No problem-that is what attack dogs are trained in.
I am not a DEP CEC member and was also told that a member of the CEC went out criticising me and asking for disciplinary action to be taken against me. I was alerted by a colleague to response to what was written in a news portal because it has been construed as adopting a position different from DAP. I replied I need not because to do so would dignify what was misunderstood. I can’t apologize for the level comprehension of others can I?
I told my colleague that when I answered the questions from the reporter, the response I gave was circumspect and guarded. Meaning to say, to my DAP colleagues, I am aware of the DAP stand on Islamic laws. So there is no need for my colleagues who were far too remote and didn’t know what were said, other than reading what were written by others to blow their heads off. Let me remind whoever with that kind of kneejerk response that I am not at all fearful at such morbidity.
What was said then? As a Muslim in whatever party, it’s natural for me to say I support Islamic laws. How can I a Muslim say otherwise? In relation to what Tantawi said, I responded by saying that as long as Islamic laws here in Malaysia don’t subvert our constitution I am all for it. I wasn’t referring to a specific aspect of Islamic law. Secondly, I support Islamic laws because they lead to an agenda shareable by other temporal views which are- that our overall objective is to establish a government founded on the principle of the rule of law. DAP does not oppose this objective do they? And I did say in the actual implementation of Islamic laws here in Malaysia, as long as they don’t tyrannize others, I support them.
Now, because of all that has transpired, let me extend further my own thoughts on Islamic laws here in Malaysia. Personally I think Islamic laws in Malaysia are not implementable because we don’t have an Islamic constitution. End of story.
 Unless we live in a country with an Islamic constitution then we can implement Islamic laws to our hearts content. I will certainly not stop PAS politicians to speak of Islamic laws or display resolute zeal to implement them, because I know fully well that in order to apply the Islamic laws, we first need an overriding Islamic constitution.  Whether the PAS people agree or not to my opinion, is another matter.
I don’t see that happening in Malaysia because even UMNO will not dare adopt an Islamic constitution. Everyone even Dr Mahathir can say Malaysia is an Islamic state but to me as long as you don’t have an Islamic constitution, you can claim whatever you want. Our constitution is secular and the laws universally applicable in our country are the civil laws. So why quarrel till you are blue in the face with our friends who wholly hold on to a beliefs system which is  an article of faith for them but which we are fully aware cannot be implemented?
As a Muslim here in Malaysia, Islamic laws function as personal moral injunctions only. Now that may be a cruel observation, but it’s the reality.
Just study at what has happened- the punishments that were meted out to people who drink intoxicating drinks but later pardoned and excused by the custodians of Islam, on those who participate in beauty pageants and numerous other infringements of Islamic laws- these punishments are meted out as long as they are allowed to by our overriding secular constitution. On bigger wrongs, do we see Islamic laws being implemented? Do we see hands being chopped off and heads severed?
So as a Muslim, even before joining DAP, I wasn’t at all disturbed with Karpal Singh’s stand on Islamic law when he said they can’t be implemented. I agree with the stand simply because we don’t have an Islamic constitution. How do you implement laws that are not in the constitution? That’s something for Islamists to ponder on too.

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Thursday, 24 October 2013

Bumiputera Business Model: of the 20%, by the 20% for the 20%



I have written about this sometime ago. 3 days ago, this issue cropped up again. Lim Guan Eng asked parliament to explain what actually happened to the RM52 billion worth of equities out of the RM54 billion given out in line with NEP and other NEP clones. In an effort to increase Bumi equity in large businesses, by decree the government insists that a certain proportion of new issues be granted to bumiputeras.
During the term of the DEB and DEB successor plans- RM54 billion worth of equities were given out. One and a half year ago, the PM admitted that out of the RM54bn, only RM2bn was left. The RM52bn was sold off by their vendors to make windfall profits out of the difference between the acquired price and the IPO prices. It would be interesting to know the profile of the sellers.
Look at the 2012 household income survey. It’s a compilation of data supervised by EPU. Look at the share of income between the top 20%, middle 40% and the bottom feeders- the bottom 40%.
For as many years we care to look back, the income share of the 3 groups has consistently been like this: the top 20 gets 50% of the income, the middle 40% gets 36% and the bottom 40% gets 14% of the income. let me simplify this further:
In an economy of 10 people with an income of 100, the top 2 persons get RM50, the middle 4 people get RM36 and the bottom 4 people get RM14. Each of the top 2 gets RM25, the middle 4 people get RM9 each and the last 4 get RM3.50 each. That’s how it works.
Question: is RM3.50 a liveable income?
Why has it become this way?
Distribution of income depends on free market forces. If everything works perfectly, then the top 20 gets 20% of income, the middle 40 and the bottom 40 will get 40% each. But the market system isn’t perfect because the government policies make it so. How so? the top 20% will craft policies that ensure the bigger portion of the pie goes to them. In effect, the system works on the principle of policies of the 20%, by the 20% for the 20%.
How does the agenda translate into reality? Translated into policy it means, polices must be drawn up so that the rich is made richer so that they in turn can help out the bottom feeders. Students of economics know of the idea behind trickledown economics. Enrich the already rich, because once they are moved by enlightened interests, they will help out their less fortunate brethren.
We in Malaysia know of this principle by another name. It used to be called 1Malaysia. Now it’s called Endless Possibilities.

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Wednesday, 23 October 2013

Regulatory Capture aka Crony Capitalism UMNO style in action



My DAP colleague YB Tony Pua the Oxford Don Corleone, has once again exposed the shenanigans and financial gobbledygook the BN government does with Puncak NIaga over Syabas. Why is it treating the company with such tender loving care? Maybe some top politicians have shares in the company or are planning some post retirement career with Syabas and Puncak Niaga?
This is one version of the regulatory capture which I wrote about in my previous article.
 I have just written about plugging the leakages. BN is at it again. While paying lip service to the noble aim of income redistribution, it’s entrenching the share of the top 20%. The deal with Rozali’s Puncak Niaga and Syabas is reflective of that.
The top 20% has always took home 50% of the nation’s income since the last 20 years. The aim of policy makers is entrenching their dominant share. It’s the Najib way of thinking- all the other UMNO guys can kill each other to earn a spot in the leadership hierarchy as long as his position is bullet-proofed. The bottom feeders and their champions can shout till blue in their faces about income distribution and economic justice as long as the share of the top 20% isn’t disturbed.
It’s an enriching agenda of the selected few, by the few and for the few. Nothing has changed except a little improvement for the bottom feeders so that they don’t harbour some revolutionary and maybe murderous intentions.
Can we ever believe the statistics from the government now?. Clearly there is a continuing attempt by the government through every legislative trick known and available to conceal information from public spirited individuals. The information giver is now threatened with imprisonment and the information taker is likewise threatened. So how can we now verify the figures from the government?
How come there are no data on the top 5% share on income? The top 20% can easily conceal the fact that 90% of the income in that bracket is cornered by 5%. Rozali Ismail appears to be one of them.
The indebtedness of our students is nothing compared to the sweetheart debt given to the select Malay few such as Puncak Niaga’s Syabas. The BN government just gave Syabas another RM150million soft loan with a 3 year grace period to repay at a subsidized interest rate of 3%. Our students who have just graduated have to pay up immediately on the pain of being blacklisted and bankrupted. The select bumi like Rozali Ismail, because he is one of us, is given unimaginable benefits. 8 months before,  Razali got RM120million.
Maybe as I have said in the earlier article- about the regulatory capture- government people go to bed with the adopted son to negotiate mutual benefits. In 2009, the government gave RM320 million at 0 interest rate and a credit facility of RM110 million in 2011.
Now it seems clear there is some conspiracy to rob the country of our money- the government is giving almost free money to PUncak Niaga whose chairman got RM33 million in fees and bonus recently.  Maybe this RM33 million added to the income of million other Malays allowed Najib to triumphantly declare that the average monthly income of the Malay is RM4457. Tiu Kau!
In 2011, syabas owed the government RM2.9 billion. It was not able to pay. So what did the government do? It took over the loan. Now, if the government can do this, why not retake water supply and distribution in Selangor?  Wind up syabas.
Adding up all these numbers, how much has Syabas taken from us since 2009? RM3.6 billion in taxpayers’ money. Let us remind the BN, this isn’t their father’s money. The father would have died from heart attack at the rate Syabas is bloodsucking our money. Why don’t we allow Syabas and Puncak Niaga to go down under? We are helping the person who caused the water woes in Selangor but are not helping the victims of his philandering spending. The de-privatization of Syabas must be done without any delays.


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