Repercussions of an overly generous Budget

Lim Sue Goan, Sin Chew Daily

There are mixed reaction to the 2016 Budget, and a general conclusion that could be drawn is that it takes very good care of the lower-income group, civil servants and Sarawak residents.

Many people have nevertheless overlooked the possible effects and the repercussions of such a budget.

First and foremost, the government’s remuneration cost is going to be lifted to a new level next year, which will evolve into a real tacky problem if it goes beyond the government’s means.

The minimum wage for West Malaysians will be increased from RM900 to RM1,000 come July 2016, while that of East Malaysia from RM800 to RM920. The lowest starting pay for civil servants will also be increased from RM850 to RM1,200. The government has set aside RM1.1 billion to up the salaries of 1.6 million civil servants from July 1 next year.

Past experiences show that drastic change in pubic sector remuneration would put a similar pressure on the private sector. For instance when then prime minister Tun Abdullah Badawi increased the salaries of more than a million civil servants by between 7.5 and 35% and an additional 20% for military and police personnel in 2007, this acted as an impetus for the private sector to follow suit. That was when goods prices were moving into the upswing stage.

Come 2016, the lowest starting pay for civil servants will be RM200 more than private sector employees, not to mention the double increments for them next year. This is poised to trigger yet another round of inflation and consequently the increments may not actually translate into stronger purchasing power.

The increment is seen as a vital move for the government to fulfill its dual objectives of a high-income status and higher tax revenue. However, if the productivity fails to keep up with the margin of pay rise, production cost will be significantly higher and competitiveness proportionately lower.

According to 2013 statistics, Malaysia’s labor productivity was only 32.4%, far behind the 56.1% for the United States and South Korea. The high salary scale that does not commensurate with equivalent level of returns will not augur well for aspiring foreign investments while existing investors might just divest and relocate elsewhere.

According to Malaysian Employers’ Federation (MEF) estimates, the higher salary scale will result in an increase of RM3.6 billion in salary cost, and if the employers are not doing anything to improve their competitiveness, they might be forced to retrench or simply wind up.their businesses.

The drastic increase in public service remunerations will eventually be shouldered by all taxpayers. Next year, the government is expected to dig out some RM39 billion in GST from our pockets to reimburse the additional operating expenditure. But, with the salary expenditure to top RM70.5 billion next year with no axing of redundant workforce, how is it going to get the extra money for this?

Along with the increased salary for civil servants, their pensions will also rise accordingly. Our public sector workforce has swollen from 900,00 during Mahathir’s time to 1.6 million today. Will our frail fiscal position be able to take the load at all?

Secondly, mismanagement in the distribution of national resources has seen the high-end and talent-grooming sectors largely sidelined.

Thanks to dwindling oil revenue, the allocations for as many as 18 ministries will be slashed next year, with the higher education ministry’s allocation alone plummeting by almost RM2.4 billion. At the same time, Sarawak’s famous kolok mee enjoys GST exemption.

I am not trying to say that kolok mee is not entitled to the exemption. I nevertheless must stress that the government should place more emphasis on the development of higher education in this country. It is essential to put the resources in the right place as the country’s competitiveness is way more important than an East Malaysian delicacy.

Meanwhile, the allocation for schools of various language streams has also dropped from RM800 million to merely RM500 million.

Although the higher education ministry has stressed that the government will slash the operating expenditure for public universities and lessen their dependence on the government, given the inhospitable economic environment, how are these universities going to improve their revenue? Cutting back on the hiring of qualified lecturers and professors will most definitely leave a mark on the quality of teaching.

The government has never made sufficient input in the R&D sector all these years, and the trimming of educational allocation protrudes further the government’s shortsightedness. We can never become a high-income country simply by increasing the workers’ salaries without taking into consideration the quality of our workforce.

As a matter of fact, there are indeed places where the government should cut back its expenses. For instance, the prime minister’s department will receive a RM1.1 billion boost in allocation on the back of non-transparent government projects. This shows once again that political considerations have superseded public interests.