Aye to fiscal policy management Act

THE Public Finance and Fiscal Responsibility Act was passed with a voice vote in the Dewan Rakyat yesterday after it was tabled for the second and third reading.

The Bill was tabled for the first reading by Deputy Finance Minister I Datuk Seri Ahmad Maslan.

He said, for the first time, an Act related to the management of fiscal policy and framework based on the Malaysian context was tabled to ensure sustainable public finance while preserving macroeconomic stability and protecting the people’s welfare.

He said the Act also stressed on the accountability of the Finance Minister to Parliament when managing fiscal policies and public funds.

“We do not want to leave a legacy of debts for our future generations. Previously, we were servicing 10% for our debts, but it is now 16%,” he said when winding up the debate on the Bill.

Ahmad said the government welcomed suggestions for a special parliamentary select committee to be set up to look into national fiscal matters.

He said a Procurement Act will be tabled next year to ensure procurement processes are done properly.

The Bill seeks to spell out the responsibilities of the government in terms of governance and transparency in managing public finances and fiscal risk, especially in relation to revenue, expenditure, loans and debt.

According to Clause 5 of the Bill, the Finance Minister is responsible for formulating and implementing the government’s fiscal policy with the main objective of ensuring sustainability of public finances, preserving macroeconomics and safeguarding the well-being of the people.

The Finance Minister will also have to formulate a Medium Term Fiscal Framework, which will be a three to five-year projection on the government’s fiscal position and economic projections.

This will be supported with a revenue strategy and expenditure policy.

According to the fiscal objectives of the Act, the annual development expenditure should not be more than 3% of the gross domestic product (GDP).

The government debt level should not be more than 60% of the GDP while fiscal deficit should be at 3% or less.

Government guarantee should not exceed 25% of GDP.

The Act also provides a provision for the government to temporarily deviate from its fiscal objective if there is a sudden and unpredictable event that may pose significant risk to human lives, economy and fiscal position.

However, this deviation must obtain Cabinet approval and be tabled in Parliament.

In the event the fiscal objectives are not achievable, the Finance Minister will have to present an adjustment plan to Parliament for approval.

If the plan is rejected by the House, the Dewan Rakyat may instead pass a resolution to require the minister to improve on this fiscal adjustment plan which must be laid before the House.

A committee will also be set up to make recommendations to the Cabinet in matters of fiscal policy.

The committee will be chaired by the Prime Minister and comprise his deputies, the Finance Minister, Economic Minister, Chief Secretary to the Government, secretaries-general of the Treasury and the Economy Ministry, Bank Negara Malaysia governor and two other appointees with expertise in finance.

The minister must also table an economic and fiscal outlook report for every financial year to the House.

Ahmad said the goal of the Act is not solely to reduce the fiscal liabilities but it also entails KPI for fiscal targets.

Among the new responsibilities imposed on the Finance Minister is that he will have to produce a mid-year expenditure performance report no later than Sept 30.