Thursday, October 24, 2013

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.


  1. I think the fear among the public is about suppliers-retailers who are taking advantage of GST implementation.

    Although GST will replace SST, the fear is that these suppliers-retailers will just add GST on-top of current prices, instead of restructure the prices according to potential reduction of production cost.

    I feel that Government is being pressured excessively and left suppliers-retailers scot free to do whatever they like. I feel that people should train their gun to suppliers-retailers too.

    1. @MF Mohamad

      that is a problem of consumer awareness/protection which we can tackle within the 1-2 year lead time before GST implementation. having ppl deliberately spreading misinformation on GST doesn't help.


      how much savings is PR looking at this year? last year was RM6billion as I recall your analysis.

    2. @MF Mohamad

      Absolutely right. There's only so much the government can do. It's also up to consumers to report abuses, so enforcers can actually do something about it.

      @anon 4.24

      In a move towards transparency, they've kindly neglected to publish any detailed breakdowns. Oh, wait a minute...

    3. Hahahaha! Hishamh! Hahahaha! Just look at the KL Taxi exorbitant & arbitrary fare or any malaysian taxi......Aiyo......mana ada system.....I rest my case

  2. Hey, it's been awhile since my last comment,

    My 2 cents (after 2 minutes of skimming as well), I just thought it's a little bit doom-prophetic for the PR budget to predict a recession by 2016, based on Real Business Cycle theory - [pages 11 & 12].

    Will you be live blogging tomorrow?

    1. Jason,

      Yes, that was pretty bold, and not a little strange with the stated goal of achieving a budget surplus.

      I'm certainly going to try live blogging again. Internet connection around here has been a bit flaky lately though.

  3. Anwar Ibrahim when he came to Adelaide made a sermon againts the GST. He was totally againts it.

  4. @anon 10.08,

    I wonder then why he didn't do anything about SST when he was FM. SST is just as regressive, and causes economic distortions and inefficiencies - cascading tax effect, and acts as a de facto tax on exports.

    1. Well,his speech was a crowd pleaser in nature, the way he talked about GST is like equating it as another form of new tax that is implemented because government is losing money due to corruption. He said the GST is unnecessary if the govt can plug off the wastages due to corruption and bribery.

    2. Not forgetting that he also still convince the crowd that he CAN make petrol cheaper.