Run-Up to GE14: ‘Issues are because of wrong business model, weak management and poor governance’

This article first appeared in The Edge Malaysia Weekly, on April 16, 2018 - April 22, 2018.
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DATUK Seri Johari Abdul Ghani, Minister of Finance II, is among a handful of ministers who speak to The Edge every now and then, possibly because his ministry handles the government’s financials and the country’s economic affairs — matters that we focus on.

Just before the dissolution of parliament, The Edge sat down with Johari, who describes himself as a “junior politician”, for a candid interview that lasted slightly more than an hour.

Here’s an excerpt from the interview:

 

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 … 2004, 2008, 2013. I saw this … in 1999 as well. But the reality is, the government is still in power, BN is still in power. So, for the upcoming election, it will be no different. I’m hearing the same things as I did before — in 1999, 2004, 2008 and 2013.

 

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

I think BN faced tough elections in 2013 and 1999. This time around and every time there is an election, 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.

Look at it simply, from an economy size of RM4 billion, we are RM1.3 trillion today. A country that was agriculture-centric, today our economy has changed, the profile 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% to 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.

 

What are the weaknesses?

I know them myself. How about you highlighting them to me?

 

Maybe the handling of issues …

You cite an example.

 

Such as the FELDA (Federal Land Development Authority) issues, the 1MDB (1Malaysia Development Bhd) crisis … the handling of issues basically.

I tell you what, if you look at all these problems, it always goes back to three issues that I always mention. Firstly, wrong business model — trying to do something that is wrong in terms of business model — [secondly] weak management and [thirdly] poor governance … that’s it. All the issues you see are centred around these three.

 

What about corruption? Do you see it as a serious problem in the government?

You can accuse anyone of being corrupt, but you still have to be fair to the person who is accused of it. You have to prove it, otherwise a person is innocent until proven guilty.

 

Some people say you have problems with Prime Minister Datuk Seri Najib Razak. Is it true?

No. If I have a problem with the PM, he would have removed me a long time ago. The PM would not have promoted me from deputy finance minister to finance minister II. I am practical and I work very well in the system with all the [other] Cabinet members … I work well with everyone.

 

What is your take on the anti-fake news law?

[If] you ask me, frankly, I think you have to look at it from various angles. In principle, I agree with it … imagine if you are a businessman, fake news may affect your business, the operations of a company, the economy.

 

Do you think it’s too harsh to have such a law?

It would depend on whether you are a practitioner of fake news. If you are not a practitioner of fake news, you will never look at it as harsh, simple as that.

 

Nobody is against the clamping down of fake news, but the structure of the bill ... who decides what is fake news?

I don’t have a legal background. You need details and a legal interpretation of things, so I would prefer it if someone from the legal fraternity argued this in detail ... you have to be fair to me.

 

What about the timing?

Maybe those days [earlier], the timing was not right, because the involvement or utilisation of social media in polluting the minds of the people was not there yet, but today, it’s [happening] almost 365 days a year.

 

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. So, imagine 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 — even despite a change in government — 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 (Perbadanan Tabung Pendidikan Tinggi Nasional or National Higher Education Fund Corporation). It’s 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?

Well, 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?

Well, 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.

 

Do you think our opex is growing too fast?

Well, it depends on what you want. If you want a higher minimum wage, then you’ll have to increase wages. That is why if you compare our [present] teachers with [those] 20 years ago, they are on different salary levels. You look at our government executives, it becomes the benchmark, so much so that today, many people want to join the government.

Look at our companies today: 97% are SMEs (small and medium enterprises), contributing 37% to our GDP, 18% to our exports and 65% to our employment … but they can’t afford to be the first mover when it comes to minimum wage. The government has to start the ball rolling [to raise minimum wage]. If you wait for them (SMEs), it will never happen.

Most of the foreign workers are hired by the SMEs because they can’t afford it (higher wages). So, we are trying to do a balancing act.

 

Sometimes when we go down to the ground, we find that BN is not that popular because of the perception of unnecessary spending …

Give me an example…

 

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. I don’t want to

elaborate on infrastructure spending as it is very subjective.

 

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?

I don’t think we simply give 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.

I always look at things positively, it’s about giving people better salaries, it’s a normal adjustment and at the end of the day, 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, for that quarter, 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.

 

You are from the corporate sector ... companies have certain systems or policies for bonuses and increments. The public perception is that the government is giving increments and bonuses as and when it feels like it. Is there any system or time frame when to give them?

My answer to you is that increments come annually, but [pay] adjustments are not done annually.

 

So, the timing of the increment is just a coincidence (in relation to the upcoming election)?

Well, the timing is up to the government of the day to decide. So, if it decides to give increments and bonuses once every five years, what can we do?

Sometime back, you pointed out that the civil service is bloated. Do you still have that view?

Every country has a different model. Some don’t treat the healthcare sector as part of the government as it is insurance-based, so only certain segments of the healthcare sector are under the government. We include this sector in the civil force and our healthcare sector is huge.

 

So, if you exclude healthcare from the equation, then we are fine?

Look at education, 576,000 staff [members]; healthcare sector, 240,000. These two alone are already 800,000 and they are providing essential services to the society.

 

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

Anywhere in the world, 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, after all the noise even, 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?

No, 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…

But they never announced it.

 

So, the administration of the country has fared well? You don’t see any issues, hence no reason to shift to the opposition, is that accurate?

I want to repeat this: In any country in the world, there’s no perfect government. But we continue to hear what the people want us to do, we continue to improve in areas that we must improve … we will continue doing that.

 

Are you concerned about the national debt?

How do you look at debt? If you have a debt, you must be able to pay. If you cannot pay, that’s when the problem starts … you must be able to service the debt, if you cannot, then you have a problem.

If you are talking about ratios, ours is 50.8% of GDP. If you look at the US, it’s 106%; if you look at Japan, it’s more than 200%; the UK is 88%; Singapore is about 80%.

The ratio is good as a benchmark. Actually, what is important is analysing to see whether we are able to service our debt. If you are able to do so and every time you borrow it is for economic development, I think you are fine.

 

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?

You can always look at the budget. 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, it’s all there.

If you look at our tax system, 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 ... now, there are 20 universities, 400 private university colleges.

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.

 

What do you think about the PMO’s (PM’s Office) budget?

People often get confused about the PMO’s budget and [that of] Jabatan Perdana Menteri (JPM). JPM has 10 ministers, three

deputy ministers, 48 government agencies and 13 statutory bodies. The PMO is only one of it. If you analyse the PMO’s budget, it’s not much … RM520 million or 0.2% of total national budget.

 

In the past, was the expenditure as high?

Yes, the same.

 

Size-wise, has it got larger over the years?

I don’t think so.

 

If you carry on as finance minister II, or get bumped up to finance minister, what are the first three things you will do?

I will make sure that in anything we do, political stability will not be compromised.

I will make sure that our financial system is strengthened ... we must have a financial system that is trusted by not only Malaysians but also the world … this includes our financial institutions.

We must continue to have ample allocation for the education sector because this is the future.

 

 

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