Budget 2012: By The Numbers

I’ve always found it useful to dig into the numbers and chart out the evolution of the various components of the budget. It helps enormously in cutting through the rhetoric – actions, after all, speak louder than words (RM billions):

Off the bat, I’ve already found some reordering of priorities – defence spending is set to be cut but internal security raised; operating expenditure on education and training is up, but the development expenditure cut substantially; development spending on agriculture has doubled, but at the expense of trade and industry, which halved. My first instinct, looking at the gross numbers and all the goodies in the budget, was that something had to give – and that seems to be borne out by the breakdowns.

If your reaction to the announcements during the budget was that this was a bank breaker, I don’t blame you. But the reality is that planned government expenditure (operating + development) shows almost zero growth over this year’s (log annual changes; 2011 data based on estimated expenditure; 2012 expenditure data based on budget allocation; 2012 revenue estimate without 2012 tax measures):

See anything showing growth much above zero? Neither do I. The reason why so many commentators have been fooled into believing that there will be expenditure growth next year is that they’re comparing this year’s budget numbers against last year’s. But from a macro perspective, what matters isn’t what the government thought it would spend, but what it actually spent and thinks it will be spending for the rest of the year. And that number (RM229 billion) isn’t all that far off from the 2012 budget allocation (RM232 billion).

It’s also been a habit for the government to underestimate both revenue and expenditure almost consistently by about 10% every year over the past decade. The only exception to that pattern was during this past recession when for obvious reasons revenue tanked, but amazingly expenditure hit the planned target almost exactly despite two additional stimulus packages totalling RM65 billion (in short, there was no stimulus). But if both revenue and expenditure go up by about the same amount, the net figure would be approximately the same.

The debt position, much like the fiscal balance, won’t change a great deal either:

I wouldn’t worry too much about whether worsening conditions next year will force a substantial change in the net figures. This government has shown a remarkable facility for managing its expenditure when driven to the wall. If there is a change and the deficit comes in higher than expected, it will almost certainly be through a shortfall in revenue, rather than through chronic overspending.

So taking it all in there’s a few of ways of looking at this – first, you might want to give some kudos to the government for managing to pull together all these social benefits, temporary though they may be, at virtually no increase in total cost. Or you might say, which services are we losing due to these handouts, since there’s been an effective transfer from the 2 million-odd taxpayers to the rest of the population. Or third, you might take Hafiz’s tack and point out the counterfactual – how much lower could the deficit be if you could muster all these savings while not providing these social benefits at all?

They’re all valid viewpoints.