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Sakmongkol ak 47

Wednesday 18 November 2009

The Pahang Budget for 2010

A budget primer for our Pahang ADUNs.

The Pahang state assembly is sitting presently. It is towards the end of the year. This means the sitting is about setting the budget for next year.

Once again, the budget is in deficit. This means our expenditure is more than our revenue. There is a budget gap. It is financed by borrowing. The state government incurs debts. If we add the debts incurred by Government Linked Companies or GLCs, the amount of total debts may be even larger. But this aspect is seldom touched by members of the Assembly. They would be busy trying to outdo each other in praising the MB for his courageous budget. They might as well say- carry on MB, we are BN. (named after the British comedy films 'Carry On)

ADUNs from the ruling government will be praising the MB. They will say, we need to spend on welfare. It is because we are spending on welfare, we have to incur deficit. They will also say, we are spending on agriculture and infrastructure and services and supplies. We spend because we need to look after the welfare of the people.

It's not that randy dandy. We must understand that once we have a budget, it means we have a finite amount. The amount has to be apportioned among competing uses. If we spend more in one area, it means we lessen the amount going to certain other places. So we have to exercise responsibility.

Much has been said about deficit. As I have said, on its own deficit may be bad or it may not. It depends where the deficit is applied to. If it is directed at development expenditure, our deficit is defensible. But if the deficit is directed at consumption expenditure- pay for increase in salaries of civil servants, pay for consumables, pay for supplies at inflated prices, then this type of expenditure is wastage.

Really a budget must be debated on the following points:-

  1. Accountability- was last year's budget adhered to? Remember we were the ones who agreed to spend X amount and if we spend X plus amount, we must answer why it is so. Is our tax base too narrow? Has our tax collection been efficient? Why has our revenues dropped? How can we improve earnings from our resource?

  2. Was the money spent effectively?

So Pahang has a budget deficit of RM 92 million. What proportion of the state's income is this? In the last few years, when the budget was tabled, we were never told how much income has the state produced? Remember, the government revenue is that portion which we have been able to collect in the form of taxes, contributions, interest, dividends etc.

In 2006 for example, Pahang's income or GDP was 22 billion. I will have to make assumptions here. Let's assume there has been growth in the states GDP. Let's assume in 2010, the expected GDP is RM 25 billion. Hence RM 92 million out of RM 25b is only about 0.37% which is manageable.

So the deficit is not a thing to be unduly worried as it is a small fraction of the state's GDP.

But then we must also study the amount of deficit in absolute terms. Is it rising or decreasing? Fortunately this year, it is decreasing compared to last year. For the record, the deficits for Pahang in recent years have been like a yo-yo. Sometimes up, sometimes down.

But we must be careful. If we detect this yo-yoing shows some consistency, then it raises the suspicions that the numbers may be stage-managed. This year, to keep criticisms manageable, the deficit is kept low. Next year it may be kept up. So, we must be careful when evaluating the numbers. See whether there is a pattern. I am not saying that there is, but keep looking.

Next, maybe we can compare the rate of increase/decrease in deficit with the rate of increase/decrease in state GDP. Suppose the deficit increases at a time when the state GDP increases. If that is so, we can ask, why is this so? That is, why is it, during good years when our GDP is up, we still incur deficits? That means, we fail to keep money aside during good years. We carry on spending. That will also mean, we don't exercise financial discipline. That will further mean that the slogans we used such as perbelanjaan berhemah- are just political slogans.

Let us ask another question then. How effective has our collection been? In 2009, we have collected say RM500 million from a state GDP of say 24,000 million. The collected amount represents 2.08%. Surely now, because we have been able only to collect a meager 2.08% is a cause for worry.

This means, our recovery efficiency isn't anything to shout about. It means our government institutions have not been very productive.

In terms of collecting performance, the Pahang government hasn't been able to move beyond collecting beyond 3% of the GDP. Why is this so?


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