GE13 pledges — At what cost?
Written by Kamarul Azhar of theedgemalaysia.com
Friday, 19 April 2013 13:50
Until the 2008 general election, the manifestos of the opposing political parties were rarely taken seriously because of the dominance of the ruling Barisan Nasional coalition.
Today, however, the political parties’ public declarations — the salient points of which they pledge to implement — have come to be regarded as an important tool to win the hearts and minds of voters. In this aspect, the people of Selangor who voted in the opposition in 2008 should be happy because the Pakatan Rakyat coalition has stuck to its promise of keeping water tariffs unchanged.
In the run-up to the upcoming 13th general election, which is expected to be the most keenly fought in recent Malaysian history, parties from both sides of the political divide have come up with compelling manifestos.
Both are planning to spend big money one way or another as the race to rule Putrajaya for the next five years enters the final stretch.
While the proposals are lauded as being in line with the aspiration for a more equitable and inclusive society, the cost of implementing them will make a dent in the federal government’s coffers.
Based on initial estimates, it will cost BN some RM12.48 billion in the first year of its undertaking the programmes pledged in its manifesto, excluding the planned infrastructure projects (see table below).
As for PR, undertaking its pledges is estimated to cost the federal government RM25.62 billion in the first year, without taking into account major planned projects.
Some of BN’s election pledges are already in Budget 2013, for example increasing Bantuan Rakyat 1Malaysia and gradually reducing car prices.
Being the challenger, PR’s manifesto is a lot more extravagant. Apart from similarities such as a reduction in car prices, it has pledged to provide free education and increase the royalty to oil and gas producing states to 20%.
In his political speeches, Anwar has been saying PR’s pledges can be fulfilled through prudent government expenditure and procurement measures.
As for BN, it plans to raise revenue by adopting the broad-based goods and services tax. However, Steven Wong, senior director at the Institute of Strategic and International Studies (ISIS) Malaysia, says neither BN nor PR seems to have taken into account budget constraints in unveiling its policy. “The hard reality of budget constraints will set in once the coalition that wins forms the government.”
It remains to be seen whether most of the pledges translate into the annual budget this year and in the subsequent years.
Already, the incumbent government has committed to make BR1M a yearly affair while PR has vowed to slash fuel prices if it wins at federal level.
Taking a potshot at BN, Parti Keadilan Rakyat’s strategy chief Rafizi Ramli says BR1M will cost the caretaker government about RM11 billion by 2020.
BR1M may mitigate the rising cost of living for the poor in the country, but making it an annual affair has not gone down well with some fund managers.
They say handing out cash to the lower-income group is somewhat similar to the welfare system of some of the European nations that are facing economic crises now.
“Malaysia doesn’t need to become a beggar nation to cope with the rising cost of living. What is needed is a structural change in the labour market, which now employs about two million foreign workers at low wages, depressing the country’s overall wage growth,” says a fund manager.
Towards this end, BN has enacted the Minimum Wage Act to ensure all workers are paid a minimum wage of RM900 per month in Peninsular Malaysia and RM800 per month in Sabah and Sarawak.
The opposition has lashed out at this, saying the minimum wage level is too low and proposing its own minimum wage of RM1,100 per month.
To implement the minimum wage rule, PR has proposed to set up a RM2 billion facilitation fund for eligible employers. In this way, the government will share the financial burden of the employers in the early stage of implementation, it says.
BN has also pledged to build a million affordable homes by both the public and private sectors in the next five years with at least 500,000 units under the Perumahan Rakyat 1Malaysia programme. According to the BN manifesto, as much as RM2.05 billion has been allocated to build about 130,000 affordable homes this year.
PR, meanwhile, has proposed an investment of RM5 billion in the first year of getting the people’s mandate as the federal government and RM2 billion in the subsequent years to build 150,000 low and medium-cost houses. It will also set up Perbadanan Perumahan Negara as the primary agency to build, regulate and develop affordable housing.
While BR1M, affordable housing and minimum wage are good news for the people, one cannot disregard the fact that Malaysia’s budget has limited capacity to grow. Already, the public debt-to-GDP ratio has consistently stayed above 50% for the past three years while the country is still running a budget deficit.
If one takes into account the contingent liabilities of the government by guaranteeing standalone companies to undertake chunky projects, such as the mass rapid transit, the public debt level is said to be more than 65% of GDP.
Lee Heng Guie, an economist with CIMB Investment Bank, says the parties on both sides of the political divide have to consider a more broad-based taxation system if they are to implement all their election pledges. It is estimated that only two million people pay income tax in Malaysia under the current system.
There is also a national consciousness that current subsidies have to be reduced as they benefit the rich more than the poor.
In this regard, BN plans fiscal reform via subsidy rationalisation and a broad-based taxation system.
Citi Research, in a report, says BN lawmakers would need a strong mandate in Parliament to reduce subsidies. In fact, measures like cutting subsidies and implementing GST have been put on hold due to public opposition.
So far, PR’s plan to increase government revenue is by curbing corruption and unnecessary spending and through the implementation of open tenders — the practice in PR-ruled states like Selangor and Penang — at federal level.
“The Selangor government managed to save 24% on road-building projects between January and September 2012. If such savings can be applied at federal level, the government will save RM49.5 billion,” says PKR’s Rafizi.
PR also plans to rationalise subsidies for independent power producers, renegotiate monopolies and compensation, reduce the budget of the Prime Minister’s Office and spend less on non-priority sectors. It also targets higher revenue growth as it forecasts the nation’s economic growth to accelerate to 7% per annum under its stewardship.
Despite BR1M and the pledge to build affordable homes, there is growing concern that the middle-income group will find it hard to cope with the rising cost of living. BN’s answer to this is to create a high-income nation. Under the Economic Transformation Programme, BN aims to attract RM1.3 trillion of investments to create 3.3 million jobs, two million of which will be highly paid.
PR, however, plans to train a million school leavers who did not pursue tertiary education as skilled workers and set up five technical universities focusing on skills and technical courses. It also plans to set up a RM500 million fund for innovation, which it sees as the engine of growth for small and medium industries.
Its other measures to tackle the rising cost of living include abolishing toll and reducing fuel prices.
But all this will not come cheap. For instance, to take over the North-South Expressway, PR estimates that it will need to pony up about RM6 billion a year.
Meanwhile, to maintain the current retail prices of RON 95, diesel and liquefied petroleum gas, the caretaker government is footing a subsidy bill of RM20 billion. This is expected to grow as consumption rises and crude oil prices remain stubbornly high.
Besides the cash handouts and affordable homes, BN has also promised to build a highway from Kuala Krai to Kota Baru, which is part of the East Coast Expressway, the West Coast Expressway and the Pan Borneo highway, which are estimated to cost RM1.8 billion, RM5.2 billion and RM16 billion respectively.
As for PR, it has pledged to double the number of buses and bus routes in the Klang Valley and allocated RM2 billion for it.
While all these populist measures will excite the economy in the short term, the bill will have to be paid sooner or later.
“It is not in the interest of either BN or PR to have a prolonged period of economic stagnation. This will hurt revenue and make the management of the economy a difficult task indeed. Therefore, I expect good sense and pragmatism to prevail and not be overly compromised by politics,” remarks ISIS’ Wong.
This article first appeared in The Edge Malaysia weekly, on April 15-April 21, 2013.