Putrajaya needs fiscal discipline to keep debts in check

Spending more than its financial capability will land the government in trouble. (Bloomberg pic)

To be honest, I hate financial wizardry and creative financing. To me, these are just conduits for creating something out of nothing.

Fiscal management, the budget, and national debts need discipline, hard work and honesty, not financial wizardry, adventurism and recklessness.

I have seen enough of the baloney being perpetrated and perpetuated in our budgetary and debt system to feel comfortable of the government’s effort to rein in expenditure and instil fiscal discipline.

I really wish the new government will make a difference and impose on itself the honesty to do what is right.

We announce our national deficit target when tabling the national budget with lots of fanfare and pomp. But do we know what happens after that?

Firstly, each year we will have numerous supplementary budgets that will make a mockery of the fiscal target we have set for ourselves.

Secondly, to make our deficit target look good, we introduce private finance initiatives (PFI) and public private partnerships (PPP) to implement government projects. Are we not spending in advance using private money on government projects? Sooner or later we not only have to repay the loans but also the financing cost.

Thirdly, the government has loosely considered all cash inflow as revenue to make the deficit look more benign. Years back, I witnessed with my own eyes the government taking money from the Retirement Fund Inc (KWAP) and treating it as revenue to bring down the deficit number. Is there any surprise why the same government has treated all tax refund as revenue?

Fourth, why spend time and energy pretending to prepare and debate our annual budget in Parliament when increasing number of programmes and projects are “off budget”? Did 1MDB appear in any of national budgets before? Was there any government land “siphoned off” with the Parliament’s knowledge?

Fifth, how do we control government expenditure when our national budget has no control over government borrowing? We go through the painful process to debate the allocations for each ministry, agency and department in the Parliament but we allow the government of the day to borrow or provide loan guarantees on any amount it likes in a given year. As simple as this: we can’t control expenditure if we have no control over borrowing.

The culprit is essentially due to our fiscal indiscipline. We are constantly coming up with ideas to encourage the government to spend more than its financial capability.

We are a nation yearning for instant gratification – let’s spend first and worry about repayment and debt servicing later. Let’s make the politicians, contractors and the people happy now and worry about future generations or our ability to repay later. Yes, why not, let’s allow our GDP growth to take care of the problem in the future.

I may sound very pessimistic but I think most of us “ain’t seen nothing yet” as far as our debts and lock-in expenditures are concerned.

If we borrow too easily, we will spend recklessly, lavishly and unproductively. Most mainstream economists have this funny idea that government spending must help to boost aggregate demand to make the economy more buoyant.

Well, lacking knowledge is indeed a dangerous thing. Government spending is not just to create aggregate demand but also to build capacity.

Only a productive economy with increasing capacity will gradually overcome its long-term debts.

TK Chua is an FMT reader.

The views expressed are those of the author and do not necessarily reflect those of FMT.