by Tricia Yeoh. First published in The Sun 17 October 2014

AMIDST the media frenzy that surrounds the budget each year, not many pay attention to the supplementary budgets. Did you know that the government spends billions of ringgit that is outside the main budget, which is only requested for in supplementary budgets many months later?

Consider this. The budget for 2011 was first tabled at RM211.3 billion, but the two supplementary budgets tabled later (for that particular year) came up to a whopping RM23.48 billion, forming more than 10% of the original total.

In fact, the government has tabled two supplementary budgets a year since 2009, totalling more than RM20 billion a year, where 75% of supplementary budgets were to pay emoluments, pensions and gratuities (The Edge, Oct 14, 2013). Emoluments basically equal salaries for the large and growing civil service.

The pattern has been consistent. The original budget is tabled in October, for the following fiscal year. Then, a supplementary budget is tabled within that fiscal year requesting for additional funds. This is repeated once more in the year after the fiscal year. How can the government exercise such blatant lack of control?

One major loophole lies within the law itself. Article 103 of the Federal Constitution states that Parliament may provide for a Contingencies Fund, and that if the finance minister (in this case, the prime minister himself) sees that there is an “urgent and unforeseen need for expenditure for which no other provision exists”, then he can draw from this fund in the form of a supplementary budget.

In fact, a supplementary budget can also be tabled “for the purpose of replacing the amount so advanced”, which means that the government can spend the money first and then only request for a replacement amount of funds thereafter – this is retrospective budgeting.

This is like asking your neighbours for 10 eggs, but taking 20 eggs without their knowledge, using them up to make omelettes, and one week later asking, “May I please borrow 20 eggs?”

The legislative and institutional framework governing our finances is obviously weak. A rule could be set that stops the government from requesting supplementary budgets beyond a certain limit. But even if this were to happen, how can a government so accustomed to spending extravagantly rein in its expenditure? Old habits die hard.

“Enhancing Fiscal Governance” is the second strategy in Budget 2015, where the prime minister repeatedly stressed the need for fiscal discipline. The government plans to reduce the country’s budget deficit by collecting a Goods and Services Tax (GST) and increasing the price of petrol. These are certainly necessary to widen the government’s tax base, which is currently limited.

But imbalanced corrections of market distortions are not appreciated. It cannot on the one hand correct market imbalances by removing subsidies, whilst on the other hand spends beyond its means.

One would have expected the prime minister to remind his ministries to plan and monitor their respective budgets properly, under the section of “Exercising fiscal discipline”. That is what a budget is for: to define the limits of spending and then sticking to it.

To date, Budget 2014 (original amount of RM264.2 billion) has been supplemented by an additional RM4.1 billion tabled in June this year. This is much lower than usual, which is a good sign – but the year is not over yet. If the track record is anything to go by, there will be another supplementary budget tabled to make up for what has already been spent this fiscal year.

As for the year ahead, one could perhaps applaud the government for increasing the proportion of its development expenditure (by one percentage point) vis-à-vis operating expenditure. But then again, one really cannot tell for sure, since there is sure to be another supplementary budget for 2015 being tabled next year. Analysts would therefore be wise to wait for the real, complete budget before drawing any conclusions.

Contingencies are there for a reason – if it is urgent to spend on a nationwide natural disaster, for example. But when such funds are drawn consistently over a consecutive number of years, this reflects on poor planning. This practice of requesting for exorbitant supplementary budgets is unhealthy and needs to end. Exercising fiscal discipline ultimately means spending within one’s budget.

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Tricia Yeoh is the chief operating officer of IDEAS

Image credit: BNN News

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