THE The first pre-budget statement as the first and prelude to the 2022 budget provides an opportunity for greater transparency, accountability and stakeholder engagement in the formulation of fiscal and macroeconomic policies.
At EMIR Research, we would like to urge the government to take it one step further by calling for the creation of an Independent Tax Body (IFB) – whether through primary or secondary legislation. If so, the IFB could be a statutory body (commission). If it is the latter, the IFB can be a department or a unit. Better if it is a semi-government / government-linked think tank that is funded partly by the government and partly by the private sector, and managed as a trust or foundation.
Our suggestion is inspired by Professor Geoffrey Williams of the University of Science and Technology Malaysia (Must), who allegedly called on an IFB to analyze public finances in his 2018 article titled âEye on Budget preparationâ in a local daily.
An IFB could be a way to “… depoliticize … the federal budget … and … focus on the technical aspects of responsible budgeting, including the effectiveness of budget plans, their economic impact and social and long-term sustainability “.
In an interview with a news portal, Williams said the Office of Fiscal Policy and Debt Management (FPDMO) under the Department of Finance “established in May 2019 to examine government debt and liabilities, did not cover the broad implications and alternative interpretations of budget and debt issues â.
The FPDMO was modeled on that of the United Kingdom. The UK DMO was created to take over ‘the issuance of government securities from the Bank of England, following the transfer of interest rate setting responsibility from Her Majesty’s Treasury to the United Kingdom. Bank in May 1997 â(which became operationally independent under then Chancellor Gordon Brown as part of the Labor Party’s series of constitutional and institutional reforms).
When the UK suffered a financial crisis and a credit crunch following the news of Northern Rock’s insolvency and the government’s swift action to partially nationalize it with the Big Four, that is- ie the Royal Bank of Scotland, Lloyds, HBOS and TBS, the DMO was also, in effect, “indirectly” coordinating the issuance and sale of gilts (UK government bonds) with the Bank of England in part of quantitative easing (QE) since.
On the other hand, the UK’s Office of Budget Accountability was created under the leadership of then-Prime Minister David Cameron after the Tories won the 2010 general election in an attempt to provide independent and neutral justification. to the policy of “expansionary fiscal contraction” pursued by his counterpart George. Osborne.
That is to say to allow monetary policy to take the lead with an interest rate close to zero coupled with QE. In hindsight, having monetary policy do the heavy lifting – reversing the roles – was never going to work, no matter how accommodating.
Osborne was forced to back down on his avowed commitment to fiscal consolidation by 2013. Nonetheless, the two historical lessons offer insight into how we can embrace and adapt to our circumstances. The key lies in accurate and timely economic and fiscal forecasts, which avoid group thinking and are able to offer critical assessments and original thinking.
The IFB would also carry out pre- and post-budget analyzes, risk assessment and prospective analysis, as well as scenario management (eg stress tests). The IFB will act as an independent assessor of the performance targets set by the government.
Last but not least, the IFB can also complement and complement the role of the Public Accounts Committee (CAP) by providing independent and professional / expert advice, and advice on the terms of reference and responsibilities of the latter, in in particular as regards “the accounts of the federal government and the allocation of the sums granted by Parliament to meet public expenditure”.
It is proposed that the IFB report regularly to Parliament – through special parliamentary committees – on a quarterly basis. The appointment of non-partisan experts from the fields of finance, accounting, economics and public policy to the IFB enables it to fill potential gaps under the jurisdiction of the FPDMO.
In addition, the IFB can and should review reports from the Auditor General, Accountant General, FPDMO and statements from ministries (and respective departments and agencies).
As a central part of the process of formulating fiscal policy and public financial management, the IFB can strengthen the capacity of the PAC to ask the right questions, more effectively examine the items under consideration, and hold the government of the day to account for the allocation and the expenditure.
Indeed, the role of the IFB would definitely improve the formulation and implementation / execution of our budget policy – to minimize leakage and waste, ensure that money is delivered to target recipients in an effective, efficient manner. and timely, etc.
In addition to the PAC, the IFB reports would accordingly benefit what is expected to be a special committee on the budget in the future alongside the pre-existing special committee on finance and economics.
As observed, the increased role of PAC is a necessity for it to function optimally, and this could be achieved through the support of a dedicated IFB.
The case of an IFB is supported in “The Success Factors of the Public Accounts Committee in Malaysia: The Public Perspective” (IPN Journal of Research and Practice in Public Sector Accounting and Management, 2012) by researchers from Universiti Putra Malaysia , who had compiled several potential elements (from other studies around the world) that need to be improved for a KAP to be more effective. These include âhaving independent technical expertise and research supportâ. The article also referred to a separate study that identified âavailability of information and bipartisan / non-partisan natureâ as an important âbehavioral aspectâ success factor.
An article by Rose Shamsiah Samsudin and Nafsiah Mohamed – âThe Magnitude Of PAC’s Work in Review and Reporting on State Government’s Financial Statementsâ (Malaysian Accounting Review, Vol. 8, No. 2, 2009) – suggested improvements in âthe composition , capacity, work process’ to optimize the role and function of the PCB.
In addition, in line with calls for radical governance transparency, granular public accounts data should also be made fully open and accessible through a secure digital platform.
Safe monitoring and management of the movement of public funds is essential for competence, accountability and transparency, and the IFB could be appointed as an independent body for the implementation of the necessary technological layers.
Regarding monetary policy, some of the policy recommendations could include the following (not exhaustive):
1. The governor of Bank Negara, alongside members of the monetary policy committee, is expected to appear before what should be a special parliamentary special committee on monetary policy, for example every two years – with debates open to the public and published by the parliament ; and
2. Quarterly reviews and an assessment of the impact of monetary policy by a future special parliamentary committee on monetary policy should be undertaken.
In the final analysis, monetary policy should never be viewed separately, even in conceptual terms, from fiscal policy.
An IFB should include the impact of fiscal policy on monetary policy and vice versa and offer policy recommendations on how to better coordinate and synchronize the two, within its mandate and remit.
In short, the formation of an IFB would also allow monetary policy to be the subject of more scrutiny and scrutiny.
Returning to the central topic – overall, fiscal policy monitoring and analysis can be better improved with the establishment of an IFB. It should be seen as part of the ongoing institutional reforms – in the search for a more open, inclusive, progressive and democratic governance regime.
Jason Loh Seong Wei and Ameen Kamal are part of the research team of EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.
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