Budget Deficit- Judging by Sense or Cents?

It’s normal to turn on your twitter or read a Facebook status these days encountering someone declaring (or parroting?) that excessive spending and the resulting budget deficit is Malaysia’’s biggest economy problem. Such declarations are usually accompanied by comparative analysis between former finance ministers’ performance in balancing country’s budget. And this declaration-as they say is apolitical.

Well, whether it is apolitical or not is another question. But most importantly, whether the ‘excessive’ debt and budget deficit does make sense or not.

Firstly, the budget deficit isn’t our biggest problem. Furthermore, it’s a problem that is gradually being solved.

Admittedly right now we have a large budget deficit. 4.5 % or RM42 Billion to be exact. But that deficit is mainly the result of a depressed economy — and you’re actually supposed to run deficits in a depressed economy to help support overall demand.

Here is the situation; the financial crisis has created a situation in which almost all of the economy’s major players are trying to spend less than their income. Since my spending is your income and your spending is my income, this means someone has to spend. Apparently right now everyone wants to save and nobody wants to invest. Yes, that includes the private sector and free-market preacher.

Therefore it is the duty of the government to keep the economy robust. Since revenue is falling and everyone hates to pay more tax, government has no choice but to borrow some money.

Psychologically, if the government also don’t spend, who will?

Strangely, far from credited for this effort, everyone loves to make this short-run deficit an issue. It would be good if these people can give a name which country has made surplus budget in this turbulent time.

Whatever, will economic recovery be enough to reduce the deficit outlook? The answer is, pretty sure. The budget deficit has fallen from 6.6% in 2009 to 5.6% in 2010. Later it was 4.8% in 2011 and 4.5% last year. How is that possible?

Image

The key is by growing the economy. With a growing economy, revenue is increasing. With that extra revenue, it can be used to servicing the debt thus, reducing the deficit.

Image

For anyone who keeps parroting our debt is worrying, please look at Europe.

See the disastrous effect of harsh austerity on weak economies. See what would happen if the government choose to cut spending. See whether we like it or not when there is no money for everything just because we think budget deficit is more important than creating jobs and generates revenue.

Had we choose to borrow less, save more and cut this and that, Malaysia would be in the same league with Greece, Iceland, Spain, Portugal,Italy and Cyprus.

So, after this, when someone telling you to voted out the current government because of ‘excessive debt’ and budget deficit issue, please tell them “the borrowed money has contributed to the increase of Government’s revenue by 31.5% since 2009. The extra revenue has been used to debt servicing and for the benefits of the people. Any wonder where the BR1M money comes from? After all, bear in mind that our reserves stand at all time high- RM430 Billion.”

You can always voted out the current government if you want to. It is democratic to do so. But obviously, you should not do that based on this reason. It just doesn’t make sense. As someone told me, ‘voting with sense does not cost us anything, but voting with cents may cost us everything.’

MatRodi

Advertisements
Tagged , , , , , , , , , , ,

21 thoughts on “Budget Deficit- Judging by Sense or Cents?

  1. I must say this is a good article bro.. Nice job

  2. akmal says:

    good article boss… keep it up

  3. Ahmad says:

    Thank you for sharing!

    Do keep them coming.

  4. Dhyr says:

    A well-written article.

  5. fami says:

    x bace lg.. ni header bro!

  6. kiasu says:

    Penjelasan ekonomi negara yang sangat baik dan mudah difahami. Terima kadih.

  7. Jedi Master says:

    Expand sikit idea tu boleh? “Voting for SENSE cost us nothing, but voting for CENTS may cost us everything”!

    • MatRodi says:

      gunakan ‘sense’ dalam memilih bukannya fikirkan ‘duit’ semata-mata. semua orang boleh berjanji itu ini, tp di akhirnya gunalah ‘sense’ utk menilai janji tersbut. 🙂

  8. Raja LP says:

    Please excuse my lack of knowledge in economics but if the government’s revenue has been lower what it’s been spending for the past 5 years, hence the yearly deficit, how can it possibly service the debt?
    I mean, if I owe a bank a huge sum of money, but I spend more than what I earn in a month, where do I get the money to make the loan repayments?

    • MatRodi says:

      Raja LP,

      1) The revenue is increasing. Instead deficit yang berkurang.

      2) Running the govt/ economy is like business. its not the same mcm makan gaji. u can always leverage. The question is whether the borrowed money is being used for investment that brings return or something that wont.

      In this case, govt can settle its debt by using the extra revenue 🙂

      hope it answers ur question.

      • Raja LP says:

        Hi MatRodi,

        Pardon my ignorance but I still can’t understand how there can be extra revenue when there’s a budget deficit, which I presume is what you get when expenditure is higher than revenue.

        From what I hear, the national debt has increased by more than RM200 bil in the past few years. Shouldn’t it be decreasing if indeed there has been extra revenue to settle the national debt?

  9. Hud says:

    the point is clear until done. sense dont seems real and happens ,but cents are.

    but in financial management-ly, the sense has to do with the income per capita of the land of ours. msia rich – mke sense. msia hv rice – import from Thai. palm oil, petroleum..and many other (no wonder we could get BR1M cz of the revenues.) but still in debt for what reason that, aha, maybe bcause our lack of tech(manufacturing) that we assigns others to outsourcing. it helps, but too much OS will causes what more than we ‘share’ our country and they will have chances to take over. it make sense at all. -source is from Statistic Brain.

    this deficit (loss) are essential that sabah n sarawak are soo big n hv lots of lands that grows capitals like palm trees and so on. hv been there in sandakan, how bad is transportation (highway). financial management is very complex but the examples given seems not so hard to understand.

    bribery happens, but should be low.—> http://blogs.wsj.com/searealtime/2012/12/11/malaysia-tops-bribery-table/?fb_action_ids=10200266950347757&fb_action_types=og.recommends&fb_source=aggregation&fb_aggregation_id=288381481237582

    the point of extra revenues are better be the human investments (education) that will serve the own country rather than bubble dreams of settling down in overseas looking for hi pay jobs, or any.

    while as muslims, i believe and confess that the worldly(life) is deeds collecting part to hereafter soon. and life is beautiful.
    and last but not least, sense is the biggest gift from Allah to His vicegerents.

    good infomations , razi.

  10. MatRodi says:

    Raja LP,

    Thats why the deficit is decreasing. Our expenditure is higher than revenue but the gap is getting smaller.

    Our total debt both external and internal is about rm500 billion. But our reserve stood at rm430bil. Plus our revenue per year is now more than 200bil n it grows more than 10% per annum.

    At the moment, we still have deficit in our budget. I admit this may be our problem if not properly addressed in the future. Like we over leverage, increase our debt, using debt to operational cpst, etc. But for sure, this is not our biggest concern now.

    I hope this may help you 🙂

  11. Jedi Master says:

    Raja LP asked “How can there be extra revenue when there’s a budget deficit”. Sebenarnya setiap individu pun boleh je jana ‘extra revenue’ melalui beberapa cara, contohnya:
    1. peningkatan produktiviti (increase efficiency or output- misalnya bekerja/berniaga sambilan utk tambah pendapatan dari pekerjaan tetap)
    2. menaikkan nilai aset sedia-ada (unlocking the value: misalnya tanah pusaka terbiar yg selama ni penuh lalang boleh menjana extra revenue bila diusahakan jadi kebun); dan
    3. menceburi bidang baru berpendapatan tinggi (create a niche – blue ocean strategy).

    Soal “budget deficit” adalah soal yg berasingan; tak semestinya correlate atau berhubung-kait dgn ikhtiar 1,2,3 di atas. Ertinya, walaupun revenue increases if someone is good at 1,2,3 above – he may still be in budget deficit if misalnya dia masih ada byk hutang PTPTN (pelaburan utk pendidikan) atau hutang rumah berharga tinggi yg tempoh bayaran baliknya adalah berjangka panjang.

    Jadi jika individu pun boleh ada extra revenue tapi budget deficit; apatah lagi sebuah negara yg struktur ekonominya jauh lebih kompleks. Takde apa yg pelik atau janggal pun.

  12. latiff ibrahim says:

    Btol bro.. gud article… Ada 1/2 pjk kjaan x penting utk sosial tp penting utk ekonomi cycle… Tp ada org yg x faham main hentam kromo nk kondem kjaan… Yg hentam tu pulak x tau hujung pangkal takat jd parrot je

  13. ammar says:

    What i’m afraid is that, policy by pakatan to increase substantial amount of subsidies to the rakyat which designated to increase their purchasing power could turn the other way around. Product price could be increase due to sudden high demand and it could end up with Malaysia Economic facing higher inflation. La ni dalam 1.2-1.3% x mustahil naik up to 1.6-1.8%. Anyway radzi..thank you untuk explanation hutang ni..thumbs up

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: