KUALA LUMPUR, Malaysia-IDEAS calls for a multi-partisan push to discuss and finalise the fiscal responsibility measures that were announced in the budget. 

The budget speech by the Prime Minister revealed an upfront focus on fiscal sustainability with a renewed commitment to table the Fiscal Responsibility Act (FRA), as well as a public commitment to tabling the Government Procurement Act (GPA), and consolidation of government agencies with overlapping functions.

The FRA had been intended for tabling by 2021, while the GPA was part of the National Anti-corruption Action Plan 2019-2023 (NACP), but draft provisions for both Acts have yet to emerge.  
“The FRA and GPA are laws that should be welcomed by all MPs. 
Lawmakers should engage in and scrutinise this development, as the objective of such laws is to put in place rules that will enhance transparency, ensure accountability, and strengthen fiscal discipline,” said Tricia Yeoh, CEO of IDEAS. 
“This is where a parliamentary select committee on budget and fiscal matters could play a pivotal role. A PSC could be more directly involved in gathering and providing stakeholder input on the laws and ensure a smooth tabling.”

“The GPA will institutionalise current political commitment to improve procurement practices such as prioritising the use of open tender and other competitive bidding mechanisms,” said Yeoh. 
“To stop political influence and corruption in government procurement, procurement rules must be institutionalised through laws and backed by enforceable penalties for noncompliance.”  
Yeoh shared that IDEAS is set to contribute to the discussion on procurement law in its inaugural Fiscal Responsibility Roundtable Series, to be launched on 15 March 2023. 

IDEAS also recommends a more comprehensive medium-term framework to address the high level of debt servicing charge (DSC) borne by the government.  
DSC in 2023 is estimated to be at RM46 billion or 16 percent of the estimated federal revenue, up from 14 percent in 2022. 
The increase arises from higher borrowings to finance developing expenditure and the COVID-19 Fund. This figure exceeded the limit of 15 percent set by the Administrative Guideline.

“We commend the government’s plan to reduce the deficit to 3.2 percent of GDP by 2025,” said Sri Murniati Yusuf, Deputy Research Director of IDEAS. The new budget saw a lower deficit of 5 percent of GDP as compared to previous years (2022: 5.6 percent and 2021: 6.4 percent) mainly due to the slightly lower estimates of the operating expenditures and a high GDP estimate. 
“A more comprehensive fiscal consolidation exercise will need to include discussion on broad-based consumption tax such as the Goods and Services Tax (GST) as well as what the government’s plans are for targeted subsidies,” said Sri Murniati. 
A closer look at the budget document (Anggaran Perbelanjaan Persekutuan 2023) shows a significant increase in the subsidy allocation estimates under the Ministry of Finance from RM 5.2 billion in 2022 to RM 42.5 billion in 2023.

“As noted by the Prime Minister, the federal budget has been in deficit for many years. Combined with increasing subsidy burden and servicing non-productive debts from 1MDB, the government faces increasingly narrow fiscal space to provide measures against economic shock,” continued Sri Murniati Yusuf. 
“This is on top of the risk from growing government guarantees which are the major component of contingent liabilities. 
As of end-2022, total outstanding government guarantees were estimated at RM 317.6 billion, or 17.8 percent of GDP. To ensure fiscal sustainability, there should be a review framework prior to guaranteeing new loans as part of a medium-term fiscal framework.”

IDEAS also notes the high level of political discretion involved in budgeting of development expenditure for the states. Fiscal responsibility should also take into account equitable and outcomes-based allocations at the subnational level. 
For example, the budget speech included RM30 million for agrofood cooperation with certain unspecified states, while RM50 million was declared specifically for preservation of UNESCO heritage sites in Penang and Malacca, while other states with underdeveloped historical assets did not receive any allocation.

The federal government’s discretion in state-based allocation gives rise to allocation based on political considerations, and exacerbates development gaps between states. 
There should be fiscal rules that outline the distribution of development expenditure for state governments, such that programmatic expenditure is allocated transparently and equitably. 
As of now, the Development Funds Act 1966 does not provide how state-specific development funds should be allocated. This reveals the need for fiscal decentralisation to be considered to counter budgetary shortfalls and imbalances across states.