I like Tony Pua. And I damn love graphs. Graphs are the real reason why I picked up Economics 101 at Michigan during my freshman year. The second reason why I picked up Economics was that I wanted to help the poor (yeah, right).

When he posted a graph at his blog, I began to really like him.[1]

This is the graph and the figures are in RM billion.

Fair use. Copyrights by Tony Pua.

Unfortunately, I spotted a problem when I checked the figures which he based his comment on: his year 2005 figure of RM89.1 billion as visible above exactly matches with the figure read by the Prime Minister in 2005. The figure for budgeted operating expenditure in 2005 as stated in the 2005 budget document is exactly RM89.1 billion.[2]

If the figures are the same, which it is, that means whatever analysis which Mr. Pua carried out fails to account for inflation.

Mr. Pua said that the budgeted operating budget has increased by approximately 189% between year 2000 and year 2008. True but only in nominal terms.

Comparison made in nominal terms is always unhelpful in times when inflation is high. Without accounting for inflation, it is really hard to know if any increase or decrease in spending is due to actual increase in quantity of goods or services (i.e. real spending) or simply an increase in price, i.e. inflation.

And thanks to Mr. Pua, I cannot continue with my readings until I know how much the Malaysian government opex has increased between year 2000 and year 2008 accounting for inflation.

Assuming inflation rate was steady at 2% for the whole period, there would have been an increase of roughly 142% only. Assuming the rate at 3%, it would have been 121%. Assuming at 4%, it would be 103%.

Below is a table which I have created to illustrate the effect of inflation on the figures as well as the increase of opex under three different inflation rates.

By Mohd Hafiz Noor Shams. Public domain.

If you love graph, like me, here is a gift for you.

By Mohd Hafiz Noor Shams. Public domain.

Figures are in RM billion at 2009 prices.

Lest I be misunderstood, I am not trying to defend the Barisan Nasional government. I only believe that the right perspective has to be put in place before any analysis or criticism is leveled at.

The context which to the deficit took place in has to be considered. The fact that crude oil, food as well as other commodities had become dearer as part of a larger trend has to be factored in for any of us to understand the increase. This is on top of the fact that the opex, if I am not mistaken, also included subsidies. With more expensive food, fuel and commodities, the larger would the subsidies be.

That said, the real increase is still huge and I would prefer to see a more modest opex. I am unsure how much of those increase is attributed to leakage and corruption but I think removal of subsidies would help a lot in slowing down the bludgeoning opex.

Finally, Mr. Pua said:

This rapid expansion of operational expenditure has deprived the country of sizeable funds for development expenditure which has greater economic multiplier effects.

Multiplier effects, sir?

Come back to the light, sir!

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

[1] — [Budget 2009: Skyrocketing Operational Expenditure. Philosophy Politics Economics. September 2 2008]

[2] — 13. To implement the above strategies, the Government proposes an amount of RM117.4 billion be appropriated in 2005 Budget. With revenue estimated at RM99.2 billion, the overall Federal Government deficit is expected to be reduced to 3.8 percent of GDP. Of this, RM89.1 billion or 75.9 percent is for Operating Expenditure and RM28.3 billion for Development Expenditure. [The 2005 Budget Speech. Office of the Prime Minister of Malaysia. September 10 2005]

3 Responses to “[1762] Of it is big but not that big”

  1. on 07 Sep 2008 at 01:22 Zaaba

    Bro, yang graph Tony Pua tu you have to be careful also. Are these the “budgeted” figures per each budget announcement by the Government or ACTUAL figures (we can know actual expenditure now). Just putting on the graph there can be misleading bro!

  2. on 07 Sep 2008 at 17:46 Hafiz Noor Shams

    They are budgeted figures. And yup, you are right. It would be better to use actual figures.

  3. on 08 Sep 2008 at 19:29 khensthoth

    Well, that’s the first thing I thought of after the budget is released. And, that’s how I came to the same conclusion that nominal terms do not really reflect the real situation.

    And, my god, one semester of Economics finally paid off. I know how to reach the figures in your graph based on the inflation rate.

    Anyway, you might want to prepare better graph by using (what I assume to be) the actual spending instead. Here’s the source of your data, downloaded straight from our Treasury website.

    I do, however, think that the operating expenditure of the government is way too high.

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