Broken promises and a bloated civil service

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Wong Ching Yong

BASED on certain important statistics released in Budget 2020, the outlook of the Malaysian economy for next year will not be optimistic and could actually be said to be gloomy.

The PH government had allocated RM53.4 million for Sabah and RM32 million for Sarawak under the budget. The Finance Minister proposed to increase the allocation to RM106 million for Sabah and RM64 million for Sarawak in the next five years. Sarawak will only get RM4.4 billion of development expenditure, while Sabah will get RM5.2 billion of development expenditure. The Finance Minister was completely silent as to when Sarawak would get 20 per cent of the petroleum and gas royalty as promised under Promise 41 of the Buku Harapan manifesto.

The revenue expected to be collected for the year 2020 is RM244.53 billion. Compared with the 2019 revised estimate of RM263.3 billion, this represents a 7.13 per cent decrease. Reduction in revenue means taxable income from tax payers including companies, individual, petroleum income tax, and other non-tax revenue and indirect tax also drops. This is a very worrying sign because this is the first time in many years whereby income has reduced by such a significant percentage. The PH government attributes this decrease to a reduced collection in indirect tax namely SST. Many tax experts have advised the government to go back to GST, but this was rejected by the Finance Minister in his budget speech on Friday.

Another worrying sign is that operating expenditure for 2020 is RM241 billion compared with RM262.26 billion this year. This represents an 8.1 per cent reduction. However, when the government is trying to reduce operating expenditure, the emoluments payable to civil servants has increased from RM82.045 billion in 2019 to RM82.60 billion. The emoluments for civil servants in 2019 represented 31.6 per cent of the share of the total operating expenditure whilst in 2020, it represents 34.27 per cent of the total operating expenditure. The number of pensioners in 2020 is 874,000 whilst the number of pensioners in 2019 was 853,000. This represents an increment of 21,000 pensioners. In other words, a big bulk of operating expenditure has gone to pay the salary, wages, and pensions of civil servants in Malaysia.

So how big is the Malaysian civil service? We have a total of 1.6 million civil servants – that is one government servant to service 19.37 Malaysians. In comparison, the proportion of civil servants to the national population in other countries is 1 to 71.4 in Singapore, 1:110 in Indonesia, 1:50 in Korea, 1:108 in China, 1:28 in Japan, 1:84 in Russia, and 1:118 in Britain.

In 2009, Malaysia’s civil servants-to-population ratio was the highest in Asia Pacific. The ratio was 4.68 per cent compared with Singapore’s 1.4 per cent, Indonesia’s 1.79 per cent, South Korea’s 1.85 per cent, and Thailand’s 2.06 per cent – all of which were less than half our ratio. So we have improved from Asian to world champion.

The bloated civil service has caused and will continue to cause government operating expenditure to increase yearly. Already this year in 2020 civil servants seem to be the biggest winner of Budget 2020 because civil servants’ cost of living allowance or Cola is to be raised by RM50 a month starting 2020 for the support group, with an additional RM350 million a year. Civil servants will be allowed redemption of accumulated leave for up to 75 days as replacement pay. The government also announced an RM500 special payment for civil servants Grade 56 and below.

Comments from the Economist are that the PH government must have the political courage and integrity to streamline this big army of civil servants in Malaysia. Whilst the government is trying an austerity policy to control expenditure, it is ironic that every year civil servants still enjoy an increment in salary and wages. Tan Sri Datuk Dr Lin See Yan, former deputy governor of Bank Negara Malaysia, suggested that all ministers must go back to their own departments asking them to undertake cutting their annual departmental expenditure by 10 per cent.

The trade war between China and US does not seem to create any windows of opportunities for Malaysia. This is because based on news reports locally and internationally, most of the factories which were forced to quit China have moved to countries such as Vietnam, Thailand, and even the Philippines. Malaysia seems to be the loser in this trade war. Economists attribute this to unclear investment policies, and bureaucracy of government departments. In his budget speech yesterday, the Finance Minister was completely silent on why Malaysia failed to attract these businessmen, who chose not to come to Malaysia.

In Budget 2020, the PH government seeks to change the cost of digital technology and economy by introducing incentives for the internet and IT technology. Many economists say Malaysia is too far behind as far as IT and digital technology are concerned because our foundation is too weak and we do not have a big pool of IT graduates like in China. Instead the government should really seriously pay attention to agriculture. It is noticed that the allocation for the Agriculture and Agro-based Industry Ministry increased to RM4.9 billion, including RM150 million to support plant integration programmes such as for chillies, pineapples, coconuts, watermelons, and bamboo. There is also an RM855 million allocation under the federal government’s Padi Fertiliser Scheme to boost padi yields. The question is, will Sarawakians enjoy these incentives too?

Wong Ching Yong is a chartered accountant of the Malaysia Institute of Accountants. He is an approved company auditor and approved liquidator. He has a Master of Arts (Economics) from the University of Manchester and a Bachelor of Commerce from the University of Western Australia.