The annual tabling of the national budget has always been the pinnacle of parliamentary sessions. In line with October’s theme of Budget 2020, our journalism team visited MP Wong Chen at his service centre in Puchong to seek his opinion on an overall review of Budget 2020.
Role as a politician
On a daily basis, politicians mainly deal with constituent issues by running their own service centre. As reiterated by Wong Chen, the work of a politician in their service centre never overlaps with the job scope of the national government and state government. As an example, education and citizenship matters are dealt exclusively by the national government, whereas the state council deals specifically with issues such as handling repairs to broken infrastructure.
Responsibilities as a Member of Parliament (MP)
Aside from being a politician, Wong Chen is currently the MP for Subang. One of his main responsibilities as an MP is to legislate in parliament by debating with opposition parties. MPs are also expected to involve themselves in policy-making, wherein societal problems are identified and solutions are devised thereafter by referring to a wide array of data, anecdotal evidence and practices by other jurisdictions. Policy-making is predominantly done at the select committee level. MP Wong Chen currently chairs the International Relations and Trade Select Committee.
As a rule of thumb, MPs are also tasked to debate on the budget. The annual debate and approval of the budget is particularly important to the government as a whole. In any event the budget is not approved in parliament, a wave of disruption would reverberate towards the financial repayments of the government which fall due in January.
Were the objectives of Budget 2020 met?
For reference, the theme for Budget 2020 is “Driving Growth and Equitable Outcomes Towards Shared Prosperity. ” When approached with the question of whether this objective was met, Wong Chen explained that:
“The budget should not be looked upon in a thematic manner, what is more important is to scrutinize the revenue and expenditure aspect of the budget.”
According to Wong Chen, the revenue aspect of the budget can come from different sources such as personal and corporate income taxes, excise duty, road taxes, contributions, fines or even dividends from GLCs such as Petronas. In general, the revenue proceeds from the budget are rather fixed and generally rake in around RM250 billion.
The rule would be that this revenue collected must meet the operating expenditure of the government. The bulk of the operating expenses will be used to service the interest payment on debt by the government, which is roughly around RM35 billion per year. Other operating expenses to be covered would include the pension and salary of civil servants or procurement expenditure.
As for development expenditure in Malaysia, these expenses are financed directly through government bonds. Yearly, around RM50 mil worth of bonds are issued and around 5-10% of these bonds are taken up by foreign entities. Generally, the government will minimize the exposure of these national debts to foreign entities to avoid volatility and sudden dumping of these debts. In the event these debts are dumped, investors would take out US dollars from the Malaysian market, which will decrease the value of Ringgit in the market. Therefore, the bulk of the government bonds are instead bought by local institutions such as EPF.
Government guarantee – national debt?
As reiterated above, the government can issue bonds directly to fund development expenditure. On the other hand, GLCs can issue bonds similarly. In this context, the government will act as guarantee for these bonds.
One may question whether these government guaranteed bonds are in fact part of the national debt. As explained by Wong Chen, these bonds would only become national debt in the event the bond issuance bodies default in their repayment to bond holders. Given the extensive resources and enforcement put in place by GLICs such as Khazanah Nasional, defaulting in repayment would unlikely occur. As such, there is no need for the government to bail out and consequently pose a heavy debt burden to the government.
What actually funds the theme?
In view of the fact that operational expenditure are fixed costs, the funding to propagate the theme would generally originate from development expenditure. Therefore, it is important to keep operational expenditures low, in order to allow more space for development expenditure. To achieve this, cutting down on corruption from various operational aspects is essential. In reducing corruption, the normal market rate of profit for contractors must be ascertained first before awarding a contract. There must be submission of Request for Proposal (RFP) in an open tender and the International Organization for Standardization (ISO) standard for procurement procedures should be implemented.
The implementation of procurement policies must be appropriate from the beginning. In general, corporations are more competent in procurement policies, therefore adopting corporations’ procurement system into government practice is essential to cut down on high expenses. The fight against corruption is a bipartisan effort and the select committee must ensure check and balance in the government by examining the work of government departments regularly.
Wong Chen also reiterated that merely listing out the allocation of budget is not sufficient enough to increase transparency. Transparency at a macro level would mean that there must be freedom in disclosing information that the general public ought to know during parliamentary sessions.
The dilemma with tax
The rule of the government is to collect more tax and distribute these taxes to improve society. Towards the improvement of society, the government mainly spends on three main aspects. The first being on border protection, second is on infrastructures such as schools or hospitals, and third is to give moral guidance for the community to prosper. All of these are only made possible through the manifestation of tax collection.
A taxation system also aims to distribute wealth, reduce the income inequality and provide a social safety net. Wong Chen went on to explain that in Malaysia, the taxation system has, by and large, showed that many Malaysians are barely covering their cost of living as the majority have not reached the taxable income of RM 3500.
When asked regarding the initiative proposed to increase the highest tax bracket from 28% to 30%, Wong Chen suggested that what is more important is to give taxpayers value for their money. In this context, it is imperative that citizens are receiving the social coverage they deserve from the government and the government must in turn exhibit accountability and transparency in their administration. Citizens must feel worthy and not obligated to pay their taxes.
*This article will be continued in Part II which focuses on the outlook for Budget 2021
Journalists: Amanda Lee, Tiffany Teng
Reviewers: Stella Teoh
Editors: Arivaasaran Arjunan, Hui Zhen
Download Article: Zooming-into-Budget-2020.pdf