Wish list for the 11th Malaysia Plan

Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 20th of May, 2015

Wish list for the 11th Malaysia Plan

Prime Minister Najib Tun Razak will unveil the 11th Malaysia Plan (2016 to 2020) tomorrow in parliament. This will be the Malaysia Plan that will take us to a developed nation status by 2020. Expectations therefore are very high that this plan will not only chart the course for us to achieve a developed nation status but to show the way forward thereafter.

Below is my wishlist for what I hope will be covered in the 11th Malaysia Plan. Unfortunately, despite the importance of this plan, none of the opposition parties and members of parliament were consulted during the preparation of this plan even though we represent 52% of the voters in the country.

1)      Wish One: A new definition of poverty

Idris Jala, the CEO of Pemandu, was quoted as saying that the poverty in Malaysia has nearly been eradicated with less than 1% of the population living below the Poverty Line Index (PLI) [1] which is RM830 per month in Peninsular Malaysia, RM1090 in Sabah and RM920 in Sarawak.[2]

Putting aside some valid concerns about the accuracy and representativeness of the data collected, I would like to see Malaysia adopt a new definition of poverty. Since Idris Jala likes to use international organizations such as the OECD and the World Bank as reference points, I would point him towards the OECD definition of poverty where “the poverty line is here taken as half the median household income.”[3] Developing countries place more importance on absolute poverty lines while developed countries place more importance on relative poverty lines.[4] Since Malaysia is moving towards the status of a developed nation, it would make sense for us to adopt a relative poverty measurement.

According to the 2012 Household Income Survey, the median household income was RM3626 a month. Using the OECD relative poverty line, this means that the PLI for relative poverty in Malaysia would be RM1813 a month. The median household income of the bottom 40% was RM1852 a month. Using this new relative poverty definition, Malaysia’s poverty rate would measure in at almost 20% i.e. half of the bottom 40%.

At the same time, I would advocate that the Economic Planning Unit establish a Multidimensional Poverty Index (MPI), also advocated by the OECD, which takes into account measures other than income such as poor housing conditions, the lack of durable assets and an inability to meet basic needs. The inaugural Malaysia Human Development Report 2013 also advocates for other ways of measuring poverty which the EPU can customise and use.[5]

2)      Wish Two: Subsidy Rationalisation which is transparent and makes sense

The government has made a big deal of its subsidy rationalization program including the recent abolishment of the petrol subsidy and the cuts in the electricity subsidy. What the government has not done is to review and reform the many other government subsidies which are given in a less than transparent but very costly manner.

For example, the Ministry of Agriculture will spend an estimated RM2.2 billion in various types of subsidies on the paddy industry in 2015. Almost half a billion ringgit is spent on subsidizing the production of ST15 rice that is meant for low income groups. But much of this subsidized rice is ‘hijacked’ by wholesalers and repackaged into more expensive variants which are then sold in the market. Those who are ‘lucky’ enough to obtain the ST15 quotas can profit doubly – from the subsidy they receive from the government and from the profits they make from repackaging and selling the rice as a more expensive variant. Even though the Public Accounts Committee (PAC) has recommended that this ST15 subsidy program be abolished, the Ministry has denied this request and refused to even review the weaknesses of the program which were identified by the Auditor General’s Report.[6]

If the government is serious about its commitment to subsidy rationalisation, it should demonstrate its political will by tackling subsidies which are costly and not given out in a transparent manner such as the various rice and paddy related subsidies. It is inconsistent to demand that consumers face the reality of market driven petrol prices but continue to give out subsidies which are ‘captured’ by well-connected middlemen.

3)      Wish Three: Government Spending which is transparent and not “hidden”

One of the most important aspects of any Malaysia Plan is that it outlines the budget allocation for major infrastructure and development projects for the country in the next 5 years. Allocations for new hospitals, schools, government buildings, roads, bridges and other infrastructure upgrades will be included as part of the 11th Malaysia Plan. As part of the government’s initiative to make its spending more transparent, the lists of development and infrastructure projects under the 11th Malaysia Plan should be made publicly available.

In addition, it is imperative that the government gives an honest and transparent account of how much these projects are expected to cost and who will pay for these projects. For example, a number of large scale and expensive projects are already ongoing but do not appear anywhere in the official budget. The LRT extension, which is expected to cost an estimated RM11-12 billion and the MRT project, which is expected to cost RM36 billion for Line 1, are off-budget expenditure items, financed by special purpose vehicles or government owned companies. Ultimately, the bonds which are issued by these SPVs or these companies will have to be serviced by the government, especially since these large scale projects cannot generate sufficient revenue on their own.

Other large scale projects in the pipeline include the LRT 3 extension, the MRT 2 line, possibly the MRT 3 line, the high speed rail (HSR) to Singapore and two possible large scale nuclear plants.

The government has already spent close to RM30 billion in development expenditure using Pembinaan PFI Sdn Bhd, a 100% Ministry of Finance (MoF) company. This expenditure does not appear anywhere in the past budgets and is not even listed as a contingent liability. It is likely that the money was spent this way in order to avoid spooking the markets by going over the 55% Government Debt to GDP ratio.

For the sake of transparency, the government should declare who will pay for these projects, how the financing of these projects will be raised and possibly shortfalls in the future which will have to be covered by the government.

4)      Wish Four: Public Private Partnerships which are transparent and not biased towards the private sector

The record of the Malaysian government in establishing Public Private Partnerships (PPP) which are transparent, fair and beneficial to all parties is abysmal, to say the least. Many of these PPP deals have been heavily biased towards the private sector parties, most notably in the contracts signed with the Independent Power Producers (first generation) and the various toll concessionaires.

It would not be too much to ask for the contracts of these PPPs to be made publicly available before they are signed so that there is sufficient public scrutiny by interested parties. If the pricing for the bids for new power stations can be made public by the Energy Commission, why can’t the details of all the PPPs produced and negotiated by UKAS, the unit in charge of PPPs in the Prime Minister’s Department?

Examples of such contracts which need to be disclosed are the West Coast Expressway (WCE), the various highways which have been approved by the PPP in the Klang Valley, the contract to build and run a mega-incinerator in Kepong, and possible contracts to build and operate two planned nuclear power stations.

5)      Wish Five: Giving more power to the state and local governments

One of the aspects of the development expenditure allocation is that sometimes, a significant proportion is left unspent. While some of the reasons for this unspent allocation may be valid – such as the inability to find a suitable contractor – other less acceptable reasons include unnecessary delays and inefficiencies at the level of the federal government. At the same time, state and local governments are limited in the ways in which they can raise and spend taxes for local development.

It would be a game changer for the country if the 11th Malaysia Plan would include as one of its thrusts, an ambitious program for decentralizing of more power and allocating more revenue to the state and local governments including the power to raise additional revenue through taxes. This would allow greater room for cash strapped local authorities to raise and spend money locally especially on much needed development and infrastructure projects.

Ideally, this decentralization would be accompanied by local government elections in order to increase the accountability of the local authorities to the ratepayers who are paying taxes to the respective local authorities.

6)      Wish Six: Making clear the hard choices we must make

My sixth and final wish is perhaps the most demanding from the perspective of the government. As we achieve the status of a developed country, hard choices must be made in different areas of public policy. We will demand for a cleaner, healthier environment but we must be willing to pay a higher electricity price to fund renewable energy. We will want to have access to higher quality healthcare that is accessible and affordable but someone will have to pay for better equipment and higher salaries for our specialist doctors. We want to have world class local universities but we must find ways to find additional funding for research and better pay to attract good quality academics.

Wouldn’t it be great if we had a government that could honestly tell us about these hard choices we must make, the decisions that will be made by the government and the basis of these decisions?

At the end of the day, is it not too much to ask for the government to produce an honest and transparent 11th Malaysia Plan to chart the path for our nation for the next 5 years?

Dr. Ong Kian Ming
Member of Parliament for Serdang

[1] http://idrisjala.my/measure-poverty/

[2] According to the 2012 Household Income Survey

[3] http://www.oecd-ilibrary.org/sites/factbook-2010-en/11/02/02/index.html?itemId=/content/chapter/factbook-2010-89-en

[4] http://www.unece.org/fileadmin/DAM/stats/documents/ece/ces/ge.15/2013/WP_17_OECD_D_En.pdf

[5] http://mhdr.my/

[6] http://www.freemalaysiatoday.com/category/nation/2012/10/15/rice-subsidies-not-working-out/