Group launches 'Budget for dummies' e-booklet
Published: Sep 2, 2011 10:17 AM | Updated: Sep 3, 2011 7:41 AM
Independent policy think-tank Research for Social Advancement (Refsa) today released its first in a series of pre-Budget 2012 focus papers that are aimed at educating the people about how public funds are spent.
Independent policy think-tank Research for Social Advancement (Refsa) today released its first in a series of pre-Budget 2012 focus papers that are aimed at educating the people about how public funds are spent.
Authored by Teh Chi-Chang, who is Refsa executive director, the first in the weekly series in the run-up to the Oct 7 Budget speech focuses on government revenue and spending.
Teh points out that a whopping 35 percent of government revenue is derived from petroleum-related taxes while only 10 percent or one million out of the 10 million workforce pay taxes.
"This low direct tax incidence helps to perpetuate the misconception that government spending is ‘free'. Since 90 percent of Malaysians do not pay income taxes, whatever comes from the government is perceived as a windfall.
"Hence, much time is spent on lobbying and arguing for pet projects and more handouts and subsidies," writes Teh.
Why GST?
But in reality, the shortfall is borne through Petronas, which has been contributing to government revenue at an increasing rate.
"In 2003, Petronas contributed about RM22 billion or 21 percent of the federal revenue. By 2010, that amount had ballooned to RM56 billion or 35 percent.
"This situation is not sustainable. Petronas needs to retain more money for reinvestment, for our oil reserves would run out at some point.
"At that point, if the government continues to spend like it does today, it will have to find other sources of income. One of the quickest ways will be to raise or introduce new taxes to widen the tax base," he says.
Teh explains that this is why the government is keen to implement the Goods and Services Tax (GST) which would widen the tax base to all Malaysians.
RM10,000 debt for every citizen
The Refsa paper also tries to explain how Malaysia's 13th straight year of a budget deficit would be detrimental to the citizens.
As it stands, Malaysia's cumulative shortfall over the past 13 years is estimated at RM290 billion, or equivalent to RM10,000 in debt for every citizen.
Should the federal government continue to run deficits and borrow more money, spending on debt service charges would go up. Currently, debt service charges account for 11 percent of government spending.
"As this goes up, we will have less to spend on other things, like education and healthcare," Teh writes.
And should borrowers be unwilling to lend in the future, the government may be forced to slash spending, reduce salaries and services and force certain lenders, such as the Employees Provident Fund (EPF), to accept lesser payments and in turn, pay less dividend to contributors.
The seven-page e-booklet can be downloaded from Refsa's website. It is currently only available in English.
Authored by Teh Chi-Chang, who is Refsa executive director, the first in the weekly series in the run-up to the Oct 7 Budget speech focuses on government revenue and spending.
Teh points out that a whopping 35 percent of government revenue is derived from petroleum-related taxes while only 10 percent or one million out of the 10 million workforce pay taxes.
"This low direct tax incidence helps to perpetuate the misconception that government spending is ‘free'. Since 90 percent of Malaysians do not pay income taxes, whatever comes from the government is perceived as a windfall.
"Hence, much time is spent on lobbying and arguing for pet projects and more handouts and subsidies," writes Teh.
Why GST?
But in reality, the shortfall is borne through Petronas, which has been contributing to government revenue at an increasing rate.
"In 2003, Petronas contributed about RM22 billion or 21 percent of the federal revenue. By 2010, that amount had ballooned to RM56 billion or 35 percent.
"This situation is not sustainable. Petronas needs to retain more money for reinvestment, for our oil reserves would run out at some point.
"At that point, if the government continues to spend like it does today, it will have to find other sources of income. One of the quickest ways will be to raise or introduce new taxes to widen the tax base," he says.Teh explains that this is why the government is keen to implement the Goods and Services Tax (GST) which would widen the tax base to all Malaysians.
RM10,000 debt for every citizen
The Refsa paper also tries to explain how Malaysia's 13th straight year of a budget deficit would be detrimental to the citizens.
As it stands, Malaysia's cumulative shortfall over the past 13 years is estimated at RM290 billion, or equivalent to RM10,000 in debt for every citizen.
Should the federal government continue to run deficits and borrow more money, spending on debt service charges would go up. Currently, debt service charges account for 11 percent of government spending.
"As this goes up, we will have less to spend on other things, like education and healthcare," Teh writes.
And should borrowers be unwilling to lend in the future, the government may be forced to slash spending, reduce salaries and services and force certain lenders, such as the Employees Provident Fund (EPF), to accept lesser payments and in turn, pay less dividend to contributors.
The seven-page e-booklet can be downloaded from Refsa's website. It is currently only available in English.
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