After a preliminary look at Budget 2023, these are the main comments from Dr Carmelo Ferlito, CEO of the Center for Market Education:
On the negative side I see the lack of a strategy for rationalizing operational expenditures and still too many “ad hoc” goodies. On the bright side, I welcome tax cuts, SMEs grants and SMEs loan schemes (and the announced special scheme for FDIs): these moves are necessary and welcome. But, in order to not further compromise the fiscal position of the government and inflationary pressures, they should be accompanied by rationalization of operation expenditures and better tax collection enforcement (and here I do not see an adequate vision).
I also appreciate the investments to strengthen TVET.
These two measures (tax cuts and strengthening TVET) are things I advocated for a long time and are included in my latest book, “Assessing and Addressing Urban Poverty in Malaysia”.
Improve investor sentiment is probably beyond the budget scope, but the projects implemented for businesses (tax cuts, grants, loan schemes, and the scheme for FDIs) can induce positive profit expectations and therefore help the economic system surf the waves that are coming.
As mentioned, in order to be sustainable, tax cuts should be accompanied by a rational plan of spending cuts, in particular on operation expenditures:
- The amount of money spent on operational expenditures such as civil servants’ salaries and subsidies is still very high. If we do not improve revenue collections and cut spending, debt and inflation will become more serious problems. In particular in the light of tax cuts.
- Tax cuts are tremendously important, but they are one side of the coin. If expenditures are not effectively rationalized, then we are in trouble.
- On how to do that:
- The government (the next one perhaps) should look at the role of government as employer, developer, and mega project developer and start to rethink how goods and services can be provided without the government being the direct employer/developer. For example, public services could be provided by private institutions, and the poor are supported with vouchers linked to a certain type of service. This would bring rationalization as the government usually provides goods and services in a less efficient way than the private sector.
- On the other side, there has been a lot of talking about targeted subsidies. It is the moment to move from talking to action. The easiest and most implementable way would be to provide goods and services at market price and to distribute proportional purpose vouchers according to different income segments.
