We need real spending cuts, not phony cuts

By Medecci Lineil

Listening to Prime Minister Datuk Seri Najib Razak’s revised budget 2015 last month, we might believe that major spending cuts had already taken place.

Among the cuts are: Supplies and services (RM1.6 billion), National Service Programme (RM400 million) and Revision of transfers and grants (RM3.2 billion) amounting to RM5.5 billion. Rescheduling of the purchase of non critical assets amounting to RM300 million.

Firstly, I think it is just another phony spending cuts; based on political expediency rather than economic.

Once the government gives money away, it is much harder to take back or cut the spending.
For instance, the Defence Minister said national service camp operators nationwide will not be affected by the government’s decision to postpone the programme for this year.

The camp operators and trainers would continue to receive their salaries too, as their positions were permanent.

In addition to that, the Youth Minister, in response to the spending cuts, hinted that the national service would be reviewed and improved.

Real economic growth requires real cuts, such as reducing the number of civil servants to zero, abolishing ministries, selling all government-linked companies, abolishing 1MDB, reducing RM48.5 billion development expenditure (eg. mass rapid transit project, Kuala Lumpur–Singapore high speed rail project, Pan Borneo highway), abolish taxes (eg. GST, fuel tax) and abolish subsidies across the board.

No more propping up government-linked companies and monopolies.

These real cuts alone could cost nearly hundreds of billions. That amount of money is what the government takes out of the productive economy.

In my view, this is the most prudent and meaningful thing to do.

As government spending and price controls reduce, the private economy will expand strongly and unemployment stays reasonably low.

Second, another way looking at the budget revision is the misleading use of the word “saving” after spending cut.

The word “saving” describes money that has been earned on a day-to-day basis and having been earned, it is not spent but rather set aside for emergency or investment use.

Governments do not earn money or revenue. They expropriate resources by taxing people, enforcement, regulations, summons and seizing goods.

How do you think the government can save money by simply expropriating resources?

In order to save, governments need to engage in market production (. free competition and price mechanism)

It is proven that cutting government spending for so-called saving is basically the cuts from the current amount being spent, and then these cuts are made for use in prospective spending.

For instance, according to Najib, at the forecast crude price of US$55 per barrel, there will be a revenue shortfall of RM13.8 billion. “If we compare the revised figures with Budget 2015, tabled in October last year despite the savings of RM10.7 billion from the implementation of the managed float mechanism for retail fuel prices, the government still faces a revenue shortfall of RM8.3 billion to accommodate the budget measures”

Given the lack of a reliable market tool in making a decision as above, therefore the saving practice is impossible for government.

I agree cuts are a painful process. But it is a very important means in correcting the economy in order to be able to achieve genuine economic growth where real wealth can be generated.

I really do not think real spending cuts would be hard if Prime Minister Datuk Seri Najib Razak had a strong understanding of economic freedom.

First published at The Malaysian Insider on 8 February 2015.

 

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