Roundup on Budget 2016 – Centre to Combat Corruption and Cronyism (C4)

Source: The Malaysian Insider


Anti-graft group gives Budget 2016 low marks for transparency, best practices

Malaysia gets low marks in budget transparency, the Centre to Combat Corruption and Cronyism (C4) said in an analysis of Budget 2016, saying Putrajaya failed to produce three out of eight accompanying documents recommended by international standards.

The documents were a pre-budget statement, a citizens’ budget and a mid-year review report, C4 said.

C4’s analysis also found a lack of mechanisms to enable public and civil society participation in the budget setting process and monitoring of its implementation.

The group’s consultant auditor, Praveen Nagappan, said Malaysia scored 46 out of 100 for budget transparency in the Open Budget Survey (OBS) 2015, sharing the same ranking as Namibia and Mali while falling behind Papua New Guinea, Bangladesh and Indonesia, among others.

The OBS was developed by the International Budget Partnership, a non-profit corporation, that helps civil society groups conduct analyses of government budgets with the aim of improving good governance and reducing poverty.

Nagappan said the survey found that out of eight key budget documents, Malaysia publishes the Executive’s Budget Proposal, the Enacted Budget, In-Year Reports, Year-End Reports and Audit Reports.

The other three reports, however, have not been published since the OBS commenced in 2008.

“Key budget documents which are currently published are scattered in various locations, spanning across the websites of various ministries and institutions.

“This adversely impact the usefulness of the published documents as the documents do not provide a comprehensive picture when read in isolation,” Nagappan wrote.

His report for C4 noted low public participation in the budget setting process, in which OBS gave Malaysia a score of 12 out of 100.

OBS also found that Malaysia’s Parliament provided weak oversight during the planning stage of the budget cycle, and no oversight during the implementation stage of the cycle.

The supplementary budget process in Malaysia allowed for spending to be presented in Parliament retrospectively, usually the following year for stamp approval, he noted.

“Parliament does not provide its own oversight mechanism over implementation of the budget.

“Additionally, unlike the annual budget process which is approved upfront, the supplementary budget process allows for spending to be presented in Parliament retrospectively, often the following year for ceremonial approval.”

OBS, however, found adequate budget oversight by the National Audit Department, regularly reporting results from audits to Parliament, adding that under the law, the department had significant discretion to undertake audits as it sees fit.

“Moreover, the Auditor-General cannot be removed without legislative or judicial approval, which bolsters the independence of the National Audit Department, although the Auditor-General is appointed on the advice of the prime minister and may at any time resign from office,” he added. – November 18, 2015.


Lack of transparency in GLC, GLIC budget spending, says anti-graft group

C4 says the lack of transparency in government-linked companies and government-linked investment companies, such as 1MDB is a cause for concern. – The Malaysian Insider filepic, November 17, 2015.

Investments in government-linked companies (GLCs) and government-linked investment companies (GLICs), such as 1Malaysia Development Berhad (1MDB), are charged operating or development expenses, and are not reported in certain financial statements, an anti-graft watchdog said today.

Centre to Combat Corruption and Cronyism (C4), in its analysis of Budget 2016, said those expenses were not reported in the Statement of Financial Position but in the Statement of Memorandum Account for Investments.

As such, there was cause for concern that lack of transparency in budget spending could result in funds being channelled to firms like 1MDB undetected.

C4 consultant auditor Praveen Nagappan, who authored the report, said according to the Federal Government Financial Report 2013, investments in companies, statutory bodies and international agencies were part of Putrajaya’s financial assets, adding that these included investments in GLCs and GLICs such as 1MDB.

He wrote that as at December 31, 2013, value of these investments – reported at cost and not their present value – amounted to RM29.6 billion.

“To elaborate, 1MDB, which is valued in the billions today, is listed in the statement as being valued at RM1 million.”

He added that contingent liabilities gleaned from the 2013 financial report in the form of government guarantees – specifically guarantees on loans for the investment companies and statuary bodies as at December 31, 2013 – amounted to RM157.5 billion.

Praveen wrote that these loan guarantees became actual government liabilities upon failure of the entities to fulfill their obligations.

He said although C4 was not suggesting any wrongdoing, limited transparency on how amounts allocated in the budget were being spent could spell an increased risk that those funds would be channelled to these entities and used for purposes other than the original intent of Parliament.

“While we appreciate that the National Audit Department audits the Federal Government Financial Report, documentary evidence and confirmations of investments being made in these entities will suffice to conclude that monies have been invested in these entities.

“These audits are unlikely investigate whether the invested monies are utilised for the intended purpose.”

He added that while the National Audit Department randomly selects GLCs and GLICs to audit in more detail, there could be periods where the existence of the amounts invested in these entities remain unascertained and their activities unscrutinised.

“Therefore, there is an increased risk that activities of these entities are susceptible to financial misconduct such as fraud.

“Coupled with the growth in government guaranteed loans, an act of financial misconduct within these entities could cause a devastating impact on the nation’s finances.

“It is pertinent to enhance fiscal transparency to ensure there are robust mechanisms to provide consistent oversight over implementation of the budget and activities of GLCs and GLICs,” Praveen wrote. – November 17, 2015.


Putrajaya taxing people to support spending, says anti-graft group

An analysis by an anti-graft body has showed that the Budget 2016 is making the people to fund government spending as commodity revenue drops. – The Malaysian Insider filepic, November 17, 2015.

Although themed “Prospering the Rakyat”, Budget 2016 is taxing the people to fund spending as government revenue drops due to weak commodity prices, an anti-graft body said in an analysis of the budget.

Written by Centre to Combat Corruption and Cronyism (C4) consultant auditor Praveen Nagappan, the report said the level of spending was also maintained in most areas and increased in some cases, in non-essential areas – all while making the people shoulder the burden in revenue shortfall caused by the drop in commodity prices.

Allocations were boosted for the Prime Minister’s Department, while cuts were made in “essential spending” such as education, healthcare and defense, said the report, titled “Analysis of Budget 2016 and the State of Budget Transparency in Malaysia”.

Increased spending was also noted in the government’s investment in companies, statutory bodies and international agencies, including investments in government-linked companies (GLCs) and government-linked investment companies (GLICs) such as 1Malaysia Development Berhad (1MDB).

Government guarantees on loans for these companies and statutory bodies were steadily increasing, it added.

“Expenditure relating to government borrowings, another source that the government relies on significantly to maintain spending, is on a steady incline since 2011.

“The sustainability of government borrowings requires further investigation and attention,” Praveen wrote in the analysis.

C4 said its analysis was based on comparisons of key aspects of Budget 2016 to the national budget for each of the past five years.

Sustainability of government borrowings required more scrutiny because Putrajaya showed that it was increasingly relying on taxes on the people as commodity-related revenue experienced a decline, he said.

He wrote that since 2011, contributions from indirect tax revenue had risen from 17.6% that year, to 25.7% in 2015.

This had almost replaced contributions from non-tax revenues such as dividends from Petronas, which were 26.7% in 2011 to 17.6% in 2015, he said.

“This is primarily due to decline in the price of commodities such as crude petroleum and crude palm oil, resulting in the decline of proceeds related to these commodities such as levies, royalties and other distributions.

“The decline in revenues from these sources was compensated by an increase in revenues from taxes, especially the indirect taxes such as GST based on percentage increase.”

Even Prime Minister Datuk Seri Najib Razak had confirmed that collection from GST has helped deal with the drop in oil-related revenues.

“This reaffirms a programme, which increasingly taxes the people, as revenues from the government’s economic activities decline,” he wrote.

To illustrate the degree to which the budget was dependent on GST, the report stated that in 2011, the sales and services taxes (SST) was RM13.6 billion or 7.3% of total revenue, whereas in 2016, GST is expected to contribute RM39 billion or 17.5% of total revenue.

“Apart from GST, with the increased cost of conducting business, including transportation costs stemming from toll hikes and increase in prices of petrol and diesel, it is reasonable to expect that the additional cost pressures will ultimately be passed on to consumers.

“Put simply, the people are increasingly shouldering the burden of a shortfall in the federal government’s revenues to support budget spending.”

The Budget 2016 was tabled last month and currently being debated in Parliament. – November 17, 2015.


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