Wednesday, November 16, 2016

2017 Budget: Lack of Legitimacy and Misplaced Priorities

Two Reasons for Rejecting Budget

This article seeks to respond to a few statements circulating in the social media that the opposition voted against the 2017 Budget to prevent the people, especially the poor, from enjoying the benefits bestowed to them by the Finance Minister. There are many reasons the opposition voted against the Budget. I wish to highlight only two. The Finance Minister lacks the legitimacy to be entrusted with the continued management of the people’s money and the 2017 Budget reveals his misplaced priorities. 
Lack of Legitimacy

The core of public finances is that some people spend other people’s money. In democracies, voters delegate the power over public spending and taxes to elected politicians.[1] The delegation of power to elected politicians implies that except for those of the highest integrity there are risks the politicians will extract rents from being in office and spend public money on projects other than those voters desire.

One of the tools for ensuring the people’s money is spent in accordance with the people’s desire is the budget. The budget is a contract between the voters and the Government showing how resources are raised and allocated for delivery of public services. The budget is the primary instrument for implementing fiscal policy thereby influencing the economy as a whole and how the Government plans to turn aspirations into reality.[2] The budget is the reflection of the policy and priorities of those who control and manage government machinery and apparatus at the given time. As a consequence budget transparency and accountability are very important means to truly democratize government and processes of governance.

Accountability denotes the rights, responsibilities and duties that exist between the people and the government institutions. Accountability and legitimacy are two sides of the same coin. Lack of accountability will result in lack of political legitimacy. Lack of legitimacy will result in democratic deficit and the consequent abuse of power by decisions makers and power-holders.[3]

When Dato Seri Najib Tun Razak refused to resign as Finance Minister following the 1MDB revelations, he plunged his Government into a legitimacy crisis.

The 1MDB fiasco spawned ludicrous and fallacious arguments to deny the largest embezzlement by kleptomaniacs in the history of the world occurred in Malaysia. Steps to keep a lid over disclosure proved inept, so brutal repression is used to silence those courageous enough to carry out their duties.  

Our Attorney-General is the only 1 out of 6 who holds the opinion there is no case. It appears the Attorney-General in the other jurisdictions, unlike ours are unable to discern “donation” from “corruption.” Our Attorney-General twice rebuffed Swiss requests for mutual legal assistance to investigate the 1MDB corruption allegations. The refusals add to questions on the adequacy of Malaysian authorities’ response to an affair that is the subject matter of multiple international queries.  

Three former ministers who spoke about 1MDB during the Budget debate in Parliament are now under police investigation. Parliamentary privileges and immunities to enable members of parliament to perform their duties to speak without fear or favour, not to be unduly influenced, harassed or intimidated by government or private individuals in Malaysia have been amended. The Federal Court in Mark Koding v PP [1982] 2 MLJ 120 ruled that a member of parliament’s privileges and immunities have been validly limited by the amendments to Article 63(4) of the Federal Constitution. A member of parliament’s privileges and immunities do not cover offences under the Sedition Act 1948. A member of parliament speaking about 1MDB in Parliament now runs the danger of being found guilty of uttering words having a seditious tendency.

Article 107 of the Constitution requires the Auditor-General’s reports to be submitted to the Yang di-Pertuan Agong and laid before the House of Representatives. The AG’s reports are open to the public. However, The AG’s Report on 1MDB remains classified as an official secret under the Official Secrets Act. Pandan MP, Rafizi Ramli has been convicted for referring to a page in the AG’s Report. He is sentenced to 36 months imprisonment (18 months imprisonment for each of two charges to run concurrently). Rafizi will join Anwar Ibrahim in Sungai Buloh. Unless pardoned, both will be disqualified from being an elected representative for 5 years. Tian Chua has been sentenced to 3 months imprisonment as are a host of opposition members, activists, lecturers, students and others who are being investigated, charged, awaiting trial or convicted for various charges.

Individual Ministerial Responsibility   
The Finance Minister’s loss of legitimacy and credibility is due to his failure to abide by the constitutional convention known as individual ministerial responsibility. A fundamental constitutional convention under the Westminster parliamentary system is that ministers are responsible for the conduct of their ministry.

The principle of individual ministerial responsibility is central to the parliamentary system because it ensures the accountability of the government to Parliament and thus, ultimately to the citizens as a whole. The accountable minister in charge is expected to take the blame and ultimately resign. This means that if waste, corruption or any other misbehaviour is found to have occurred within a ministry, the minister is responsible even if he had no knowledge of the actions. The principle is essential to guarantee that an elected official is answerable for every single government action.

Thus the principle of individual ministerial responsibility requires the Finance Minister to take responsibility for the 1MDB debacle because it is under his ministry. Whether he was aware of the wrongdoings or involved personally is irrelevant. In failing to accept responsibility the Finance Minister lost the legitimacy and credibility to govern. He can no longer claim he commands the trust to manage the people’s money.

There are no merits to the contentions that evidence beyond reasonable doubt he committed an offence involving 1MDB must be produced before the Finance Minister is to resign. The office of Finance Minister and Prime Minister is not the dock in a criminal court. The holder of the office is entrusted to manage the people’s money, if there is the slightest doubt of his integrity, he must resign. If not he must be removed. This is to preserve the legitimacy, authority and dignity of the office.  
Failure to be accountable to Parliament  

The Finance Minister failed to honour a second aspect of the Westminster principle of individual ministerial responsibility. This is the principle that a minister is accountable to Parliament. Ministers are the link between Parliament and Government. Public servants carry out the activities of Government through their work in department and agencies and the Government directs them through ministers responsible for their activities which include activities by government-owned companies such as 1MDB. The minister is responsible to Parliament for decisions made and actions performed by those under his delegation. This means the minister must make announcements and answer questions in Parliament on the decisions and performance of their departments.

It is thus indisputable members of parliament are entitled to question the Finance Minister on 1MDB. There is not one word that mentions “1MDB” in the 2017 Budget speech. The only reasonable inference that can be drawn from the Finance Minister’s deafening silence is that he is unrepentant and has no remorse for the staggering losses, wrongdoing and irregularities committed by those responsible for 1MDB under his watch. The lack of accountability is blatantly obvious for all to see.

Thus the audacity to ask who is play-acting in the Budget speech: “Sebenarnya disini, siapa yang bermain sandiwara? Siapa yang tiada substance sebenarnya? Siapa yang menjadi pembelot dan perkhianat negara sebenarnya? Di mana pula timbulnya rebut ni?” deserves nothing less than a walk-out in response.
Death of Democratic Governance and Accountability

It is no longer possible for the BN MPs to turn a blind to the wrongdoing in 1MDB. Any denial of wrongdoing is totally not credible in the light of recent revelations by the international media on the US DOJ suit, actions by the Swiss and Singapore authorities to withdraw the licences and to file criminal charges against the banks and officers engaged in the money-laundering of the proceeds from 1MDB. The first conviction and sentence of imprisonment was delivered last week.
Continued survival has been bought by co-optation, propaganda, censorship, repression, prosecution and imprisonment of opposition leaders, activists, lecturers and students. The costs for maintaining power includes sackings, transfers, acts of humiliation and calls to ostracise dissenters and those troubled by their conscience in the UMNO leadership, past and present, the rank and file and Government agencies and institutions.

The 117 BN MPs in voting for the 2017 Budget and 11 PAS abstentions in the face of such legitimacy crisis hammered the final nail into democracy’s coffin in Malaysia. The government transformation programme from democracy to authoritarian regime is now completed. When the 2017 Budget was approved democratic governance, transparency, integrity and accountability in Malaysia died and were buried.

Off-Budget Debt

The lack of legitimacy continues as the Government enters into one after another mega contract, privatisation and concession. One of the biggest concern in the 2017 Budget is not what is in the Budget but what is not there. It is off-budget funding. Off-budget funding kept outside of government financial regulations, reporting and audit requirements can give rise to illegal and irregular transactions. In addition the use of such funds means the reported level of government expenditure and debt may be understated.

Off-budget funding may not be contrary to the letter of the law but it violates the spirit of the law. Omitting off-budget funding in the Budget documents offends the principle of providing the public a comprehensive, accurate and reliable account of the public finances. The Budget is a contract of trust between the Government and the citizens. It is expected that the Budget document should account comprehensively and correctly for all expenditures and revenues of the Government and that no figures should be omitted or hidden.

1MDB is not the only government-owned corporations which outstanding debt can have significant fiscal implications. This is because these debts are implicitly or explicitly government-guaranteed, an example is the PKFZ bonds. According to the 2015 Federal Government Financial Statements the total amount of GLCs’ debt guaranteed by the Federal Government is RM 920,336,791,310.19 which increased from RM 850,035,142,802.32 in 2014. This does not include GLCs’ debts or borrowings for which the Government issued letters of comfort. The 2015 Financial Statement records only the RM 5 billion debt of 1MDB guaranteed by the Government there is no mention of 1MDB’s liabilities which are more than RM 46 billion.

We are now in the process of having the most expensive railway in the world. The 688 km East Coast Rail Link (ERCL) project at RM55 billion is another off-budget transaction. There is indeed cause for concern.   
Misplaced Priorities

Why does the Opposition bother to debate the Budget? BN with its majority will push through and rubberstamp the 2017 Budget no matter what we say. We soldier on to discharge our constitutionally-mandated duty. Although in the minority, we like the BN MPs, are the guardians of public money. The Government cannot spend a single cent from the Consolidated Fund without Parliament’s approval. By making a stand, it is a reminder that the national coffers are not someone’s personal account. The Government is accountable for wastage, corruption and embezzlement. The Government is required to put on record its justification or the absence thereof in spending the people’s hard earned money and the nation’s scarce resources. In doing so, we put public concerns to bear on the Government’s fiscal and economic policies. It is hoped that by a detailed, focused and considered debate it would improve public understanding of both the process and thinking behind the fiscal measures, their impact on the economy and lives of the people.  

Values and Policies

People think the budget is about rows and rows of numbers on a page, the boring dispassionate and clinical allocation of funds to the various Ministries and government programmes. It is more than that. The Budget is in fact a statement of the values and priorities of the Government represented in the person of the Finance Minister. The Budget reveals the Finance Minister’s values. It tells us what he considers are his priorities. The Budget should really be a reflection not of the Finance Minister’s but the values and priorities of our nation and its people. The 2017 Budget reveals the Finance Minister is out of sync with the people. The Budget reveals the Prime Minister’s misplaced values and priorities.

Ratings more important than People’s suffering

The Finance Minister has given priority to maintain the ratings by the three international rating agencies; Fitch, Moody’s and Standard & Poor than the people’s sufferings arising from the increased cost of living and difficult economic times.    

In the wake of the 2008 global economic slowdown the Government under Tun Abdullah Badawi launched the First Economic Stimulus Package of RM 7 Billion. Najib Tun Razak launched the Second Economic Stimulus Package of RM 60 billion when he took over as Prime Minister in March 2009.  

The economic situation today is more critical than 2008-2009 with falling commodity prices, oil prices and currency values of the Ringgit in the midst of a global economic slowdown.  According to the 2017 Economic Report 38,499 were retrenched in 2015 and 20,798 in first eight months of 2016. The highest retrenchment was in the manufacturing sector (36.9%) followed by the financial and insurance/takaful (21%) as well as wholesale and retail trade, repair of motor vehicle and motorcycles. Jobstreet reported there were 506,000 unemployed persons in February 2016.

There are critical reasons for providing a fiscal stimulus to boost the economy but the Finance Minister has instead given priority to reducing the Budget deficit in order to maintain the credit rating. The Finance Minister in a show of his statesman-like qualities said he made the difficult decision to reduce the Budget deficit to 3% and called on the people to brave the increased cost of living.

The Finance Minister called on the people to spend moderately by choosing less expensive nasi kandar restaurants. He has lost sight we are a nation where the overwhelming majority of our work force has low wages and low income. According to the Statistics Department 2014 Household Income Survey (HIS) the median monthly salaries and wages per month for individuals is RM 1,700.00. This means half of all workers in Malaysia get this much or less. Rising food prices affect the lower income households the most. The question many Malaysians face each day is not which nasi kandar restaurant to eat in but whether they get to eat at all.

The Khazanah Research Institute reports many Malaysians cannot even afford the minimum requirements of a nutritious meal. A nutritionally adequate diet is beyond the reach of many Malaysians. For those living close to the poverty line it would costs almost their entire income, for those in Sabah and Sarawak it is more than their entire income.

Between 2011 and 2015, food price inflation was 3.6% on average, whereas overall inflation was 2.4% over the same period. The increase in the cost of food has a large effect on the cost of living on households especially those who earn less than RM 2,000.00 a month. The HIS was carried out pre- GST. Post-GST, no one except perhaps our Finance Minister, would be surprised to find more shops shuttered, shopping malls deserted, drastically reduced number of customers in the morning markets, pasar malam and pasar tani.

The Finance Minister highlighted the plight of the young nasi lemak seller summoned for not having a hawker’s licence. He encouraged the young university graduate selling nasi lemak to continue doing so as part of entrepreneurship. The Finance Minister failed to realise the young university graduate is compelled to sell nasi lemak because the Government failed to solve the graduate unemployment problem. In 2013 graduates constituted 30.6% of the unemployed, 35.2% in 2014 and 33.8% in 2015. The Ministry of Higher Education reported one out of four in the 254,561 graduates is unemployed 6 months after graduation. Despite not having solved the problems of mismatch of skills, soft skills, lack of numeracy, language, critical and innovative thinking the Finance Minister cut the allocations to 20 out of the 25 local universities.

The Finance Minister said BR1M is not animal feed, the Government always prioritise the rakyat’s needs. The amount of BR1M will be increased with an allocation of RM 6.8 billion to be given to 7 million recipients. The fact such a substantial portion of our population is dependent on BR1M is not something the Government should be proud of.

The Finance Minister called on BR1M recipients to become UBER drivers to supplement their income. He did not realise the many Malaysians have already become part-time UBER drivers, otherwise 20,000 taxi drivers need not surrender their taxis to look for alternative livelihood. Many Malaysians have taken a second and some third job to make ends meet. By saying Malaysians are now enjoying a better quality of life it reveals how far removed he is from the ground and reality. 
Austerity Programmes

Amongst the criteria considered by the rating agencies is whether the government has a balanced budget. As a consequence governments proceed to implement programmes to balance the budget by implementing austerity programmes in depressed economic times. Austerity programmes in a depressed economy is described by economist, Joseph Stiglitz as a medicine that sought to cure the disease by killing the patient.

The rating agencies do not consider whether the sovereign debt is in a foreign currency or in the country’s own currency. There is minimal chance of default by a government of a debt in its own currency. This is because governments are the only entities able to print their own money.

Paul Krugman has pointed out the argument that governments running significant budget deficits should implement austerity programmes during difficult economic times otherwise they would end up as another Greece is a myth that has been debunked. It is standard macroeconomics for the Government to provide fiscal stimulus in a depressed economy. As John Maynard Keynes wrote in 1936: “The boom not the slump, is the right time for austerity at the Treasury”.

Paul Krugman produced a chart that showed countries such as UK, US and Japan that have substantial government debt much higher than Greece that borrowed in their own currencies performed better than Greece. They did not fall like Greece. Paul Krugman also showed that the countries that implemented austerity programmes enjoyed low economic growth while those that did not experienced better growth. The more severe the austerity programmes the slower the growth.

There are concerns that providing fiscal stimulus will raise government debt. The 55% GDP debt ceiling can be raised. Raising debt limits does not directly alter the amount of debt. It allows the Government to pay for spending programmes that has been approved. The US Congress has raised the US debt ceiling 90 times this has not affected its credit rating by the rating agencies.

Budget surpluses or at least balanced budget have been touted as fiscally responsible, whereas deficits are painted as unsustainable. In reality there is nothing inherently responsible in balancing the budget. On the contrary such a move at a time of high joblessness and underemployment, efforts to reduce rather than increase the deficit are the height of irresponsibility.


It is certain the 2017 Budget will be approved. What is not certain is whether Malaysians can overcome the repression, intimidation, gerrymandering, malapportionment and electoral fraud that sustain a Government lacking legitimacy and credibility. See you at Bersih 5.

William Leong Jee Keen
MP Selayang
16 November 2016  

[1] Jurgen Von Hagen Budgetting Institutions for better Fiscal Performance; Budgeting and Budgetary Institutions World Bank
[2] The Principles of Budgetary Governance OECD
[3] John Samuel Economic Governance and Budget Accountability