2014 Alternative Budget

It’s now out, you can download it here.

Quick impressions:

1. It’s taken them a while, but this is a much better produced document, with considerably less annoying political rhetoric. I confess, last year’s alternative budget document read so much like the Communist Manifesto that it took a bit of effort to be objective about it.
2. The numbers are much more realistic – the revenue forecast for instance properly takes into account economic growth, and expenditure savings look reasonable given the proposed savings measures. Not that I necessarily agree with the cuts, but the estimates are reasonable. There’s unfortunately no breakdown of expenditure, but that means less chances of needlessly tripping up over messy details (yes, I’m the charitable type). I can’t imagine civil servants would be terribly happy though, especially over the proposed caps on household debt.
3. Most of the measures also look pretty reasonable (e.g. a graduated increase in the minimum wage, no more demands for a big jump immediately), though implementation and especially effectiveness will always be an issue. To be fair, that would be true for the government as well.

I have little to be picky on, but there are a few issues and inconsistencies:

1. If, as outlined in the economic forecast, the economy is likely to endure another downturn in the next 2-3 years, why is there an insistence on achieving a balanced budget/budget surplus? Reducing public debt growth also reduces long term interest rates (crowding in rather than crowding out), which means in essence public debt is just replaced by private debt, even assuming the economy stays at full employment. The government, even at very high levels of debt, has a much larger capacity to repay; the private sector (firms and households) do not. Aiming for fiscal probity given these circumstances would probably be counterproductive.
2. I’m thoroughly against NOT implementing GST. As far as I’m concerned there’s no ambiguity about GST replacing SST. That’s pretty clear from government communication and private briefings. What’s the point of retaining a tax system that’s both regressive and inefficient? At the very least, we can get rid of the economic inefficiency.
3. Again on the subject of GST, there is NO justification for cutting the corporate tax rate. Companies will save oodles of money through input tax credits. There’s no need to give them another tax bonus.
4. Many of the measures don’t have any costing attached. Some are likely to be more expensive than this budget expects. And some aren’t likely to have much impact at all e.g. the ones on household debt. As much as it makes headlines, credit cards are nowhere near being a big problem. And the measures for youth unemployment will also get nowhere, mostly because a lot of them are similar to existing programs and because youth unemployment is a much bigger problem and much more persistent than people think. But politics is sometimes more about perception than actually achieving anything.
5. Changing the poverty line index doesn’t appear to have much justification – it’s a problem of definition. Malaysia’s poverty line index is based on minimum nutritional requirements, not cost of living. What we really need here is an agreement to change from an absolute poverty concept to a relative poverty concept (as for example, is used in the US). But that isn’t made clear and arbitrarily switching the goal posts makes the PLI into a political football rather than an objective economic number.

Like I said, just a few niggles from a quick skim through. I likely missed some. On the whole though I think this is the best effort yet, given the constraints (no detailed info on existing budget costs) the PR team has to work under.

Don’t ask for head-to-head comparisons with tomorrow’s official budget though. As I pointed out last year the government budget is primarily functional, not a pseudo-strategic document such as this is.