Friday, October 10, 2014

UNDERSTANDING NATIONAL BUDGET FOR THE LAYMAN

Budget 2015 will be presented today by Prime Minister Datuk Seri Najib Tun Razak at the Dewan Rakyat.
 
As specific economic terms and phrases are usually used to describe salient details of the budget, it is pertinent for the layman to understand what they mean.

In an interview with Bernama, economist Prof. Datuk Dr.Amir Hussin Baharuddin, who is also a lecturer at Universiti Utara Malaysia’s Centre for Economics, Finance and Banking Studies, explains the terms commonly used in a budget presentation.

Q: What is the national budget?
A: The term national budget refers to the government’s expenditure plan and collection of revenue, taxes and duties, and how this money is utilised to carry out projects and development programmes for the people. The government presents the budget once a year and it covers each fiscal year, which begins on Jan 15 and ends on Jan 15 the following year.

Each year, the national budget is presented in Parliament by the Minister of Finance on behalf of the Yang di-Pertuan Agong on the last Friday of September or in the second, third or last Friday of October.

Q: What does the term balanced budget mean?
A: Balanced budget means the government’s revenues are equal with its expenditures. In other words, the government does not have to borrow and it utilises its tax receipts for spending. However, a balanced budget does have its danger because as receipts drop, spending drops too, resulting in fewer projects. Therefore, the people should not get too excited over a balanced budget.

We wish to see substantial receipts and a big budget which is balanced and without deficit and shortages. A balanced budget is also linked to the granting of aid and subsidies to the people, like the 1Malaysia People’s Aid scheme (BR1M).

An increase in spending by the people will contribute to economic growth. If the government does not offer BR1M, the poor will not be able to spend. At the same time, we must be mindful of the fact that uncontrolled spending can lead to inflation. Hence, we must exercise our wisdom when it comes to spending and taking measures to control the inflation rate.

Q: What is a deficit budget?
A: A deficit budget comes about when the government’s spending exceeds its income. It means that the taxes collected are not enough to cover the expenditure incurred in managing and developing the country.

Q: What do the terms fiscal and fiscal deficit mean?
A: Fiscal and monetary are two of the main terms used in a budget presentation. The most commonly used term is fiscal. The term monetary is used indirectly as the monetary policy is handled independently by Bank Negara Malaysia and it involves interest rates in the market, conditions for the application of bank loans and other matters.

Q: How can the government reduce its budget deficit?
A: It is very important for the government to reduce its budget deficit because if left unchecked, the deficit can over a period of time affect the currency of the nation.

It will also erode the confidence of foreigners in our currency, leading to a depreciation in the value and strength of the Ringgit, which will cause our imports to become more costly and the value of exports to drop. When people no longer have confidence in our currency, it will end up like other currencies such as the Rupiah and it will be difficult for the Ringgit to regain strength.

Other factors that may contribute to a deficit budget include a deficit in the balance of payments, whereby our imports exceed exports. A deficit also occurs when the nation’s expenditure exceeds its income.

Q: What role can the people play to help reduce the deficit?
A: The people must increase domestic spending, be thrifty as well as pay their taxes promptly. Civil servants should work more efficiently and be more transparent in their operations. They must refrain from being involved in non-productive activities and steer clear of corruption.

Q: How far can this budget enhance the outlook for the nation’s credit rating?
A: The budget to be presented today will be evaluated from the aspect of whether the government’s spending is going to be prudent or not. Usually, the first question is whether or not the government can afford to implement various projects. If many projects are involved, then there is a possibility that the government will have to resort to borrowings, which will affect the nation’s credibility.

There are two sources of borrowings, namely domestic and foreign. Where domestic borrowings are concerned, the government can keep them under wraps but foreign borrowings are exposed in the open market. Hence, a budget that can enhance the outlook for the nation’s credit rating has to be one that is balanced and productive.

If it is possible, subsidies should be reduced while aid is distributed effectively to the poor so that they are able to spend and help the economy to grow.

Q: Is it compulsory to include goodies in a budget?
A: Yes it is. This is because the budget requires the support of the people. It is the government’s aspiration to get the people to support all its plans for the nation.

Whether it is for enhancing the nation’s economic growth or boosting the tourism industry, it needs the support of the people. What will happen if tourists visiting the country find it in a state of chaos with people demonstrating because they don’t have enough food and money?

So the government must have goodies in store for the people. Even in the United States and Britain such goodies are provided because it is the responsibility of the leadership to do so. There are claims that the goodies are usually offered to civil servants. Disputes are bound to occur when some sections of society feel that others are getting more than them.

We must educate the people not to have such a negative way of thinking. Some people who earn high incomes even question the government’s decision to give subsidies or BR1M to the poor.

Q: How are individuals impacted by the budget?
A: At the individual level, the impact can be direct or can come as a ‘side effect’ of the budget. For an individual, there is the book scheme while some members of his family are also eligible to receive BR1M or the fishermen’s subsidy.

For civil servants earning a salary and paying taxes, the government gives them a half- or one-month bonus. So it is okay for the government to raise the price of petrol, and offer a bonus to enable them to adjust to the situation.

– BERNAMA

No comments:

Post a Comment