Why a fixation on fiscally responsibility risks being developmentally irresponsible.
Every year, as Budget season rolls around, the same moralising sermons start to appear in op-ed pages and analyst notes. Malaysia, we are told, must show “fiscal responsibility” and “discipline”. Foreign ratings agencies, global banks, and assorted financial market acolytes alike warn that “the market” will punish any dared deviation from the ordained path of fiscal consolidation. In response, pundits and commentators begin to wring their hands over the size of government borrowing and bemoan the need to balance the books.
Their prescribed cure for the Malaysia’s myriad fiscal sins? The government, they insist, must behave like a frugal household. In the name of fiscal discipline and responsibility, Malaysia needs to cut public spending, raise taxes, and above all, avoid displeasing the markets. Investments in public healthcare, social services, and economic development are acknowledged as necessary – urgent, even. But it will, unfortunately, have to wait, by order of fiscal space. Such is the urgency for rectitude.
This line has been repeated so often it now passes for common sense. Yet somewhere along the way, we forgot to stop to ask: who, exactly, are we being fiscally responsible for anyway?
Because when you look past the facade of prudence, it could start to look like a kind of “fiscal theatre”. By co-opting language of morality, global capital markets have us fixating on the anxieties of markets over the needs of Malaysians. Social and development priorities are surreptitiously subordinated to the concerns of external creditors. Democratic questions like “do Malaysian voters want and benefit from this spending?” are buried by financial ones: “will this upset investors?” The effect is to shrink our collective agency over how public resources can be used and to thin out democracy in the economy itself.
Of course, the very underlying analogy that governments must save, spend, and behave like a household itself is wrong where it matters most. Governments are not households. In fact, they are very unlike households.
For one, Malaysia issues and prints its own currency, the ringgit. A monetarily-sovereign government that issues the currency in which its debts are denominated does not face the same solvency constraints that a household does. In fact, Malaysia has never defaulted on its sovereign debt, and absent deliberate political choice, will never. The overwhelming share of Malaysian federal debtis raised at home, in ringgit, and held domestically by public institutions such as EPF and KWAP. Borrowing costs, while not trivial, remain anchored by deep local demand, with MGS yields still relatively low historically and relatively to the region.
Another way governments are very unlike households is that governments do not need to “collect” enough ringgits from the economy before they can spend them. Again, a monetarily-sovereign state is the issuer of the currency it spends in, and as such, literally cannot run out of it. None of this means it can spend on anything and everything. This just means within the true binding constraints on public spending do not sit in the treasury account, they live out here in the real economy. Within the real limits of people, skills, and resources, the state can always fund the developmental priorities it judges to be productive and strategic. Put simply, the key constraint to spending is not whether we hit a specific deficit number, but inflation.
This also helps us clarify the primary purpose of taxation. Taxes are still necessary, and we should still broaden the tax base. But the central role of taxation is less about “funding” government in a household cash-flow sense, than about using fiscal tools to shape economic incentives, temper excess demand where it emerges, and most importantly: to advance social equity through progressive taxes and redistribution, especially at the very top.
And that’s why a fixation on “responsibility” misses the point and comes up short against current realities. Today, perhaps more so than ever before, Malaysia faces a long list of urgent, strategic priorities, and demands on public spending will continue to mount as development needs grow.
A rapidly ageing population and rising non-communicable disease rates require greater spending on stronger health, care and social protection across the lifecycle to safeguard the wellbeing of millions of Malaysians in the decade to come. New external pressures in technology and geopolitics demand significant domestic investment to strategically build and upgrade industrial, and to fund research and development in advanced manufacturing. Existential climate and ecological risks require urgent investments in adaptation and mitigation to uphold families, communities, and ecologies across the country. This is to say nothing of the spending on essential public services that Malaysia needs, like education (including a recently announced universal pre-school goal), public transit, and housing – all of which require sustained investment are needed to improve access, quality, and equity.
But while these priorities are both widely recognised and broadly popular, we told we cannot afford them. Rather, we are routinely presented with a false dilemma: social development versus fiscal responsibility. Yet, it is obvious that the former matters far more for human flourishing than the latter.
This brings us back to the question: who are we being fiscally responsible for? An obsessive focus on “fiscal responsibility” can become developmentally irresponsible. Shifting this lopsided balance, and placing people’s priorities at the centre of progress, will require shedding our collective fetish for fiscal restraint. After all, to confront the challenges of the coming decades, Malaysia needs to spend more, not less.
An earlier version of this article was first published on Malay Mail.
