Getting priorities right

Published: Tuesday January 21, 2014 MYT 12:00:00 AM 

Updated: Tuesday January 21, 2014 MYT 6:46:33 AM

BY WAN SAIFUL WAN JAN

THE Government has suddenly realised that we are in a bad fiscal situation. This news is not very new, actually.

Back in 2010, the alarm had been raised that Malaysia could face bankruptcy by 2019 if we continue giving handouts and subsidies the way we have been doing for decades.

With the benefit of hindsight, perhaps it would be right to say that the Government should have acted as soon as the warning was issued. Unfortunately with the 13th general election, politics took precedence over leadership.

And now, several months after GE13, the Government looks set to make some difficult decisions. The Goods and Services Tax (GST) will come into effect soon. And various subsidies will be reduced.

Let us get one thing clear. The Government is not increasing prices.

Instead, the Government is reducing subsidies and removing price controls that have been keeping prices artificially low for many years.

Prices should have actually gone up gradually over the years. But government intervention has kept them lower than what they should be, such that when the subsidies and controls are removed, the increase is drastic.

Many people are complaining about the rising cost of living. Rightly so. The cost of living is indeed increasing.

But some of the complaints are rather misdirected because they call for the Government to continue subsidising and controlling prices. This is the wrong demand.

Further subsidies and price controls will only keep us living in a false world, one in which the actual cost of living is masked by interventions by politicians, whichever side of the political divide they may be on. And the reality is, the interventions are unsustainable anyway.

The fact is, subsidies, handouts and price controls should be removed. The market must be allowed to function efficiently with minimal distortionary interventions. Therefore the Government’s decision to stop them, is, in principle, praiseworthy.

I say “in principle” because there is another factor that must be taken into consideration. That is the issue of prioritisation.

Malaysia’s fiscal management is in a sorry state. Every day we hear reports about how our money is wasted on travels, projects that are not needed, corruption and leakages.

Plus so much wastage has been identified in the Auditor-General’s Report again and again every year.

If the Government wants to save money, they should prioritise reducing the wastage and leakages.

They should also prioritise removing subsidies given to big businesses and concessionaries, and recovering money given under questionable situations.

Actions that affect common people should come last on the list.

Unfortunately it is still not clear what is being done to prevent problems already identified by the Auditor-General.

There is no news about how the Government plans to stop subsidising corporate entities and concessionaries. Nobody knows if the billions lost to questionable projects and contractors will ever be recovered.

Let me stress again that I completely agree subsidies and handouts must be removed. They have distorted our economy for such a long time, and they are bad for our future economic growth.

But the way these steps are being implemented today makes it impossible to argue for subsidy removal. The Government has prioritised the wrong first steps.

Let me suggest some more steps that can help save money without hurting the public.

Our Government spends billions every year in public procurement. Ideas studied this topic in 2013, and we have released a policy paper on it recently. We calculated that simply by improving the processes of public procurement, we could save up to RM2.3bil in public procurement alone.

If we add the amount of money spent by the Public Private Partnership Unit (Unit Kerjasama Awam Swasta) under the Prime Minister’s Department, the potential saving could be much more. But the unit operates in a protected environment and not much is known about how they evaluate contract proposals.

We need more transparency around Ukas.

Nevertheless, I am glad that Datuk Paul Low, Minister in the Prime Minister’s Department, has managed to persuade various agencies to improve their processes and employ competitive tendering instead of direct negotiation. This is a brilliant first step.

Another step to save money is by reducing the size of the civil service. Why exactly do we need to have such a bloated civil service anyway?

Now is a good time to start issuing redundancy notices to as many civil servants as possible.

Perhaps they can start with under-performing officers. They should be sacked, not merely transferred to another unit.

An example of government leadership is being shown by another country that is also facing fiscal challenges after decades of government splurging – the United Kingdom.

The UK government has committed to cutting administrative staff at their ministry of education by 40%, and another 23,000 administrative posts in their health services. That is concrete action.

If we see concrete actions with the right priorities, the Government will face less resistance.

> Wan Saiful Wan Jan is chief executive of the Institute for Democracy and Economic Affairs (www.ideas.org.my). The views expressed are entirely the writer’s own.