JAN 17 — It is ironic that last year, the government expressed concern that Malaysian consumers were heavily burdened with increasing credit debt as a result of spending and living beyond their means.

The irony being that despite being able to correctly identify a worrying phenomenon which needs to be addressed amidst the threat of inflation and the rising cost of living during uncertain economic conditions, the government has been unable to look at itself in the mirror and realise that it too is in a similar predicament.

Today’s reality is that we have almost maxed out the national credit card.

It doesn’t take an economist to point this out. If the total expenditure exceeds the revenue collected, a budget deficit then exists. The only way for the government to pay for this deficit is to go into debt and borrow.

The 2011 economic report highlighted that for that year, the amount of this debt reached RM456 billion. This amount represents 54.3 per cent of the country’s gross domestic product (GDP). 

The legal limit is 55 per cent. That is the national limit as stated under the 1983 Government Funding Act and the 1959 Loan (Local) Act. Under these two Acts, the government cannot legally have debt beyond this ceiling. At the rate that we are going, it is almost certain that the government’s current spending levels will breach the debt ceiling this year.

Yet strangely enough, nobody seems to be worried. A parliamentarian, in his defence of the debt situation, stated that in comparison to countries like the US, we are a lot better off. Why our decision-makers always want to compare ourselves to the worse cases instead of the best examples is beyond me. If the parliamentarians and the government seem to not be worried, why should anyone else, you might ask?

Well, we should be worried. In the US, raising the debt ceiling requires a law to be passed. We will soon need to do the same. The only way to change the debt ceiling is to amend the two laws mentioned. Are we ready to do that?

If the Honourable Member of Parliament is anything to go by, most of our elected representatives are either ignorant of this need or couldn’t be bothered. Lucky them. Anybody else would be facing an Ah Long, have red paint splashed all over the front door or have some shady character asking which body part you value the least.

If we are not ready to dig a deeper hole into debt, then what we need to do immediately is to reduce government spending. Every child is taught that there is no such thing as a free lunch. To have more of something, we have to have less of another.

In recent days, more and more expensive programmes have been introduced. The 2012 Budget amounts to RM232.8 billion, out of which subsidies are RM33.2 billion. Many of these are essential subsidies to alleviate economic hardships but you know what is not essential, expensive and have extremely short-term effects? The many recent cash handouts given out by the government.

The book vouchers worth RM200 for university students. The RM100 for school-going kids. And now the RM500 handout for the estimated 5.2 million households making less than RM3,000 or 83 per cent of the entire population.

However much that we want all of these things (and no, they are not needs), the hard reality is that we simply cannot afford it. The more debt that the government takes on today, the less they are going to be able to spend on much needed social and welfare programmes in the future. 

Aren't we already depriving more important social assistance programmes of much-needed funds to pay for this largesse? We already need to service the debt commitments at a rate of RM20.5 billion a year. Money has to come from somewhere and even for a country, it is not unlimited.

If the government is intent on continuing with this level of spending, in this time and age when almost every developed and developing nation is adopting a cautious, prudent and frugal approach, something needs to go. And no, it is not only about Malaysians needing to change their lifestyles. Nor only about cutting back on fuel subsidies.

We need to scale back on some sacred cows, specifically addressing the ballooning cost of maintaining such a large and bloated civil service.

It is truly an astounding fact that Malaysia’s civil servants make up five per cent of Malaysia’s population of 28.7 million. That’s 1.4 million people in addition to around 600,000 pensioners. Twice the proportion for countries such as Indonesia, Thailand and the Philippines. A decade ago, there were only 900,000 civil servants.

With new departments being announced and established, the civil service neither looks like it is reducing its size anytime soon nor increasing levels of efficiency. However, with the increase in numbers comes obligations (pensions, gratuities, and all manner of civil service perks and allowances) which are not one-off costs and will burden the government and the taxpayer for many years to come. 

The 2012 Budget indicates that the bill for the wages and pensions of government employees will be RM64.1 billion or 28 per cent of the entire Budget. And no, this is not normal. Five years ago, it was RM36.9 billion. Rather than becoming leaner and efficient in times of global economic uncertainty, it’s happy hours for the public sector in Malaysia. 

It is sobering to remember that only 1.8 million of the entire public and private sector workforce actually pays taxes. Despite the civil servants making up 10 per cent of the labour force, a large proportion is not required to pay taxes due to the low-paying nature of the jobs. And then there are those who believe that it is not necessary to pay income tax as they have already paid the 2.9 per cent zakat. But we will leave these people for another day.

In recent days, there have been some really nasty (and sometimes unfair) accusations levelled towards civil servants whereupon it is felt that they are indifferent to the plight of the common Malaysian, comfortable as they are in the seemingly secure, insulated cocoon of the public sector. Rain or shine, bonuses are paid out. Massive salary increments have been awarded. 

The government recently felt it necessary to reassure the public that there were sufficient available funds from the federal budget to provide for the Bantuan Rakyat 1 Malaysia (BR1M) programme. That’s nice. I just wish I had as much confidence. I will have whatever they are smoking or drinking in the cafeteria. 

Absent of a bullish economy with giddying economic growth rates, It has become a zero-sum situation. If the government insists on continuing with cash handouts and programmes which have limited impact, extremely short-term gains and less memorable achievements, the size of the public service must be dramatically reduced to fund them. 

Let us be clear. The civil service is not a jobs programme. It is not intended to be a place to soak up the unemployed and address the unemployment rate at the same time. You cannot pay a large number of people a low-paying wage (a large proportion of the public sector is paid slightly higher than the poverty income level of RM800) and then pretend that unemployment is being addressed.

We do not have Harry Potter standing by with a magical bag full of cash nor a credit card with a limit akin to the GDP of developed countries. There is no such thing as “kita lain. Malaysia bukan macam negara lain.” We are also not divinely protected from hardships or recessions.

It is impossible to fund the existing expenditure levels without the introduction of new taxes or take on loans. We were recently rocked with the revelations in Parliament that the federal government has borrowed heavily from the Employees Provident Fund (EPF). Yes, your “simpanan hari tua” money.

Deputy Finance Minister Awang Adek Hussin recently revealed that the government borrowed RM79.4 billion from the EPF. If the government has been adamant that there is sufficient revenue to finance ongoing and future programmes, why then is there the need for this massive loan?

In fact, when the Malaysian Government Securities and federal government bonds purchased by the EPF are included, we come to a breathtaking RM240 billion of government debt held by the EPF alone! Are we even able to service the interest much less pay back the principle?

Granted that the fund is among the largest in the world (RM440 billion as of 2011), it should not be treated as the government’s personal piggy bank as it represents the savings of over 12 million private sector employees. 

Which begs the question needing answering: is the government taking or going to have to take a loan to pay for its expanding commitments to the civil service? How is it going to pay for it? By taking out another loan? In some circles, this sort of behaviour is considered a form of denial and would be characterised as a person with a problem. Maybe someone needs an appointment with the AKPK (Credit Counselling and Debt Management Agency)?

I am not confident of the Public Service Department’s exercise under the new remuneration scheme aimed at addressing the issue of efficiency and size of the civil service. Sitting for an exam (the passing grade of which was lowered recently after negotiations) and being reviewed by a panel takes too much time and a lot of money which we cannot afford to spend. 

What is needed instead is an intelligent combination of pay increases, large RIF (reduction in force) or downsizing exercises of lower level, low and non-performing staff as well as smart recruitment of staff.

We need to hire and retain the right people to do what is needed to be done based on merit, experience and capacity. Racially preferential policies have no benefit whatsoever and only result in being a burden to the service with a large number of low performing individuals.

We need to stop having doctors, engineers, military officers and various other experts forced to act in capacities outside their expertise and be programme managers, budget controllers and accountants. There have been too many mistakes and wastage as a result of this approach.

Why else are there incidences where aircraft are purchased or buildings are built with no maintenance budget included to ensure their upkeep? Programmes costing millions of ringgit are run with no objectives or deliverables whatsoever for several years. Countless impact assessments and studies are conducted but not utilised to guide the implementation of policies and projects. And the many outrageous and expensive examples documented extensively in the Auditor-General’s Annual Report. Amateur mistakes such as these cost the government, and ultimately the taxpayers, more money than we can afford. The experts should be utilised in their areas of expertise with professionals recruited to do project and programme management. 

We need out-of-the-box thinking to deal with today’s reality as well as the courage to what is necessary.

Let us not rob our children’s future. It is not the guys making the decision who will have to fork out the money to pay the tab. It’s our children who will have to open their shrinking purses to pay for today’s debt. 

Are we not accountable to them?

* The views expressed here are the personal opinion of the columnist.