Good practices a must in Budget implementation

THE budget is a document of intention, a financial plan that details the complexity of operational governance.

It is a forecast of expected revenues against expenditures as well as a plan that provides for contingencies in unexpected scenarios. A supplementary budget should only be proposed during a time of extreme dire straits.

The budget, which is as an instrument of governance, should be ethically crafted to address the needs of the people in tandem with the development of the nation.

It behooves on the government of the day to ensure the disbursement of the country's resources in a transparent and equitable manner.

Economic as well as non-economic and social inputs should form the markers of budgetary consideration. Political considerations should be minimal and not be the basis of budgetary allocations.

However, the temptation to emphasise sectarian interests can be irresistible. Be that as it may, it is the responsibility of the government of the day to manage public funds entrusted to it in a transparent and ethical manner.

On a simplistic basis, budgetary formulation is akin to managing household finance, which is balancing income with the expenditure.

Household expenditure for the average earner may often outstrip household income and the shortfall may be made up by savings or loans or even by taking another job to supplement the income.

Alternatively, the household may have to cut unnecessary expenditures such as eating out and other entertainment, just concentrating on the necessities and the monthly commitments such as rent, car loans, education, food etc.

The national budget is, of course, more complex but is based on the basic principles of revenue and expenditure.

Revenue is accrued in the form of corporate and personal, property taxation as well as the goods and services tax (GST) and other forms of taxation, returns from investments and interests on national reserves.

While expenditure will involve operating outlays, mainly emoluments, capital and manpower investments, development allocations, interests on national debts, subsidies, education, health, housing and security, and other contingencies.

In the event of a shortfall in revenue, the government may make it up by shelving proposed projects, reducing new employment and/or reduction in salaries or imposing new taxes such as the GST.

Whether we have a surplus, deficit or balanced budget will depend on our fiscal position. A planned budget deficit is when expenditure exceeds revenue with the aim of providing fiscal stimulus.

However, it would be difficult when the government is burdened with a large external debt. A budget surplus augurs well for the country as revenue has exceed expenditure.

A balance budget on the other hand tends to pare revenues and expenditure but usually skewing in favour of a surplus. We normally implement budget surplus in boom years and a budget deficit in lean ones. A balanced budget usually encourages growth by increasing savings and investments.

Budgetary constraints can be voluntary when rationalising certain fiscal aspects or they can be imposed, the results of poor fiscal planning and implementation such as when the authorities have over- leveraged in the past through loans and other expenditures beyond its financial means.

In such cases the burden of repayment will have to be brought forward and constraints imposed on current and future budgetary allocations and dispersal.
Other budgetary constraints are the extent of the national debt, the available reserves and the strength of the currency.

A responsible government will ensure a budget that sustains development without impacting adversely on the public, especially the middle and lower income groups.

It has to weigh the needs of the private and corporate sector as well as to enhance and encourage investment.

And the authorities should plan for a cycle of seven years of prosperity and seven years of adversity; be prudent in times of prosperity and use the accumulated reserves to alleviate the hardships of adversity.

But the danger lies when the budget is used for political purposes. In so doing, political expediency overrides economic principles.

It may provide goodies in the short-term that may camouflage the long-term negative effects. If such a practice is continued the burden would be compounded and subsequent budgets must address this issue.

Good budgetary practice must address cost of living issues in order to effect an improved standard of living as well as sustain development, to provide for employment, and emplace infrastructural and training facilities to enhance productivity.

More important is the attitude of the authorities who should be cognisant of the fact that they are entrusted to manage public funds, which must be dispersed in an ethical and transparent manner based on sound economic principles and social responsibilities.

But the effectiveness of a budget lies in its implementation and the prevention of financial haemorrhaging during the process of implementation.

An inefficient and corrupt delivery system would negate the noble intention of the budget and leave people in the lurch.

Thus, the need for ethical, efficient and professional implementation agencies coupled with responsible private corporate sectors and morally trustworthy peoples' representatives, in realising the true intentions of the budget.

Professor Emeritus Datuk Dr Mohamed Ghouse Nasuruddin is an honorary fellow at the Centre for Policy Research and International Studies, Universiti Sains Malaysia. Comments: letters@thesundaily.com