The 1976 Malacca Budget is a budget of extravagance in a time of austerity

Speech by DAP State Assemblyman for Kubu, Lim Kit Siang, in the Malacca State Assembly on Wednesday, 26th Nov. 1975 on the 1976 Malacca State Budget.

The 1976 Malacca Budget is a budget of extravagance in a time of austerity

For the past few months, the country has resounded with calls by the Government leaders, headed by the Prime Minister, Tun Abdul Razak, for nation-wide austerity by all governments, public authorities, statutory boards and the Malaysian public to help tide over the tight financial position faced by the government and country because of the prolonged economic recession in Malaysia.

The Prime Minister had said the Government was short of funds, and express his particular concern over the rising trend of operating expenditures of government departments and agencies.

In fact, only last week, the Malacca Chief Minister Haji Abdul Ghani in Ali, when lunching the Ayer Keroh Heights Housing Scheme himself asked the people to understand why the government had to delay the implementation of some developmental projects as the government was short of funds.

I had expected therefore to find the 1976 Budget for the Malacca State an austere document, practising austerity and setting the example I the State for prudent spending of public funds by reversing the trend of rising operating government expenditures.

Instead, the 1976 Malacca State Budget is a budget extravagance in a time of financial austerity.

There is no attempt to reverse to rising trend of operating government expenditures. Between 1974 and 1975, the operating expenditures had risen by $3.5 million, as the original 1974 Budget expenditures was #16,876,440 as compared to the original 1975 Budget expenditures of $20,439,914.

Instead of a reduction in such increases in operating expenditures, we find the 1976 Budget providing for an all0time-high increase of operating expenditures by over $4 million with the 1976 Budget expenditures estimated at$24,492,061.

Malacca State Government – Financially irresponsible

At a time when Government leaders are calling for austerity and economic stringency, the State Government should at least hold down to the 1975 level of operating expenditures if it could not pare it down to lower levels of expenditures. I notice that in other states in Peninsular Malaysia, operating expenditures for next year had been either reduced in total sums involved, or the amount of increased sharply reduced.

In Malacca, the reverse is taking place. Not only is the total expenditure figures higher than the previous year, the amount of increase is also higher than the previous year.

This $4 million increase in the operating expenditures for 1976 in all the more unjustified when we note that between 1971 and 1972, the increase in operating expenditures was only in the order of $147,888. i.e.from $13,944,088 to $14,091,976.

Malacca heading for an all-time high deficit of $7.9 million

As a result of this spending spree of the Malacca State Government at this period of economic hard times, the State is heading towards an all-time-high deficit of $7.9 million. Again, when we note that in 1971, the State deficit stood only at $1.2 million, rising to $4.9 million in the 1975 Budget, and now to $7.9 million, one cannot but be shocked by the financial irresponsibility shown by the present Malacca State Government.

This financial irresponsibility is all the more deplorable when the State Government has absolutely no idea how these deficits are to be financed.

I have no doubt that the Malacca State Government would have incurred abigger deficit, probably in the region of $10 million, if it had nor been under strict instructions from the Federal Government, in a Pekililing yang dikeluarkan oleh Ketua Pengarah Perkhidmatan Awam Malaysia, maka tidaklah ada sebarang jawatan baru diluluskan untuk tahun 1976. This is why the tambahan untuk Peruntukkan gaji kakitangan was only $282,678 whereas between 1974-1975, the increase in Peruntukan Gaji Kakitangan increased by a hefty $2 million compared to the previous year!

It is therefore all the more shocking that while the Federal Government had forced the State Government to hold down increases in expenditures for kakitangan kerajaan, which accounts for 50 per cent of recurrent expenditures last year, the total increase in State Government recurrent expenditures could still rise by another $4 million.

Call for adjustment of Federal-State finances to overcome shortage of funds faced by states.

A study of the Malacca State Government finances shows the unsoundness of the financial position and stewardship of the State. Thus from 1971 to 1976 Budgets, the revenue has increased by less than $4 million while the recurrent expenditures have increased by $10.5 million, whereas the annual State deficit has shot up from $1.2 million to $7.9 million.

A large factor of this unsound financial situation is the unproductive and extravagant spending of the State Government. There must be a drastic slashing of unnecessary and unproductive expenditures.

I am aware that hand-in –hand with such a drastic cut-down in unnecessary and unproductive expenditures, there is also a need to increase the sources of State revenue to end the perpetual deficit financing without knowing how the deficit is to be financed.

At present, States get their money from two main sources:

(a) grants which the Federal Government is obliged by the Malayasian Constitution to make to States; and
(b) taxes, fees and other sources of revenue specified in the Constitution collected, levied of raised within the State like revenue from lands, mines and forests, entertainment duty, etc.

The Malaysian Constitution provides by Article 109 that the Central Government must make two grants to each State in respect of each Financial Year:

(a) a capitation grant calculated in accordance with Part 1 of the Tenth Schedule of the Federal Constitution;
(b) a state road grant, for the maintenance of state roads, calculated in accordance with Part 2 of that Schedule.

In my view, the increase in Malacca State Revenue must be sought in the Capitation Grant. It present the Capitation Grant is fixed on a sliding scale as follows:

(I). for the first 50,000 persons at the rate of $15 per person;
(II). for the next 200,000 persons at the rate of $10 per person;
(III). for the remainder at the rate of $4 per person, whereby the grant is based on the population of the State as determined at the last census taken before the beginning of the preceding financial year.

It present, this Capitation Grant is linked to the population figures of the States. This is inequitable, as it does not solve the problem, of extreme disparity in the revenue among states, as it is not linked or related to the actual needs of the states for financial assistance.

The Capitation Grant should be based on other factors apart from population figures, like natural resource endowments, so that states like Malacca with little natural resources would not be unduly penalised; per capita state income figures, so that states with poorer per capita state income figures would get bigger grants to rectify the economic imbalances between states – which is also one of the professed objectives of the New Economic Policy.

I do not know whether the Malacca Chief Minister had raised or studied this matter of adjusting Federal-State financial position through a more equitable computation of the Capitation Grant, and whether he had ever raised the matter at the National Financial Council headed by the Prime Minister of his Deputy, and represented by the respective Mentri-Mentri Besar and Chief Ministers. I suggest that the Malacca State Assembly establish a Select Committee to look into this question to make proposals to the Assembly and to the Government for future reference and recommendation to the Central Government for variation of the bases for the computation of the Capitation Grants to permit more equitable revenue distribution among the States.

Slashing of unproductive, non-essential expenditures

The proposal to increase State revenue by adjusting the computation of the Capitation Grants from the Federal Government must need take some time. Meanwhile, the Government should spare no effort to cut down unproductive, non-essential expenditures.

Thus we find that one big item in the 1976 $7.9 million deficit is caused by the $580,000 provision for the building of an official residence for the Chief Minister, in addition to the $150,000 which is provided this year, giving the total cost of the project close to three-quarter million dollars on estimate – although finally, it may cost over million dollars.

This project is unproductive, non-essential, contributes nothing to development of the State, and must shelved, if the State Government is sincere in wanting to economize for essential projects. I also notice that hidden away in some corner, are provisions for fantastic increases in salaries for the two Pembantu Khas(politick) to the Ketua Menteri, whose monthly salary make a jump of $367 each from $633 a month to %1,000 a month; while the salary of the Pegawai Perhubungan Akhbar (Sementara) makes also a fantastic salary jump of $282 rising from $788 a month to $1.070 a month. What is the justification for such increased burdens on the taxpayers?