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Media statement by Tony Pua Kiam Wee in Parliament on Friday, 15th October 2010:

Budget 2010: Government failed to keep a lid on sky-rocketing operating expenditure

The Prime Minister in his speech announced that the Government will be on track to meet the projected budget deficit of 5.6% for the fiscal year 2010 giving the appearance that the Government was able to meet its financial commitment and targets. However, the meeting of the deficit target masks the fact that the Government had in fact substantially overspent its allocated budgets, and was "saved" only by a higher than expected collection of tax revenues.

Last year when the budget for 2010 was announced, the Government promised a commitment to trim operating expenditure to reduce wastage and to generate greater value for money returns with the tax-payers' money.

We had in fact applauded the Government's decision to reduce operating expenditure by a significant 13.7% from RM160.2 billion in 2009 to a budgeted RM138.3 billion. The government's operating expenditure includes salaries and pensions for the civil service, purchase of government assets, supplies and services, rentals, various subsidies, debt repayments, toll compensations and "other" expenditures. A government's "operating expenditure" is not expected to generate high economic multiplier effects, as opposed to "development expenditure".

However, in the Budget announcement today, it has been announced that the Government's operating expenditure is expected to hit RM152.2 billion, or a massive RM13.9 billion (10.1%) over budget.

This clearly demonstrates the government's inability to impose financial discipline on its expenditure to ensure that the country's financial objectives are met. It is also not the first year the Government has overspent its budget. In fact, the Government has consistently overspent its budget by at least 5% as far back as 2000, with the worst year being in 2008 when the budget was exceeded by 17.2%. This is shown in the table below.

Table 1: Government Operating Expenditure - Budget v Actual (RM billions)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Budgeted 52.4 60.7 65.3 71.1 80.0 89.1 101.2 117.0 128.8 154.8 138.3
Actual 56.5 63.8 68.7 75.2 91.3 97.7 107.8 123.1 151.0 160.2 152.2
Overspend 4.2 3.0 3.4 3.5 11.3 8.6 6.5 6.1 22.2 6.0 13.9
Overspend % 8.0% 5.0% 5.1% 4.9% 14.1% 9.7% 6.4% 5.2% 17.2% 3.9% 10.1%

Comparatively, the Government's development expenditure only exceeded it's budget RM51.2 billion by RM2.9 billion, which is acceptable on the basis that the economy had required additional stimulus spending.

Therefore, Datuk Seri Najib Abdul Razak, who is both the Finance and Prime Minister must explain the cause of the continuing and possibly worsening financial indiscipline. The increasingly endemic financial ill-discipline in government departments must be halted to ensure that every cent of the rakyat's money is properly expended in accordance to approved and budgeted limits.

Otherwise, the complete lack of regard to the annual approved budget in parliament over the past 10 years have rendered the budget debate nearly meaningless as whatever allocations approved by the Parliament gets completely ignored, and the actual expenditures are significantly different from the one approved. Datuk Seri Najib Abdul Razak must also at the same time announce specific steps to be taken which will rein in the reckless disregard by the Government departments to ensure that the targets and objectives of the Budget are met, instead of just relying on the age-old rhetoric like "unlocking the real value of government assets" and "value for money" in its spending without any follow up concrete actions.

Hence, we are fortunate that in 2010, our actual revenues to be collected, RM162.1 billion is significantly higher than the expected RM148.4 billion, or our deficit would have worsened substantially than the projected 5.6%.

Budget 2011: Disproportionate increase in operating expenditure and a reduction in development expenditure fails to give confidence that Budget 2011 will be able to stimulate the necessary growth to meet our high-income nation objective.

Prior to the announcement of the Budget 2011, the Prime Minister has announced a whole series of measures and projects under the Government (GTP) and Economic Transformation Programmes (ETP) which are designed to take Malaysia to meet our high-income nation objectives by 2020.

It is hence a surprise that in the Budget 2011, the Government has once again fallen back to the same budget formula employed by the former premier Tun Abdullah Ahmad Badawi which had resulted in a budget crisis in 2009/2010 where the deficit hit a high of 7.4% which had required the Government to impose a series of belt-tightening measures to reduce expenditure.

Instead of increasing the allocation for "development expenditure" to invest in the various critical projects under the National Key Result Areas (NKRA), GTP and ETP, it has been reduced by approximately RM5 billion (9.0%) from RM54.0 billion in 2010 to RM49.2 billion for 2011.

On the other hand, the "operating expenditure" of the Government is budgeted to increase by a massive RM10.6 billion or 7% from RM152.2 billion in 2010 to RM162.8 billion. This has yet to take into account the fact that the original operating expenditure for 2010 was only RM138.3 billion. If this original budget figure is used as the benchmark, the 2011 budget for operating expenditure will increase by massive 17.7% or RM24.5 billion.

The question arises as to why does the Government need to increase its operating expenditure by such a large amount when just not too long ago in 2004, the Government's operating budget was only RM80 billion or less than half the budgeted amount for 2011?

When the expenditure for operating expenditure is analysed further, the category of expenditure which is budgeted to increase the most is for "supplies and services". This will increase from the budgeted RM20.8 billion for 2010 to RM28.2 billion for 2011 or a 35.6%. This "supplies and services" expenditure is also the 2nd largest category at 17.3% of the total operating expenditure.

At the same time, the budget for emoluments remain the largest component of operating expenditure at 28.0% or RM45.6 billion. This figure is also a RM3.4 billion increase from RM42.2 billion budgeted for 2010.

More worryingly, the ratio of operating expenditure to development has continued to increase despite the fact that the budget for 2011 is our highest ever at RM211.9 billion which signals the fact that we are not allocating our resources to the most productive use. Instead of declining, the proportion of budget used for operating expenditure has increased from a low of 68.5% in 2003 to a record high of 76.8% budget for next year, despite a total increase in total expenditure from RM104.7 billion to RM211.9 billion. This is shown in the table below:

Table 2: Government Operating v Development Expenditure (RM billions)

2003 2004 2005 2006 2007 2008 2009 2010 2011
Operating Expenditure 71.7 80.0 89.1 101.2 113.0 128.8 157.1 152.2 162.8
68.5% 73.4% 76.4% 75.6% 72.9% 76.7% 75.3% 73.8% 76.8%
Development Expenditure 33.0 29.0 27.6 32.8 42.0 39.2 49.5 54.0 49.2
31.5% 26.6% 23.6% 24.4% 27.1% 23.3% 24.7% 26.2% 23.2%
Total Expenditure 104.7 109.0 116.7 134.0 155.0 168.0 204.7 206.2 212.0

Hence, we call upon the Prime Minister to explain why these worrying trends have not been addressed in the upcoming budget debate.

In order to ensure that Government expenditure is effectively utilised and is best able to generate the high economic multiplier impact for the country, the Government must ensure that its operating expenditure is restrained while the focus must be on development expenditure on projects which will bring high economic benefit for Malaysians throughout the country.

* Tony Pua Kiam Wee, DAP National Publicity Secretary & MP for Petaling Jaya Utara



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