Budget 2006: Human Capital Development

This post seeks to highlight and consolidate the information with regards to "what's in it for education", provided by the budget announced for the year 2006. The information is consolidated from the Prime Minister's budget speech and the local newspapers, the Star, the New Straits Times as well as the Sun.

In the Prime Minister's budget speech, he outlined 4 key strategies to achieve the objectives of the nation for 2006. The strategies are to implement proactive Government measures to accelerate economic activities, to provide a business-friendly environment, developing human capital and finally, to enhance the well-being and quality of life of Malaysians.

The total amount of expenditure allocated for the education sector is RM29 billion, or approximately 21.5% of the entire 2006 budget (RM134.7b). Of the amount however, only RM5 billion is available for "development" activities. That means approximately RM24 billion is utilised for existing operations, for e.g., salaries for teachers and civil servants, rental, utilities etc.

The Budget announced by the Prime Minister about a week ago provides development for Education in roughly, 3 different segments. I'll classify them as (1) Direct expenditure on Education, (2) Tax benefits in Education and (3) Post-education incentives and benefits. I'll then follow up with a quick commentary on the Budget for Education below.

(1) Direct Expenditure on Education

Of the RM5 billion development expenditure for education, RM1.3 billion will be spent on pre-school, primary, secondary and matriculation schools. In addition, approximately RM1.2 billion will be utilised to improve infratructure, IT, hostels and teachers' quarters.

As part of the education program, the Government has set a 2010 target for staffing secondary and primary schools to be 100% and 50% graduate teachers respectively.

In addition, as part of a RM700 million budget made available to eradicate poverty among Malaysians, part of the funds will be used to upgrade and renovate rural schools, especially in Sabah and Sarawak, and supply electricity to about 550 schools and water to 260 schools; increasing the food allowance for children in Tabika Kemas from 60 sen to RM1.50 per day. A specific amount of RM80 million has also been allocated to construct and equip 400 rural libraries. From the budget notes and reports, I'm not certain whether part of this RM700 million (which will also be spent on repairing houses, as well as improving the living standards of the orang asli) is taken from the education budget of RM1.3 billion.

The Higher Education Ministry will receive the amount of RM1.4 billion. Of the RM1.4 billion, RM493mil for increased enrolment of students in technical, vocational and skills training institutes, which is expected to go up from 72,000 now to 98,000 next year. Enrolment in polytechnics is to be increased from 78,000 to 80,000 next year.

In addition, the Higher Education Ministry will set up a special unit to assist private institutions of higher learning (IPTS) obtain accreditation and recognition overseas in an attempt to boost the private education system in Malaysia to become a hub for the region.

(2) Tax Benefits in Education

• Parents with children pursuing tertiary education will get automatic tax relief of up to RM4,000. This applies also to those with children studying at recognised universities abroad.
  
  
• Tax relief for disabled children pursuing higher education will also be increased from the current RM5,000 for each child to a total of RM9,000.
  
  
• To encourage lifelong learning, the scope of courses that qualify for tax relief of RM5,000 for individual taxpayers will be broadened.
  
  
• At present, tertiary-level courses on technical, vocational, industrial, science and technology skills are tax-exempt. This exemption will be extended to professional qualifications as well as accounting and law courses.
  
  
• To increase the number of local scientists, IPTS specialising in science courses will be given Investment Tax Allowance of 100% for 10 years.

(3) Post-Education Expenditure and Benefits

Out of the RM5 billion development expenditure for education, there is a budgeted amount of RM1.1 billion allocated for "training". There appears to be many new programmes targetted at life-long learning as well as retraining (and additional training) for unemployed graduates as well as "incentives" for prospective entrepreneurs.

Some of the programmes are:

• The Prosper Graduate Programme to help graduates become entrepreneurs. Graduates will have to set up their own businesses and the Government will provide 200 of them with financing of up to RM50,000 each;
  
  
• The Young Entrepreneurs’ Scheme which is built around information and communications technology (ICT), tourism, halal products as well as food processing and packaging;
  
  
• The Industrial Skills Enhancement Programme for which RM100 million has been allocated to train 4,800 people (unemployed graduates).
  
  
• In addition to these, the other incentives involve putting more money into existing training institutes to train a bigger pool of school leavers. Nearly RM1 billion will be provided for trade and industrial training at Institute Kemahiran Mara, Pusat Giat Mara and Industrial Training Institutes.
  
  
• To encourage companies to provide job opportunities for unemployed graduates, listed companies under the supervision of the SC that provide allowances to participants under the Unemployed Graduates Training Programmes will be given double tax deduction for a period of 3 years. It is expected that at least 1,000 unemployed graduates will be trained under this programme by listed companies in the PNB and Khazanah groups.

Quick Commentary

Compared against the previous years, the allocation for Education has increased significantly. The development expenditure for 2004 and 2005 are only RM4.3 and RM3.4 billion respectively. It also means that the budget for education has increased by a massive RM46.8% over the previous year. This is a good development for the country.

The next question to ask is whether as a percentage of the overall budget, is 20% a reasonable proportion of expenditure for education? Are we investing sufficiently in our future? A quick check with the Singapore Budget for 2005 reveals comparable expenditure proportions. A comparison with Singapore is always useful as they have the undisputed(*) lead in terms of the quality of education in this region (* with the exception of the Selangor Menteri Besar who claimed in his version of statistics that the education standards in Selangor is better than that of Singapore's).

Singapore has a overall budget expenditure of S$29.64 billion, and the amount of S$6.16 billion allocated to education works out to approximately 20.8%. Of the $6.16 education budget, approximately S$1.08 billion is reserved for development. Development expenditure hence works out to be approximately 17.5% of the education budget. Once again, the proportion of development expenditure for Malaysia's 2006 education budget is approximately the same at 17.2%. From this perspective, I'm happy that the Government has allocated sufficiently (in terms of funds) for education in this country.

However, taking the analysis a little bit further - it is clear that the average spend on each Singapore student is significantly higher than that of the Malaysian student. Although the proportion of education expenditure from the budget is the same between the two countries, the total number of students differ markly. As at 2005, the estimated number of students from primary to university is approximately 650,000 in Singapore, versus 5.7 million in Malaysia. As a result the per capita spend for a student in Singapore is S$9,470 (~RM21,300), while for Malaysia, it works out to only RM5,080. That works out to less than 25% the expenditure per student in Singapore.

The above is not so much a criticism of the budget, but more a statement of fact. The Singapore education system is significantly "ahead" of Malaysia is partly due to available expenditure. That in turn is due to the fact that Singapore (~US$23,700) is a more prosperous country per capita, compared to Malaysia (~US$4,200). [An alternative measure of GDP per capita based on purchasing power parity, gives Malaysia a per capita income of US$9,100]

The question then for our policy makers is, how are we going to ensure that our young will be able make the necessary quantum leap if our education spend will likely be significantly behind that of the leaders? While M Bakri Musa noted in the Sun on Friday, that our RM1.1 billion for Higher Education is barely a quarter of University of California (Los Angeles) (UCLA) may be factually accurate, we can only spend within our means. However, does that mean that we will have to be resigned to the fact that we are going to be forever behind these richer countries?

We must recognise that we are never going to be able to match the expenditure of the richer countries. We may argue about increasing the spend on education by a few percentage points, but the difference is still going to be miniscule compared to the absolute spend in other countries like Singapore. It is extremely important therefore, for our policy makers to become more innovative in improving our education system, and ultimately enhancing our students capabilities. If we cannot compete in dollar and cents, we must then compete in terms of guile, cunning and acumen. We must be able to formulate policies which will leverage our strengths to ensure that we receive double or triple the returns per dollar spend on education, compared to other countries.

The question then, for our education ministries, is whether we are happy with just going through the motions or are we prepared to undertake the necessary measures to ensure that we are able to compete at the highest global level and ensure that we don't fall behind. The Malaysian budget has provided for education adequately given our constraints - are we able to utilise the funds efficiently and effectively? It is important to realise that it's not always about more money.