We have a spending problem, not a revenue problem

by Mohd Ariff Sabri

Fresh from the 2014 Budget, there are a few things to bear in mind. Malaysia has gotten a downgrading by Fitch Rating from stable to negative. This is a reflection of a decrease in confidence on how the Malaysian economy is managed.

Public debt I believe by now would already touch the 55% legislative ceiling; the government should stop talking as if placing the 55% limit comes out from the goodness of their heart. We put a ceiling on the debt in proportion to GDP because its pragmatic to do so and because it is good business. And don’t insult our intelligence by comparing our debt levels with other economies such as Singapore for example. Per capita wise, Singapore is the richest country and its economy has the ability to pay.

We have had deficit budgets for 16-17 years in a row. Each year we top up our budget outlay with 40-50billion deficit which of course adds up to public debt. Our debt service amount is RM20 billion a year.

We have reached a trillion Ringgit- economy. Maybe around 1100 billion already. Our economy is projected to grow 4-5% a year and maybe more.

So what is our problem actually?
We have a SPENDING problem not A REVENUE problem.

What’s wrong with our spending? First there are the unmitigated leakages due to incompetence (the favourite excuse), misappropriation and plain corruption. These leakages amount to Rm20 billion a year as the latest Auditor General’s Report says.
Which brings us to the most important issue:  working to end crony capitalism as we know it. How to end it?

The clueless BN parliamentarians especially those from UMNO will say, we can remedy it by having more oversight supervision. They are always asking for the proof. This kind of answer is similar to the boat captain saying we will now form a committee even as the boat is sinking.

I remember one BN MP telling parliament that according to one report he cited, the Report says out of so many respondents only a small number said they have seen corruption taking place. I wasn’t sure whether he said this in jest or he was simply misleading everyone. Tell me, has anyone who is about to pay off somebody ever tell other people to witness the wrongdoing so that the others can affirm that corruption has indeed taken place?

His stock in trade answer confirms the observation that the government has gone to bed with the perpetrators( the corporate denizens, the little stalins and napoleons) which makes the proposal to have more oversight supervision meaningless.

What is crony capitalism really?  First, let’s see how it’s reflected. In USA during the bailouts of 2008-2009, large financial firms and their creditors were bailed out and small businesses were left to run the gauntlet of bankruptcies and families were forced from their homes in foreclosure. The big boys get helped out; the small boys were left out to hang. That’s a reflection of crony capitalism.

So what is crony capitalism- to economists it’s the power of government and the rule of men in direct opposite to the power of the market and the rule of law. A more specific version of crony capitalism is what economist term as regulatory capture : the tendency for the ‘adopted’ businesses and their adopter(the government) to develop mutually beneficial relations which profit them but impose losses on the community.

The benefits to the ‘adopted’ sons may include such things like lax supervision ( the close one eye or both eyes practice) , protection from competitions or monopoly and of course bailouts. The benefits to the adoptive parents include post-government employment, lucrative retirement plans, political contributions while in power including being sent 300 cows for hari raya korban, favours to family and friends either explicit or implicit.

Crony capitalism exists in any kind of industry as long as the long arm of government regulations extend and this provide discretionary rulings by government officials. For firms not adopted, they face government cannibalism.

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