LETTER | Budget 2023: Debt we pass on will likely weigh down future incomes

LETTER | The budget is the government’s most important economic policy document. Budgeting is difficult when the country’s income or spending is inconsistent.

Just like an individual or a household. Spending and income may vary from month to month. Sometimes it will have greater expenses due to doctor’s appointments or weekend trips the individual or the household is taking.

Budgeting requires that people set limits on their spending, so when they have income or spending that varies on a monthly basis, it can be especially hard to stick to a budget.

Theoretically, budgets can be used to smooth consumption and spending over time.

Families can save more when they experience income spikes and then use those savings to tide them over when they experience a decrease in their income.

Everyone would have probably heard the tried-and-true advice that budgeting is essential to achieving financial independence.

We are often told that if we don’t diligently track our income, expenses and debt each month we won’t ever get our finances in order.

And this is the same for the country.

For individual households and firms, overborrowing leads to bankruptcy and financial ruin.

For the country, too much debt impairs the government’s ability to deliver essential services to the rakyat.

Finance Minister Tengku Zafrul Abdul Aziz recently unveiled a budget of RM372.3 billion for 2023.

About RM272.3 billion is allocated for operating expenditure and RM95 billion for development expenditure.

Malaysia’s biggest budget was in 2022 when it was tabled last year at RM332.1 billion. It has since expanded to an estimated RM385.3 billion, after factoring in the fiscal support to protect people and businesses from rising inflation and cost of living.

Effectively, the 2023 budget involves cash handouts and reducing taxes to a large portion of the voters.

It will bring a lot of advantages to people who might be at the receiving front.

The B40 in the country are in survival mode due to years of mismanagement and corruption in the country.

The government believes and is telling the people that with the rise of economic and inflationary issues, they would be able to address these issues.

The politicians helming the government presently are deluding themselves to believe that the people buy into their storyline that with the rise of economic and inflationary issues only they will be able to address and resolve these issues when they have not been able to do so for the last two years.

Several ministers have proclaimed and assured the rakyat that the country is doing well and is poised to achieve higher growth compared to projections.

If the growth is there – yes, the numbers don’t lie - why does the government still need to borrow more as set out in the budget?

With the crisis over and the recovery firmly sets in, keeping public debt at high levels over the medium term is a source of vulnerability for the country in itself.

Yes, without debt, the economy cannot grow and macroeconomic volatility would also be greater than desirable.

But financial development is not some magic potion. The accumulation of debt involves risk.

As debt levels increase, the country’s ability to repay becomes progressively more sensitive to drops in income and sales as well as increases in interest rates.

The higher debt, the higher the probability of default. Even for a mild shock, a highly indebted country may suddenly no longer be regarded as creditworthy.

The capacity of the government to borrow is not unlimited. When a crisis strikes, the ability of the government to intervene depends on the amount of debt that it has already accumulated as well as what its creditors perceive to be its fiscal capacity that is, the capacity to raise tax revenues to service and repay the debt.

If the downturn is bad enough, defaults, deficient demand and high unemployment might be the grim result.

The manner in which the budget is conveyed to the general public which usually obscured the public debt coupled with many people's lack of understanding of how the national debt level affects their daily lives is really an unfortunate and potent mix.

While it is not obvious, public debt affects everyone. While some Malaysians may not personally feel the effects of our mounting debt today, they eventually will.

It is also a national security issue. If the country is at risk of defaulting on its debt service obligation increases, the country loses its social, economic, and political power.

Already, there is no chance that the massive debts accumulated from the 1MDB saga and other financial shenanigans will be repaid soon.

Even with higher taxes, a large share of these accumulated debts will be passed on to future generations.

In the past, such debt was easier to repay.

Because strong growth meant that each successive generation was richer, past debts shrank relative to incomes.

Today, we are bequeathing to our children and grandchildren - looking after us when our entitlements run out of funding, and addressing climate change, which we have done almost nothing to combat.

Worse, having limited our investments in their health and education, we have left much of the next generation under-equipped to lead productive lives.

The debt that we pass on will likely weigh down future incomes.

And if we deplete overall borrowing capacity now, future generations will be unable to spend as needed if they encounter another “once-in-a-century" catastrophe like the pandemic that we have experienced in the last 2 years.

Government spending is necessary. But just because sovereign-debt markets have not yet reacted adversely to extremely high levels of borrowing and spending, we must not, for our children's and grandchildren’s sake, throw caution to the wind.

As a parent, each of you has an enduring commitment to building a bright future for the next generation.

Are you prepared to extend that commitment to building a bright future for the country?

So please vote wisely and help spread the truth out for the coming general election.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.