Author: Hafiz Noor Shams

As a libertarian that I am, I can only sigh after reading the 2010 federal budget speech delivered by the Finance Minister.

I begin from a point deep in the realm of skepticism. I never actually believe any government in Malaysia — now or in the near future, neither Barisan Nasional nor Pakatan Rakyat — would largely retreat from the marketplace to leave the market to its own device in most cases. There are simply too many political considerations that go against the notion of free market here in Malaysia.

Firstly, businesses are politically-connected to make the government pro-business. In fact, the government itself is involved in businesses through its oligopolies to crowd out private initiatives. This has not even considered the erased line between the government and Barisan Nasional, where public properties are used for personal and political gain. For the government to touch itself openly is inevitable. That is the likely result in the case of conflict of interest, which is hardly surprising at all. There is no decency anymore these days.

Secondly is the developing entitlement mentality. Fuel subsidy is a right. Free highway is a right. Scholarship to universities abroad is a right. Bonus is a right. With such mentality and with both Barisan Nasional and Pakatan Rakyat racing on this front, government expansion is the only logical way forward. We have seen how the Islamization race between UMNO and PAS ended. It does not take a leap in imagination to picture the end result of the race between Barisan Nasional and Pakatan Rakyat to the left.

Early in the speech, the Finance Minister mentioned the scope of government intervention and it is wide. In his own words, the government ”will transform Malaysia through a comprehensive innovation process, comprising innovation in public and private sector governance, societal innovation, urban innovation, rural innovation, corporate innovation, industrial innovation, education innovation, healthcare innovation, transport innovation, social safety net innovation and branding innovation.”

That is a mighty goal, especially given that many governments perform poorly in the area of innovation when put head to head with the free market.

No matter. The government knows best and god saves us all.

Regardless of the budget, a new industrial policy that necessarily calls upon government intervention appears imminent. The talk of a so-called new economic model or really, a central planning exercise with new emphases has been going on for months now. Different goals, same paradigm.

The best symbol of paternalism available in the budget that a layperson can identify with is the proposal to charge an annual lump sum fee on credit cards. The Finance Minister claims that this is done to promote prudent spending. It is, as if, all individuals are doomed to spend all of their money dry.

Never mind that the government itself is spending imprudently. I wonder if an individual with his or her own money would buy a laptop priced at RM42,320. Whatever the answer, we know that some government institution has done that. Open up the auditor report. Year in and year out, it is the same old story. Yet, individuals have to suffer paternalistic attitude from a hypocritical government, which is convinced that individuals cannot manage their finance.

On the contrary, the government should really worry about its own financial status first rather than trying to tweak individual behavior, from savings to spending. Its revenue is going down and its expenditure is growing, the abnormal spending caused by the stimulus package notwithstanding.

The government seems to be addressing that problem by introducing goods and services tax later in hope to increase its revenue; not in 2010 but maybe in 2011. I personally like such consumption tax, but only if it neutralizes amount of theoretical loss due to income tax. To have both is to reduce welfare of individuals. Other than that, the government is even preparing to rents out some of its premises to the public, among other things.

The reform effort at the fuel subsidy regime is likely to help but it is unclear how that would be effective in rectifying government finance in light of expanding roles of government in the country.

The size of government expenditure — regardless whether it is caused by corruption, incompetence or by simply misguided conscience to help — needs curbing, if the problem of government finance is to be effectively addressed.

With a little luck, such retreat will give the private sector more space to flourish and contribute to government coffer, in the long run.

Yes, in the long run, we are all dead as Keynes wrote. Remember however that we are here now because of quick fixes — get the government to do it.

First published in The Malaysian Insider on October 27 2009.