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Opex reduction relevant to cut leakages, wastage -- Economists

01/08/2022 03:43 PM

By Nurunnasihah Ahmad Rashid

KUALA LUMPUR, Aug 1 (Bernama) -- A reduction in the government’s operational expenditure (opex), regardless of the amount, remains relevant as it leads to efficient spending as well as address the issue of leakages and wastage, say economists.

The annual Auditor General’s Report, which often highlights the wastage is enough reason why an opex reduction effort is important, Putra Business School economic analyst Dr Ahmed Razman Abdul Latif said.

He cited that in 2020, the Auditor General’s Report highlighted wastages and inefficiencies that caused losses of RM620.07 million.

“By doing this opex reduction, hopefully it will also reduce such inefficiencies, wastage and possible corruption practices,” he told Bernama.

It was recently announced that an estimated RM5 billion to RM6 billion worth of savings could be achieved from the remaining operating allocation in 2022. This could involve several things, including a reduction in the purchase of imported goods and expenditure out of the country.

However, Malaysia University of Science and Technology (MUST) economics professor Geoffrey Williams opined such cuts should not affect ongoing projects as it could turn out to be a costly affair.

He noted that the budget for government opex for 2022 was RM233.5 billion. So if there is a five per cent cut for the rest of the year, assuming spending is equally spread, then the saving will be about RM5.8 billion from July-December.

“Many spending requirements cannot be cut immediately, so a better estimate would be RM4.7 billion or 1.5 per cent of total budgeted expenditure for 2022,” he said.



Extra cash


Commenting on other areas that can help the government to find extra revenue, Williams said cutting leakages and wastage can save money, a full windfall tax on Petronas, for example, could raise RM55 billion-RM59 billion, according to Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed in Parliament (recently).

Already Petronas made a net profit of RM23.4 billion in the first quarter of 2022.

“But there are also considerable losses due to the foreign worker crisis which has cost more than RM10 billion in plantations alone.

“It is affecting multiple high value-adding sectors including construction, chip-making, manufacturing and tourism. This is holding back growth and revenue and should be fixed urgently,” he said.

According to Williams, evidence from around the world shows that tax reform coupled with lower taxes can spur economic recovery and actually improve government revenue.

“As part of this the government should introduce a tax credit scheme of negative income tax through which people below a Universal Basic Income threshold would receive a tax credit.

“This is a better scheme overall. It can also save money on welfare, subsidies and wastage,” he said.

On the other hand, Ahmed Razman said one way for the government to reduce spending is by improvising its cash assistance method for the intended group like B40.

He said this could be done through the existing technology, such as the MySejahtera application, by creating an e-voucher and linking it to the Bantuan Keluarga Malaysia database.

“From there, we can determine the people's eligibility. The people could use a QR code in the application to purchase daily necessities from selected shops. The shops could redeem the total amount purchased by the group from the government.

“Then, the government has the option of paying the merchants in cash or trading it off with tax exemption measures, for example. By doing this, the government does not have to borrow to give out cash,” he said.

Ahmed Razman said the people can use the vouchers electronically, and this method could also encourage tax compliance by businesses.


Targeted subsidies


On subsidies, Williams suggested three major reforms, namely tiered prices in petrol so that only the small volume sales made mostly by low-income groups get the full subsidies.

Second, full reform of government spending, taxation and markets to free up opportunities and create a more vibrant economy.

“There should be more liberalisation, less government interference and a full-fix of the labour market, especially for foreign workers.

“And the third, a move away from subsidies and price controls for social protection toward a model administered through a tax credit or negative income tax scheme. This targets cash help more effectively to those who actually need it,” he said.


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