• “Hidden” Budget Items to look out for

    Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 22nd of October, 2015

    “Hidden” Budget Items to look out for

    To the man on the street, he would be looking out for how the budget affects his pocket directly, whether it is through the income tax rate, the GST rate or how much BR1M is being paid out and at what income levels. This is only natural. However, for policy makers, lawmakers and analysts, the budget is a more holistic document that has larger implications on the economy beyond the direct impact to one’s pocketbook. Here are some of the things I will be looking out for in today’s budget and budget related documents which will be tabled in parliament.

    1) Where will the expenditure cuts and increases be?

    During every budget session, the Ministry of Finance provides a thick book entitled “Anggaran Perbelanjaan Persekutuan” or Estimated Federal Expenditure which provides a breakdown of the estimated operating and development expenditure for the items under each ministry for the current fiscal year and for the upcoming fiscal year.[1] Except for budget junkies, most members of the public would not have seen the contents of this book before. But it is an important book in that it tells us exactly where the expenditure cuts and increases will take place.

    For example, total government expenditure was expected to increase from RM264 billion in 2014 to RM274 billion in 2015. But this increase in expenditure is not distributed evenly. The Prime Minister’s Department saw its estimated budget increase from RM16.5b in 2014 to RM19b in 2015, an increase of RM2.5b while the Ministry of Transportation saw its estimated budget decrease from RM5.2b in 2014 to RM4.6b, a decrease of 0.6b.

    This document tells us where the government spending priorities lie moving forward and points to possible areas of less than transparency discretionary spending. For example, most of the RM2.5b increase in the budget of the Prime Minister’s Department was in development expenditure which includes RM1.5b for PR1MA housing, RM1.9b for spending on the 5 development corridors and a shocking RM1.6b for “special projects” (details not listed). At the same time, the operating expenditure for the public universities was cut by an estimated RM1.1b from RM8.5b in 2014 to RM7.4b in 2015.

    There are many interesting items which are revealed in this document, ranging from the small – RM20m in 2015 for the ANGKASA space program, to the large – an estimated RM2.2b in 2015 for various paddy related subsidies.

    As they say, the devil is in the details, and the details which are listed in this document have real economic and social implications which warrant closer scrutiny.

    2) Changes in Off Budget Items

    During each budget session, the Ministry of Finance and the Accountant General’s Department of Malaysia publishes a document entitled “Federal Government Financial Statements” or “Penyata Kewangan Kerajaan Persekutuan.” It provides details of the actual government expenditure for the previous budgetary year. It also provides a list of outstanding government loans, a list of government investments and a list of government guaranteed loans by GLCs and government owned companies.

    Why are these lists important? Firstly, the list of outstanding government loans tells us exactly how much some of these companies owe to the federal government. For example, it tells us that, as of 2013, the Port Klang Authority (PKA) still owed the government RM3.7b as a result of a ‘bail out’ soft loan provided by the government to save PKA from the PKFZ scandal. It also tells us that the Indah Water Konsortium (IWK) and the National Feedlot Corporation (NFC) owed the federal government RM2b and RM225m respectively as of 2013. While these loans are listed as government assets, the fact that many of them are given to companies that are not in a position to service these loans means a high probability that the government has to write some of them off as bad debts. Which means that ultimately, the taxpayer would have to foot the bill.

    Secondly, the list of government investments tells us the exact shareholdings of the government in various listed and non-public listed companies. This list tells us which companies the government has effective control over. And, with a bit of digging, it may also reveal to us some of the ways in which the government ‘hides’ its debts. For example, two of the companies featured in this list – Pembinaan BLT Sdn Bhd and Pembinaan PFI Sdn Bhd – are actually special purpose vehicles set up to finance various development projects which do not appear in the official development expenditure budget. Pembinaan PFI’s debts, for example, stood at RM26.5b as of Financial Year 2014 and it has no independently generated revenue which means that the interest payments on its debts will have to come from federal government sources. Will there be any more Pembinaan PFI’s and BLT’s in this list? We will see after today’s budget announcement when the government’s financial statement for 2014 is released.

    Thirdly, the list of government guarantees shows us how much the government has to spend to ‘bail out’ companies on this list if they ever declare bankruptcy. RM5.8b of 1MDB’s debts are government guaranteed as of 2013, as are RM29.2b of PTPTN’s debts. Total government guarantees (otherwise known as “contingent liabilities”) stood at RM157.5b as of 2013. If these guarantees were added to government debt, then our debt to GDP ratio would exceed the 55% government limit.

    Of course, some of the companies featured in this list such as TNB and Khazanah are of sound financial standing and would probably not require a government bailout in the near future. But at the same time, the government’s exposure to companies such as 1MDB is much more than the listed RM5.8b of government guarantees. How much more has the government’s exposure increased?

    We will know after perusing the latest financial statements of the federal government.

    3) Auditor General’s Report on the Financial Status and Management of the Federal Government

    The Auditor General also releases its yearly report on the financial status and management of the federal government and the individual ministries during the year end budget parliamentary session.

    It is not a very well-perused document but it contains important information such as the quality of financial management by the individual ministries, the companies which have problems servicing their government loans and the expenditure status of certain trust accounts. It was in this document where I discovered that Pembinaan PFI had spent close to RM30b in development expenditure related projects and it was also here that I found out that companies such as Cyberview Sdn Bhd had accumulated RM571m in payment arrears to the federal government.

    So while attention is being paid to some of the headline grabbing items in the budget, I will be carefully scrutinizing some of these ‘hidden’ items in the budget and budget related documents that may contain other interesting and perhaps even more important information pertaining to the financial situation of our country.

    Dr. Ong Kian Ming
    Member of Parliament for Serdang

    [1] http://www1.treasury.gov.my/index.php?option=com_content&view=category&id=447&Itemid=2473&lang=en

1 Comment

  1. Vincent c.h.yeoh says: October 24, 2015 at 10:59 amReply

    thks v much to take your time to the masses,onto lay people to understand,the hidden budget items to look out for,which is unknown to us(extra expenditure)..could hardly read from economic analysis…my daughter get interested about you,not even know LGE son of.LKS..she now 27yrs,work in Micosoft,she know LKS suspended 6months from parliament,thanks.

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