Author: Hafiz Noor Shams

For more about me, please read this.

Categories
Economics Politics & government

[2442] Hypocrisy hampers deficit reduction agenda

If one throws a dart randomly at those pieces of paper pinned on the wall, there is a good chance the dart will land on a handout provision. Those papers are the 2012 Budget.

The Budget, as tabled by the Najib administration, is an election budget. Civil servants, teachers, the police force, the armed forces, pensioners and others will get their share regardless of justifiability.

Meanwhile, the subsidy liberalization program that the Najib administration was so gung-ho about earlier has taken a back seat, half-baked and emitting a stench called hypocrisy. Idris Jala, a man who unproductively exaggerated that Malaysia would go bankrupt if the government expenditure continued to rise, now praises the Budget of goodies.

Such is the loyalty of some men to ideas and principles. The wind blows and the mind changes. There is no principle to stick to because only political convenience matters. Never mind the contradiction and hypocrisy. Voters have a short memory span. Give them money and they will go gaga. It is all about winning elections, not honesty and consistency.

The financial position of the federal government could be in a better shape if the administration had the necessary honesty and consistency instead of bending backwards to accommodate the populism monster.

Without the monster, the fiscal deficit for year 2012 — the Najib administration projects to be 4.7% of nominal gross domestic product (or RM33.8 billion in absolute terms) — could be lowered considerably. It could possibly go down as far as 3.7% of nominal GDP if all the subsidies, one-time cash transfers and other election-related handouts are flushed down the drain.

Admittedly, the drastic reduction will be a shock to the system that none might want to experience amid the present global economic uncertainty.

Yet, in times of uncertainty, it is only prudent to save for rainy days even within political needs. This is doubly true given that regardless what has been said and done about the importance of domestic demand, external demand is still wildly important to the domestic economy.

A number of analysts have already voiced out that the government’s revenue figures are too optimistic for a pessimistic world. That is all the more reason for observers to be conservative with the federal government’s finance.

The fiscal deficit can be brought down still lower even with political considerations in mind. Removing the RM3,000 one-off gift to 4,300 individuals, another RM500 one-off transfer to an expected 3.4 million persons and the KAR1SMA program that will cost RM1.2 billion off the Budget while keeping the bloated subsidy regime intact, the deficit for the year 2012 could stand at 4.4% out of nominal GDP instead of the higher projected 4.7%.

One could argue that these programs are welfare enhancing, hence they deserve to be written into the 2012 Budget. In order to forward that argument however, one has to believe in it first. Honesty is required.

Unfortunately, many of those within the government whom now say these are caring measures are exactly those whom accused these same measures of being irresponsibly populist. This suggests one thing. Their only moral compass involves one question: where did the idea come from?

If it is from across the aisle, it is destructively populist. If it comes from their side, the same measures are caring.

That is not a sincere moral system, for the currency is political convenience. The slogan is ”win the election and forget anything else.”

If honesty were of any value, these programs — regardless of whether they are labeled populist or caring — should have given way to a deficit reduction agenda. With honesty and consistency, the federal government would have a smaller deficit, so that there would be less taxation for all of us in the future.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
First published in The Malaysian Insider on October 10 2011.

Categories
Economics

[2441] No target, no central planning

Milton Friedman once visited Hong Kong in 1963. He met John Cowperthwaite, the financial secretary of Hong Kong, whom was credited for enabling Hong Kong to become Asia’s foremost financial center through his free market policy. Friedman asked him “about the paucity of statistics” in Hong Kong. Cowperthwaite replied, “If I let them compute those statistics, they’ll want to use them for planning.[1]

Statistics has its uses and it does help us understand our society better. It describes phenomena objectively instead of forcing us to rely on conflicting anecdotes that are dependent on point of views. First and foremost, statistics has descriptive power.

But not all individuals believe in only the descriptive power of statistics. Some believe too much in the prescriptive aspect. Statists tend to belong in the latter group. PEMANDU is afflicted with it too, arrogantly trying to manage the economy when the economy itself is organic.

I reject targets placed on something as organic as the economy. While the government does have a role to play, to set a target on the economy mistakes the economy as a business entity or a firm, pretending as if the planner is the CEO, where there is none really.

The dangers of having a set of targets like having specific real GDP growth rate are plenty. One of them is the incentive for the government to spend too much just to meet its target. There is a conflict of interest when the target is set by the very entity that is meant to achieve it (this is also partly the reason why I am skeptical with a lot of KPIs set by the government: incentive to set them low to make themselves good).

This adverse incentive is bad for public finance and ultimately, for taxpayers.

More generally, having those targets encourages central planning.

But this entry is not meant to bash PEMANDU. I think I have criticized PEMANDU so much that I am bored of it already. This entry is meant to criticize Anwar Ibrahim.

Anwar Ibrahim is smart. When he realizes that the Najib administration is targeting possibly an unrealistically high real GDP growth rate given the global economic circumstances, he challenges it and demands accountability from the federal government. He wants a special parliamentary sitting to meet if the federal government fails to meet their target later in the year.[2]

I disagree to the demand for accountability. It is not so much I would like to give the Najib administration a free ride. It is only because I disagree with having a target in the first place. To demand accountability only strengthens the path to the target. That means central planning.

This is a case where accountability is not so hot.

Mohd Hafiz Noor Shams. Some rights reservedMohd Hafiz Noor Shams. Some rights reservedMohd Hafiz Noor Shams. Some rights reserved
[1] — The difference in the economic policies followed by Hong Kong and Britain was a pure accident. The colonial office in Britain happened to send John Cowper-thwaite to Hong Kong to serve as its financial secretary. Cowperthwaite was a Scotsman and very much a disciple of Adam Smith. At the time, while Britain was moving to a socialist and welfare state, Cowperthwaite insisted that Hong Kong practice laissez-faire. He refused to impose any tariffs. He insisted on keeping taxes down.

I first visited Hong Kong in 1955, shortly after the initial inflow of refugees. It was a miserable place for most of its inhabitants. The temporary dwellings that the government had thrown up to house the refugees were one-room cells in a multistory building that was open in the front: one family, one room. The fact that people would accept such miserable living quarters testified to the intensity of their desire to leave Red China.

I met Cowperthwaite in 1963 on my next visit to Hong Kong. I remember asking him about the paucity of statistics. He answered, ”If I let them compute those statistics, they’ll want to use them for planning.’’ How wise! [Milton Friedman. The Hong Kong Experiment. Hoover Digest. July 30 1998]

[2] — KUALA LUMPUR, Oct 10 — Datuk Seri Anwar Ibrahim today demanded Parliament reconvene for a ”special sitting” if Putrajaya fails to meet its ”unreasonable” gross domestic product (GDP) growth forecast.

The opposition leader today poured cold water over Datuk Seri Najib Razak’s Budget 2012 tabled on Friday, claiming the prime minister’s predictions and his administration’s alleged penchant for unbridled spending would likely worsen the country’s deficit.

Anwar also predicted the Najib administration would table a supplementary supply bill by mid-2012, seeking for additional funds just as it did in June this year. [Clara Chooi. Anwar wants special Parliament meet if GDP aim unmet. The Malaysian Insider. October 10 2011]

Categories
Economics Education Politics & government

[2440] Opposing double deduction for scholarship abroad

The government intends to give corporations double deduction for sponsoring students. While it is great to encourage the private sector to give out scholarships to students so that there are fewer reasons for government to do so, I think the double deduction is a bad idea. There two reasons.

First, I am with the idea that the government is spending too much money on sending undergraduates abroad. When the destination countries are developed countries like United States and the United Kingdom, the scholarship program as a whole will be awfully expensive. If you are to attend the University of Michigan as a government-sponsored student in a typical 4-year undergraduate program for instance, the tuition alone can surpass half a million ringgit, just like that.[1]

Of course, Michigan is not your typical university and there are of course cheaper universities out there in the US but most of those cheaper universities do not bring value to public money when there are better alternatives closer to home. You do not want to pay half a million ringgit to send something to a school like, oh, I don’t know, Ohio State University maybe?

Okay, that is uncalled for but you get my drift. OSU is a good university, only that Michigan is way better, in every single way. Including, thank the heavens, in football too!

I prefer the government to use the money on improving the local tertiary education instead. Money of course can only do so much. There are other factors like freedom on campus (Malaysian public universities seriously lack this) to develop a free inquiry culture but money does matter.

There are exceptions to my opposition to public scholarship to abroad, but these exceptions are so small that even putting them up while drastically reducing the program will free up tons of money for other uses. In the double deduction policy, since awards for places abroad is costlier than local spots, companies have the incentives to send students abroad, at taxpayers’ expense.

Secondly, the double deduction reduces government tax revenue only to do what the government is doing in the first place. It is only fee-shifting or paper-shifting so to speak. It does not matter who spends it because in the end, it will use taxpayer money. If the number of awards—for local and overseas spots—stays the same, then this policy will only increase the cost, explicitly or implicitly, of maintaining the policy, explicitly or implicitly. When the result is the same, why do it convolutedly? Such an accounting trick will add more cost than necessary to the government.

If the government is reducing scholarship award, then the money will flow out anyway before it gets in. It will show lower revenue and lower spending and then, maybe, smaller government. That is only because of that accounting trick. Like all accounting tricks, it is superficial.

At the very least, I think the double deduction should come with a caveat: only for sponsorships at local schools. If anybody wants to send somebody abroad, they should use their own money entirely.

Or otherwise, maybe just reduce corporate and service tax altogether so that this problem with double deduction would not be a problem to start with. That would truly be more substantial than that particular 2012 budget provision.

Or yet another or-case, the government should only give out less than 100% deduction while reducing the number of public scholarship awards to abroad.

Mohd Hafiz Noor Shams. Some rights reservedMohd Hafiz Noor Shams. Some rights reservedMohd Hafiz Noor Shams. Some rights reserved
[1] — [Office of the Registrar. Full Term Tuition & Fees. University of Michigan. Accessed October 9 2011]

Categories
Liberty Society

[2439] When it comes, they will run

The return of Hong Kong to the People’s Republic of China was imminent. After years of a hands-free approach taken by the colonial government, the citizens of Hong Kong were used to a liberal atmosphere. The prospect of a continuous liberal environment after the 1997 handover was unclear however. The uncertainty convinced many to fear the worst. Rather than suffer the uncertainty, they took action and sought refuge elsewhere. They applied for permanent residency and citizenship in other countries to escape the possibility of living in an oppressive society. The PRC, regardless of what it is now with all of its contradictions, was perceived as a repressive and decidedly communist country. The 1989 Tiananmen Square incident was still fresh in everybody’s minds.

Money is not always the only consideration in any decision regarding migration. There are other factors that are not necessarily less important than money. Security is one. Love is two. Freedom has often been cited as a factor. A way of life is another.

The implementation of hudud or the adoption of more comprehensive Islamic laws will affect the way of life in Malaysia.

Proponents of hudud argue that the implementation of such laws will be applicable to Muslims only. They guarantee it.

Neither their argument nor their guarantee are good.

The argument of exclusive application is unlikely to be true. Previous conflicts from child custody to death and burial have proven that even the milder version of Islamic laws as practised in Malaysia impacts non-Muslims. These proponents might have forgotten these episodes. They must be reminded of it because these conflicts do create a fear of creeping Islamization in the hearts of non-Muslims as well as others who care for religious freedom.

These past conflicts can tell us what to expect in the future.

The likelier outcome of the wider implementation of Islamic laws is this: whatever affecting the majority will likely affect the minority. A more comprehensive version will not leave non-Muslims alone, even if the legal rights are discriminated among citizens so strongly.

It is naïve to believe such an incredible guarantee.

The minority will float along with the majority, whether they like it or not, for better or for worse. The wider implementation of Islamic laws will be a change in lifestyle for everybody. It will first affect the lifestyle of Muslims, regardless of their piety. The group will become more conservative, voluntarily or otherwise.

Then through the interaction between Muslims and non-Muslims, the lifestyle of the latter will be affected. The rest will have to respect the new conservativeness.

In the end, whatever is the way of life that prevails will change. Whatever openness and liberalness within the society that exists will gradually vanish to satisfy rising conservativeness. Whatever lifestyle that was will have to give way to the Islamic one, however those in power define the Islamic laws. The outlook of Malaysian society itself will change. None will escape such a wholesome change unless they leave.

There is a point where the religious and non-religious minorities along with Muslims who hold more relaxed religious positions will choose migration over further tolerance of growing Islamization within their society. The potential lifestyle change can be too drastic to stomach. There is a point where enough is enough.

If it comes, there will be those who will walk off to a more open society permanently. They have the means to do so, just like many former citizens of Hong Kong.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
First published in The Malaysian Insider on October 6 2011.

Categories
Economics

[2438] Malaysia could have smaller deficit

The 2012 budget is an election budget. From civil servants to police officers to students to teachers to the armed forces, the whole public sector workers, even pensioners, will get their own share of handouts next year if this budget is passed, which it will.

With all the handouts, it got me thinking. We could do better with the federal government’s fiscal deficit. A lot of this handouts with the exception of the 2% annual increase of salary for civil servants and free education are one-off gifts. If those gifts were not made, Malaysia would have smaller fiscal deficit.

I will expand this thought for my column at The Malaysian Insider.