How the BN and Pakatan budgets stack up

(TMI) – THEY may look different, but the Barisan Nasional and Pakatan Harapan budgets share at least one thing in common – they are mini manifestos for the 14th general election, an analyst said, as they represent each coalition’s selling points on why they are the better choice to manage the country’s coffers.

“Without a doubt, (BN’s) Budget 2018 is an election budget,” said independent economist Azrul Azwar Ahmad Tajuddin.

“From ‘a little something’ for everyone to ‘something special’ for the core voter base.”  

It was the same with PH, whose budget contains the economic policies it promises to pursue if it wins GE14.

Structurally, both budgets are similar in wanting to leverage consumer power to drive the economy as private consumption makes up 53% of the economy. But they want to do it in different ways.

Another important difference is that PH believes it can run the government on less money but use a greater share of those funds to develop the poorest regions of the country.

PH’s RM258.52 budget is RM21.7 billion less than BN’s RM280.25 billion.

The opposition pact has claimed that it can achieve a smaller budget by cutting RM20 billion in wastage and corruption in the government.

By spending more efficiently and less, PH’s budget records a lower deficit of 2% to gross domestic product, considered more fiscally disciplined.

BN’s deficit ratio is projected to be 3%.

Based on the government’s own data, PH projects to collect RM229.44 billion in revenue compared with BN’s RM239.86 billion.

BN earmarked RM46 billion, or 16% of its budget, for development and RM234.25 billion for operating expenditure.

BN is increasing the amount of money it spends in 2018 to RM280.25 from about RM260.80 billion in 2017.

Yet, it is still spending the same amount – RM46 billion – on development this year as it did last year.

PH would allocate RM58.35, or 23%, for development and the remaining RM200.16 billion for operating expenditure.

Azrul Azwar said that a close comparison of BN’s 2017 and 2018 budget showed there was a RM14.31 billion rise in operating expenditure.

“Indeed, except grants and transfers to state governments, asset acquisition and grants to statutory bodies, all other components of operating expenditure are projected to increase.”

In contrast, PH’s budget aims to cut operating expenditure by RM20 billion by getting rid of wastage and mismanagement, examples of which are commonly seen in the Auditor-General’s reports.

Ending GST?

Their policies on the goods and services tax (GST) also represent how different BN and PH are when it comes to how these two policies function in the economy.

As BN’s Cabinet ministers have stressed, GST is a well-needed source of revenue as the country’s income from sales of oil and gas plunged in 2014.

This year, GST provided the government with an extra RM41 billion.

PH wants to end GST collection by progressively bringing down the rate to zero by the end of its first year.

It argues that the tax has dampened consumer spending and, once it is gone, will spark a small consumption boom that will bring in revenue through other taxes, such as corporate tax and import duties.

But Azrul Azwar said that abolishing GST would have put to waste the enormous effort and money that had gone into implementing the system nationwide.

“Instead, the tax could be tweaked to have a three-tiered system,” he said, adding that under such a system, basic necessities will be taxed less, non-luxury but non-essential items will have a standard rate and luxury items will be taxed more.

“At the same time, we may select another progressive taxation mechanism to broaden and diversify the government’s revenue base, such as a capital gains tax (CGT), an inheritance tax or a windfall tax.”

Wage reform

As pointed out by Deputy Prime Minister Dr Ahmad Zahid Hamidi, the BN budget has something for everyone in every sector and class.

It has especially large allocations for those in the agriculture sector, students, civil servants and middle-income earners.

Farmers get RM2.5 billion for planting incentives and a 2% tax reduction for those earning between RM20,000 to RM70,000 a year.

BN will also pay out RM1,500 to 1.6 million civil servants next year, at a cost of RM2.4 billion.

Much of this is aimed at putting more money in the hands of consumers.

Farmers also get some attention in PH’s budget but its main highlight for workers is an increase in the minimum wage from RM1,000 to RM1,500.

The opposition also offers a co-pay system to help companies meet the extra cost of increasing those wages for a period of three years. This is expected to cost RM2.5 billion per year.

PH budget committee head Wong Chen said this policy represented a pillar of the PH economic agenda, which is interlinked to every problem the country faces, from lack of affordable housing and healthcare to rising inflation and the government’s deficits.

“When workers have more purchasing power, they can opt for better housing and healthcare. They don’t have to depend on the government for handouts,” said Wong, who is also Kelana Jaya MP.

“They spend more and this lifts profits for private companies. When workers are better paid in the private sector, they will put less stress on the government to provide for them. In the end, this reduces the need for the government to have huge budgets.”