Username
Password
Forget Password?
  1. Indices
  2. Commodities
  3. Currencies
Straits Times 3,124.45 +10.48 +0.34%
Hang Seng 26,521.85 +213.41 +0.81%
Dow Jones 26,816.59 +319.89 +1.21%
Shanghai Composite 3,007.88 +34.23 +1.15%
Subsidy Scheme Is Innocent Of Our National Debt
Malaysia Perspective | 18 June 2010
By:

Written by Yang Ming Wan

With the financial tsunami triggered by the U.S. just subsiding, we are pummelled by the debt crises of Europe. As we worry about our federal government’s debt, the focus, unfortunately, is pinned on the cost of the subsidy scheme.

M‬‪inister in the Prime Minister’s Department Dato Sri Idris Jala made this strong comment last week, that if the subsidy system remains unchanged, Malaysia will go bankrupt by 2019.‬‪

What this comment did was to lay the blame of all the federal government’s debts squarely on the subsidies that the Government has been providing to the people, that the subsidy scheme is the cause and the chief culprit of our national debt that amounted to over half of our GDP.‬

First In Line For Review: All Expenditures
‪Dato Sri Idris Jala is the CEO of the Performance Management and Delivery Unit (PEMANDU) in the Prime Minister’s Department and is responsible for implementing the plan to transform the Government. For a minister with such an important responsibility to pronounce the bankruptcy of the government in 9 years’ time is shocking to say the least; more shockingly, he has apparently forgotten that “transforming the government” should have been his top priority.‬‪

What Idris should have done was to scrutinise the Auditor General and the Accountant General’s reports to ferret out all the unreasonable expenditures hidden in all the government’s projects one by one, and from there to identify the causes for our phenomenal national debt, recommend the appropriate remedies, thereby “transforming the Government” to avoid national bankruptcy.‬‪

However, what PEMANDU did was to randomly toss a few numbers around; first was the RM362 billion of national debt, secondly the RM74 billion subsidies expended last year, and thirdly, that if the subsidy system remains unchanged, our national debt would balloon to RM1.158 trillion in 9 years’ time, thereby bankrupting the Government.‬‪

It was not clearly explained how the three figures were linked when the subsidy expenditures did not even tally with the figures in the Accountant General’s report. It was obviously an attempt at laying the blame for the huge national debt on subsidies. This had ironically caused the people to question the purpose of setting up PEMANDU.‬

Confusing Subsidy Figures
‪PEMANDU pointed out that last year Malaysia’s subsidy expenditures totalled RM74 billion, of which RM23.5 billion went to fuel subsidies, RM3.1 billion to food subsidies, RM4.6 billion to infrastructure and RM42.8 billion to social welfare. This was an eye-opening revelation, especially considering that spendings under social welfare included health care, education, scholarships and social welfare.These subsidies numbers are truly confusing.‬‪

It appears that only expenses by the armed and uniformed forces in the defence and home affairs ministries were not included, so does that mean they do not get subsidised? Strictly speaking, they should also be subsidised. Many residential areas today have engaged security services safeguard the area. If there are no government “subsidies” to employ highly trained police officers, not even these security guards can ensure our safety.‬‪

According to the Accountant General’s report dated end-March this year, the federal government’s estimated total recurring expenditure last year was approximately RM157.1 billion, of which more than RM18.6 billion went to subsidies that accounted for nearly 12% of the total recurring costs, ranking 4th in scale. Ranked first was civil servants’ salaries, about RM42.8 billion; if coupled with RM10.1 billion of retirement and pensions benefits, the figure would total up to RM52.9 billion or 33.7% of the total recurrent expenditures. Ranked second was the Government’s special funds, which came up to about RM41.7 billion last year, or 26.5%; coming in third was supplies and services expenses, that is, the civil service’s purchases amounted to approximately RM26.4 billion, or 16.8%.‬

Economic Crisis In The Making?
‪The report from the Accountant General showed that just the first three items on the government’s recurrent spendings have already accounted for 77% of total expenditures, of which the first and third items accounted for the salaries of the staggering 1.22 million civil servants and their huge expenses that has had issues with dubious procurement costs almost every year. The second item are the special fundings that government officials may award at any time. With the increase in number of by-elections, I fear this will incur a corresponding increase in spendings under this item.‬‪

Of certain, this flexibility is necessary; just as when the financial tsunami struck, the Government had to launch an astronomical budget to resuscitate the economy. The cost of this economic stimulus spending also contributed to our country running up such a huge debt. Withdrawing subsidies would not only be ineffectual to reduce our national debt, it will break the consumers’ and investors’ confidence and create an economic crisis.‬‪

Finally, the solutions to the problem of our national debt should focus on the “transforming of the Government”, not putting the horse before the cart by “transforming the people” and creating another economic crisis.‬


Join The Conversation
The Shares Investment editorial team welcomes constructive feedback on our coverage and content. We would also be delighted to answer any questions on the above article. Leave us a comment below, and we'll get back to you shortly!

All Rights Reserved. Pioneers & Leaders (Publishers) Pte Ltd. Best viewed with Mozilla Firefox 3.5 and above.