Innovation-oriented Fiscal Policy

Transcription

1 Innovation-oriented Fiscal Policy Chua Tong Ka Head of Fiscal Economics and International Division Ministry of Finance Malaysia

2 Introduction As a non-academic, this presentation will focus less on theories and models. Instead, a more practical approach based on experience, observations and interactions with various actors in the economy will be relied on

3 Fiscal Policy: Definition and Objectives Fiscal policy is commonly defined as the use of governmental authority to mobilise revenues and expend allocations to influence the level of economic activity and the direction of national development. Usually it tries to accomplish the following overriding but interrelated objectives (at least from the conventional point of view): To manage and mitigate short-term challenges; To foster Macroeconomic stability; To provide the basic infrastructure; To create the conducive environment for the private sector; and, To serve as building blocks to achieve medium and longterm national development goals

4 Fiscal Policy Management In essence, the conduct of fiscal policy is the prudent management of the following: Revenue Identifying sources of revenue and ensuring efficient collection and proper accounting of tax and non-tax revenue; Expenditure Fair distribution of operating and development allocations to agencies, regions and sectors and ensuring that these allocations are spent efficiently and effectively; Financing Determining the borrowing needs of the government and deciding the most effective and prudent means to source the funds; and, Public debt management Close monitoring of debts levels and ensuring that debts service charges and repayment do not create macroeconomic instability

5 Innovation-Oriented Fiscal Policies Will discuss in two major aspects: (i) Fiscal Policies that promote or target innovations in the economy (ii) Innovative or creative fiscal policies looking beyond the conventional means of raising revenue, expending allocations, financing and debt management

6 Fiscal Policies that Promote Innovation In many instances, national governments have used tax incentives, regulations, grants and allocations to deliberately promote certain desired outcomes or certain industries or sectors that are deemed winners of the future. Some examples: Emphasizing human capital development, reducing disparities, and promoting fairer income distribution and opportunities Strengthening national R & D capability Initiating Import substitution Industries Embarking on Industrialization Encouraging ICT and Outsourcing industries Promoting Tourism and tourism related industries Advancing Bio-technology and Pharmaceutical Science, etc

7 Innovative/Creative Fiscal Policies Innovative/creative fiscal policies are usually aimed at cost saving, better efficiency and effectiveness as well as overcoming public sector finance constrains Demand management reducing the frequency of license or permit renewal for example Securitization unlocking the assets of the government Privatization capitalizing on the private sector Private finance initiative diversifying risks and leveraging on the private sector Government procurement decentralizing to allow greater empowerment and efficiency

8 Private Finance Initiative (PFI) A more recent initiative PFI is seen as an innovative approach to finance, build and manage public infrastructure Why so? Allows more flexibility to the Government to finance development expenditure, especially during periods when public sector finance is constrained or when the demand for public service or amenities far outstrips the capacity of the Government to provide them A good model to hedge against cost escalation Allows fuller leverage of the private sector s managerial and financial acumen as well as technology to create better value for the taxpayers Overcomes the weaknesses in project implementation by public agencies. Presently, when projects failed, the Government would have to bear the financial costs. Under PFI, the risk is passed on to the private sector undertaking the public projects

9 Innovation-Oriented Fiscal Policy - Pros and Cons Innovation-oriented fiscal policy - be it aimed at promoting innovation or having more unconventional ways of conducting fiscal policies must be pursued with caution. Ultimately it is the interplay between market failure and government failure When competitive or market forces do not operate effectively or produce the desired outcome - generally referred to as "market failure - the government intervenes and regulates to seek desired results However, excessive government intervention may results in government failure i.e. produce sub-optimal outcomes for the economy Bureaucrats and politicians are generally less cost-conscious and are susceptible to demands of special interest groups or rent seeking activities. The effectiveness of state planning and picking the winners strategies, once highly regarded, is now debatable

10 Fiscal Policy for Growth and Innovation The composition and efficiency of expenditures are pivotal to attaining growth and development objectives Where institutions are weak, countries should give priority to improving institutions entrusted with budget management and revenue mobilization Innovation and creativity in fiscal policy management must explicitly be aware of: Poor governance State guarantees and moral hazard Degree of corruption Implementation capability technical and managerial (not just financial)

11 Thank You