Worrying trends in our spending

The budget 2009 has certain good salient points.

Those who use less than RM20 a month of electricity would not have to pay. This is indeed good news to the hard core poor.

35 Billions will be allocated o improve transportation over the next few years. This is long due, as public traspor shold have been beefed up long ago, as an efficient public transport system is needed for increased mobility and exchange of goods and services.

Not enough is put into health services. WHO recommends that a country should spend about 7 % of its GDP on health. We are spenidng much less on that. This is because we are spending too much on our operating expenses, which have ballooned from 80 Billion in 2004 to 154 billion this year, and almost 100% increase over 4 years.

On the macro aspects, certain things are worrisome.As I have just mentioned,  the operating expenses is getting too huge and takes about 75% of the total budget whereas the developemnt budget gets about 25 %.

This is just like  a household that uses 75% of its income to pay its servants  and the running costs of the households and have only 25% to save for children education and investment and saving for old age, and part of this spending are borrowed from bank. There is a high chance that the household may go into financial difficulty. Similarly, in our case, the operating cost is too huge and increasing at too fast a rate for comfort. A major part of this goes to payment to civil servants. The civil service must be trimmed, with emphasis on productivity and efficiency.

Another worrying aspects is that government revenue is increasingly dependent on petroleum sector.. Revenue from this sector increase fro 37% to 46 %. So the question is , how do we sustain our spending if our oil eventually runs out in a decade or 2?

 To counter this , we have to increase our human resource development.  But  with brain drain becoming more and more serious, and more and more youngsters working overseas, are we able to sustain our present lifestyle and living standard once the oil and gas money runs out? What is being done to this?

The increase in spending results in a deficit budget. A deficit budget for a short period is acceptable to help  jump start the economy. But when year in and year out , we have deficits spending, out debts will accumulate and the yearly loan payment would be bigger and bigger. That is also part of the reason for the huge increase in operating expenses. SO we really need to be careful here. We cannot just try to be popular and spend beyond our means. We would only be passing the burden to our children.

Overall, i think what is needed is to stress on efficiency and productivity of civil service, cut down on unnecessary waste in running the government, and tackle corruption and abuses in administration. This alone could help us save a lot of money. The money saved from this operating expenses can then be channelled to human resourse development and other productive sectors so that when our oil money runs out, we would not be caught flat footed.

The best way to reverse brain drain and increase human resource development is to start  adopting meritocractic principles in civil services, universities and colleges  as well as GLCs. There is really no 2 ways about this.

We must look and think further ahead, as our oil resources will be finishing quite soon.