I have been supportive of the government’s attempt at closing the deficit. I do celebrate the significant fiscal progress made over the past five or six years.
In retrospect, it was easy to back the cuts because the times were generally good. After a recession in 2009, the Malaysian economy grew quite well almost every quarter and that made tough policies easier to swallow.
But times are changing and what was swallowed easily yesterday will be tough today. Those tough policies will be hard on almost everybody now if executed too religiously.
The situation has changed so fast that I feel almost nobody ― at least as far as I can see in the financial market ― still believes the original deficit target of 3.0 per cent to GDP for 2015 is credible anymore. It will be challenging to meet the target and if the government insists on meeting it anyway, something has to give and that something will be overall economic growth.
Growth here is not merely an economic figure appearing in someone’s spreadsheet. It is people’s livelihood which is at stake.
Partly in my effort to be pragmatic and partly from observing from afar the horrible European experience arising from the wrong timing of its austerity program, I have come to believe in having a counter-cyclical policy. We commit to tough reforms making the economy more efficient during the good times and then we give it a slack when things are not so sunny and cheery.
What I am saying here is that the government here in Malaysia should be flexible with its deficit target for the time being.
I sincerely believe we can afford to do so because we have done serious fiscal reforms recently. Petrol and diesel subsidies are no more after years of gradual cuts and we are finally implementing the goods and services tax after years of contemplating it. I think the long term trajectory from the initiatives has already set the right direction.
My only disappointment is that these reforms were not done sooner due to political concerns. Everybody was so concerned about their political prospect that they forgot or even ignored the country’s future. For months, the government went on autopilot and the subsidy cuts themselves were put on hold for quite some time as the government prepared for the 2013 general election. We lost valuable policy time and now the window is closing.
But what is done is done and perhaps, that is just the cost of maintaining a democracy, however flawed ours is. If we believe in countercyclical policy, we should now switch our focus from fiscal tightening to some kind of relaxation.
In fact, with this framework in mind we should target the deficit within an economic cycle instead of the Gregorian calendar and I think, again, with the reforms done, we should be able to close the gap in the long run.
And we ― when I use the pronoun we here particularly, I mean the government; after all, we elected the government regardless whether we like those sitting in Putrajaya spending our money ― do honestly have a legitimate requirement to spend this time around, which runs contrary to keeping the what seems to be an impossible deficit target to meet.
No, it is not about saving 1Malaysia Development Berhad ― a beast which we will have to address ― or paying thousands of ringgit for a set of screwdrivers, or even giving more free money to suspicious grantpreneurs and selecting winners in the economy. It is about helping fellow Malaysians.
Pictures of devastation from the recent floods are heartbreaking. As fellow citizens, it is our duty to lighten their burden and the government is our primary agent to do so. Not some political parties, not some NGOs, not some volunteers. It is good to see people helping out but our agent is the government. We pay taxes and we expect the government to provide the basic infrastructure that the country needs to go forward. It is the basic role of a government.
These infrastructures from water to bridges to schools in the east coast need repairs. We need to spend for the repairs and in many cases, for reconstruction altogether.
That spending would probably hit the deficit figures but it is for a good cause. The deficit can wait for another day.