Budget 2013 showdown: BN vs Pakatan
Lee Wei Lian, The Malaysian Insider
Now that both Budget 2013 from the ruling coalition and the shadow budget from the opposition have been presented, let’s take a look at how the two budgets stack up against one another.
This is the last budget before the general election and the stakes are high. Barisan Nasional (BN) has had a lot of experience in crafting budgets and surprised no one when it dished out cash and other goodies, particularly to the younger generation who are a significant chunk of the newly registered electorate and are an unknown quantity in terms of their voting inclinations.
It scored some points however for not going overboard with spending as expected by some economists and still managed to pare down its expected budget deficit to four per cent from an estimated 4.5 per cent this year.
Pakatan Rakyat (PR) is a relative novice when it comes to federal budgets and presented one that appears to be much more geared toward reforming the economy than the one from the Najib administration which appeared to have more-of-the-same type policy tinkering rather than sweeping fundamental changes.
You can’t really blame Prime Minister Datuk Seri Najib Razak for not wanting to rock the boat too much and going back for more of the same approach that delivered impressively higher than expected GDP growth this year despite economic slowdowns elsewhere in the world.
But PR’s budget, on the other hand, is more exciting as it really shows teeth when it comes to tackling things like monopolies, cartels and downsizing the state’s involvement in business.
Not everything in the two budgets can be compared directly but one of the things that can be put side by side is the fiscal numbers. So we start off with:
The Balanced Budget Category
Budget deficit
BN: 4 per cent
PR: 3.5 per cent
Winner: PR
BN managed to cut the projected deficit from 4.5 per cent this year to 4 per cent in 2013 but it wasn’t enough to beat PR. BN can say of course that PR can promise anything since it is less accountable as it is not in power.
PR meanwhile has talked a lot about eliminating corruption, leakages and wastages but all that effort appeared to yield only a slightly better deficit number than BN’s. Still, the slight improvement is enough to give it an edge over BN in the eyes of ratings agencies and economists.
Economic Development
BN’s approach appears to be via a sprinkling of incentives based on wish lists from industry groups while PR’s approach looks to be tackling things at the fundamental level by boosting the country’s intrinsic competitiveness.
BN advocates incentives such as tax relief for R&D, a RM1 billion fund to boost domestic investments, incentives to take over foreign firms, incentives for the tech industry such as income tax relief for Angel investors and recognising intellectual property as collateral, and a RM10 billion Working Capital Guarantee Scheme for SMEs.
PR has gone for the reform route for development, saying that it will seek first to purify the economy of toxicities and flush out rent seeking, corruption, cronyism by dismantling cartels, abolishing monopolies so that the economy can more easily flourish free from the scourges of distortions and inefficiencies. By aggressively reducing state capitalism by reforming the role of GLCs, it also promised to make entrepreneurship the bedrock of the economy.
Winner: Both approaches have their merits. BN’s incentive-based approach is safe but boring and PR’s reforms are more exciting and have the potential to send the economy to first-world status. A hybrid approach would be best as SMEs shouldn’t have to choose between a working capital guarantee scheme and a business environment free from cartels and rent-seeking. But based on the potential value that the approaches will bring over the long term, PR wins this one.
Education
A country’s future is won or lost in its schools. BN recently launched an education blueprint devised with input from experts but surprisingly cut its education budget drastically from RM50 billion in the last budget to RM38.7 billion in 2013. The prime minister did say that they wanted to “look at the outcome of each child per ringgit spent” during the blueprint launch so maybe they found ways to cut out wastage and increase efficiency.
PR, on the other hand, had little to say about education in the budget and the most noticeable thing was that it wanted to abolish the National Higher Education Fund (PTPTN). While the intention is good and some restructuring of PTPTN might be in order which includes a certain degree of debt forgiveness, and its proposed fee subsidies for private education is a good idea, wiping out PTPTN debts could backfire as it would give students a sense of entitlement and increase their reliance on the government. Many ex-students who paid back their PTPTN loans are already complaining that they should have waited.
Winner: BN admitted Malaysia’s poor showing in international testing and vowed to improve it via the new blueprint. The apparent cut in education spending is puzzling but PR’s move to wipe out PTPTN debt smacks of populism and vote-buying. What kind of message does that send to students? That they don’t have to pay back debts? Based on this and its recent blueprint which drew mixed reviews but was nevertheless a step in the right direction, BN wins education.
Personal Income
BN has once again committed to direct cash transfers to the low income to help with the rising cost of living. PR, on the other hand, says that it will increase money in the pocket indirectly by making cars cheaper via excise duty reductions, toll abolishment, waiver of PTPTN and savings from lower fuel and transportation charges.
BN also cut income tax rates for taxable income up to RM50,000 but tax experts expect that this is just in preparation for the introduction of GST.
Winner: Both have their pros and cons. Direct cash transfers can help in times of economic slowdown as it boost domestic consumption. It however can also be perceived as a vote-buying tactic and is one-off so it is not sustainable. A one-percentage point cut in income tax is not much when you consider that other countries have income tax as low as 11 per cent for RM300,000 in taxable income or have higher income tax than Malaysia but offer better public services in exchange. PR’s approach by increasing income by removing economic distortions is more sustainable so it wins this one although it’s a hold-your-nose winner as it includes PTPTN waivers as part of its income boost.
