RUN-UP TO GE14: ‘Issues are because of wrong business model, weak management and poor governance’

This article first appeared in The Edge Financial Daily, on April 16, 2018.
-A +A

Just before the dissolution of parliament, The Edge Malaysia weekly sat down with Datuk Seri Johari Abdul Ghani, Minister of Finance II, who describes himself as a “junior politician”, for a candid interview. Here are excerpts. Please visit EdgeMarkets for more:

 

The Edge: How do you see Barisan Nasional’s chances in the upcoming general election?

Datuk Seri Johari Abdul Ghani: Well, I have not seen any wave to change [the government].

 

No Malay tsunami?

I have not seen any such thing. We’ve gone through worse.

 

We are hearing that BN is not strong in some traditional strongholds ... Johor and even FELDA areas.

I’ve seen this many times — 1999, 2004, 2008, 2013. But BN is still in power. So, for the upcoming election, it will be no different.

 

Do you think this is going to be the toughest election for BN?

I think BN faced tough elections in 2013 and 1999. The opposition always tries to topple the government. We have been developing this country for the past 60 years and we may have some weaknesses here and there — [but] no government is perfect.

From an economy size of RM4 billion, we are RM1.3 trillion today. A country that was agriculture-centric, today our economy has changed, from agriculture to manufacturing and services. And we are now in the digital economy, so the services sector has also progressed. Currently, the services sector contributes 54% of our economy; manufacturing, about 23%; and agriculture, only 8%. So, we must have done something right. But as I told you, there are still a lot of weaknesses in the system.

 

It has been almost two years since you became finance minister II. What has been the most challenging aspect of your job?

I think the toughest task is managing a situation where you used to get oil revenue of RM66 billion, and the amount fell by half to RM33 billion in a span of one year. You need to juggle expenditure, reallocate budgets, maintain fiscal targets ... that has been the most challenging.

 

But the GST (goods and services tax) has helped make up for the shortfall, right? But also very unpopular.

GST is a very efficient system. It is very transparent ... consumers know how much tax they pay and the government knows how much all these businesses are charged and how much they pay to the government. So far, 174 countries have implemented GST or value-added tax, and none of them has reverted to the old system.

 

We were told that GST was implemented to fill the nation’s coffers because of the sharp fall in crude oil prices. But crude oil prices have recovered, so should the government reduce the GST rate, if not remove it altogether?

First of all, you must understand that when you are managing the economy, it is a moving target; your commitments as the government are all moving targets. The higher your commitment to the rakyat the more revenue you need to have, the more the people expect.

Secondly, if you look at the types of services we have rendered to the rakyat, the number of universities that we have built. Previously, we had only eight universities. Today, we have 20.

Students can even borrow from PTPTN (National Higher Education Fund Corp). It is about RM40 billion to RM50 billion. We have to provide financing facilities for the people.

We spent RM27 billion on healthcare. If you compare us with other countries where people are charged for healthcare service ... the countries that don’t charge for healthcare, the service is way off compared with ours.

We used to get RM66 billion and we used to get dividends from Petronas, RM29 billion or RM30 billion, but today, despite the improvement in oil prices, our dividends are still at RM18 billion or RM19 billion. Meanwhile, our commitments are getting bigger. Emoluments alone today amount to RM97 billion, for 1.6 million government servants, of which RM25 billion is pensions every year.

 

But is the government prudent in its spending in the first place?

We can make drastic changes at the expense of developing the economy. When you are a developing country, you need to keep building more schools, universities. We are also spending on our infrastructure, public transport.

But our budget, more than half of it is for opex (operational expenditure) as opposed to development expenditure. Is it healthy?

You should look at the way we manage our development. Some of the development is private [sector]-driven, some of the roads — the toll roads — are private developments.

Then, some of the developments you don’t see on the balance sheet of the government, we do it off-balance sheet with the hope that as the economy grows, we [could] get more income, then we could pay off [the debt]. Otherwise, you have to delay [development] until we have a budget surplus. By the time you have a surplus of RM20 billion or RM30 billion; the cost of your planned initiative may have gone up by four or five times. So, you have to look at the big picture. Sometimes we find that BN is not that popular because of the perception of unnecessary spending. One that always comes up is the ECRL (East Coast Rail Line).

The ECRL is infrastructure spending. The benefits of infrastructure spending can be very, very long term.

 

Maybe another example would be the salary increment for civil servants announced by the government (shortly before parliament was dissolved). This is the third increase in less than a year or two. Are these increments based on productivity? How does the government decide on the increments?

We view the cost of living and how to elevate the standard of living. If the SMEs, the 97%, are not ready to do it, we have to become the prime mover. And this money we pay to the civil servants, they will spend it. It’s about giving people better salaries; it’s a normal adjustment; and it will translate into [consumer] spending.

It’s like when we give out BR1M. The money is not kept in the bank but it’s spent because these are people who really need the money.

Every time we give out BR1M, the retail activity in the kampung shoots up, so the manufacturers get orders, distributors get orders.

Most people feel that BR1M is just an election ploy. If BR1M was given out irrespective of income, then you can say it’s politics, but BR1M is for those who earn RM3,000 and below. It’s not politics ... it is to help people and it’s also to help stimulate consumer spending.

 

So, you are saying economically, Malaysia is doing all right? Are you concerned about the national debt?

When you talk about the economy, there are four crucial factors. Firstly, untouchable political stability ... as of today, I can tell you that Malaysia, after 60 years of independence, is considered to have first-class political stability.

Number two is the need for an efficient financial system. Our financial system is RM5.33 trillion, supporting a RM1.3 trillion economy. Our banking system is at RM2.5 trillion; our equity market is RM1.9 trillion; our sukuk bond market is RM1.3 trillion. This shows that people trust us. If you don’t have a good financial system, no one will want to put money here.

Look at our central bank. People can take their money out, can bring money in; they are confident. Our financial system is respectable. That’s why we can grow the economy. If you don’t have a sound financial system, no one will subscribe for our ringgit bonds. Today, our government’s debt is 96% in local-denominated currency, compared with other countries, which have their debts in US dollars.

Number three, it’s all about talent — how do you build talent? You must have a first-class education system; you must be able to produce talent. We can also afford to send people abroad to acquire talent and bring them back, and we don’t rely on foreign services.

Number four is an affordable healthcare system. How do you grow an economy when the people are sick and diseases are spreading? These four things are important, other aspects are [also] important but these are the core ones.

 

What about issues such as 1MDB and TRX?

Issues are issues. We learn from our mistakes, resolve the issues, go back to the three things I said — wrong business model, weak management and poor governance.

 

Why did the MoF (Ministry of Finance) buy into TRX?

This is a strategic development area, the government didn’t have any interest [in it]. KLCC (Twin Towers), we have; PNB, we have. So, there is nothing wrong with this. Initially, we were not sure of the partner, but when we saw that they could do it … so there is nothing wrong.

 

What about the government selling land to Bank Negara [Malaysia]?

Bank Negara has already explained it. Every time you buy, you have to tell people? It is not a public-listed company.

 

But something so large — RM2 billion?

The government has done bigger things than this. Bank Negara did not announce a loss of RM31 billion until the RCI (Royal Commission of Inquiry) was done. But it (forex loss) was stated in the annual report.

 

The government implements GST and cuts subsidies. Then, there’s income tax. But students are getting fewer scholarships, universities are having smaller budgets and at public hospitals, we have to pay for medicine. Where is all the money going?

It’s presented in the budget. We never hide what we spend on. If we collect RM230 billion, you can see how we spent RM230 billion. We have reduced the tax rate gradually … at one time, our corporate tax was 40%; now SMEs only get taxed 18%. Our personal tax as well. I don’t know there are so many levels or thresholds, but if you earn below RM4,000 [a month], you may not even need to pay tax.

Those days, it was easy to get university scholarships because it was not so competitive.

What happened is, the government is giving scholarships for subjects and courses that are needed, not just based on what the student wants to do. — The Edge Malaysia