Firstly, I thought this budget was okay but I am concerned with the tax cuts. I am all for tax cuts, especially related to income but I do not see expenditure going down. The projected fiscal deficit of 4.8% shows it. On the surface, it seems as if the government is trying to improve consumption and to some extent investment through tax cuts while fueling government expenditure through various state-sponsored projects. (Not to forget, government spending, especially when the source of funds is local, does crowd out private investment due to increased interest rate)
I am not necessarily against deficit spending because it has its uses. Rather, I am concerned with the involvement of the state in the Malaysian economy. The size of freebies or transfer payment is also worrying. The threat of cross-over as repeatedly said by Anwar Ibrahim probably has a large role in Santa Clausing on part of the federal government.
In any case, I thought I found what I like and what I do not like based on my first read.
The ones I like are:
20. The higher inflation rate has also affected the purchasing power of the lower middle-income group. To assist this group, the Government proposes the current tax rebate of RM350 per person be increased to RM400 for those with taxable income of RM35,000 and below. With this increase, some 100,000 taxpayers will be out of the tax net.
21. In addition, to reduce the tax burden of individuals, especially those dependent on interest income from savings, the Government proposes that all interest income for individuals be tax exempt.
I have a bias for green tax shift as a mean to limit externality. So, in general I prefer taxation on consumption while practically nothing on investment, wages and savings.
22. To mitigate the impact of rising prices on consumers, the Government proposes to reduce import duties on various consumer durables from between 10% and 60% to between 5% and 30%. These include blender, rice cooker, microwave oven and electric kettle. In addition, the Government proposes full import duty exemption on several food items, which currently attract import duties of between 2% and 20%. These include vermicelli, biscuits, fruit juices and canned sweet corn.
Free trade, anybody?
55. At present, buyers of low cost houses are given full stamp duty exemption on all instruments, including loan agreements. For the purchase of medium cost houses of up to RM250,000, a 50% stamp duty exemption is given only on the instrument of transfer. To further reduce the cost of buying medium cost houses, the Government proposes the 50% stamp duty exemption be extended to loan agreements.
Same reason for No. 21. Purchase of houses is basically some kind of investments.
80. To support the Government’s objective to create a knowledge based economy, it is important to increase the number of professionals serving in Malaysia and to minimise the brain drain. In this regard, the individual income tax rates have to be competitive and attractive. The Government, therefore, proposes that the highest marginal tax rate for individuals be reduced from 28% to 27%, effective the year of assessment 2009. In addition, the marginal tax rate of 13% will also be reduced to 12%, which will benefit the middle income group. These reductions, together with the increase in rebate, which I announced earlier, will benefit all taxpayers.
The reasoning is the same for No. 21. To a couple of people, the reduction maybe a little but it is more meaningful to see the reduction as tax competition across countries.
88. Improving operating efficiency in ports is key to facilitating the growth in the nation’s international trade. In this regard, the Government proposes to abolish the import prohibition on cranes used at ports, as well as reduce the import duty from 20% to 5%.
Free trade. But the reduction probably would not affect total trade much since it is so specific. But it is an enabler of trade nonetheless.
96. Many innovative but high risk projects often have difficulty in securing financing. Conventional sources of funding, namely bank borrowings and private debt securities, may not be appropriate for these projects. To facilitate greater investment by venture capital and private equity funds, the Government proposes that venture capital companies that invest at least 30% of their funds in start-up, early stage financing or seed capital be eligible for a 5-year tax exemption.
No. 21. This may well be the fuel for innovation. Innovation is the best, in my humble opinion, engine of growth for the any economy.
102. To address the price volatility of fossil fuels, various measures have been undertaken to diversify sources of energy and conserve energy. Currently, various incentives are provided for the greater use of renewable energy and energy efficiency. Towards this end, the Government proposes the exemption of:
First: import duty and sales tax on solar photovoltaic system equipment;
Second: import duty and sales tax on intermediate goods such as High Efficiency Motors and insulation materials;
Third: sales tax on locally manufactured solar heating system equipment;
Fourth: sales tax on locally manufactured energy efficient consumers goods such as refrigerators, air-conditioners, lightings, fans and televisions; and
Fifth: 100% import duty and 50% excise duty on new hybrid CBU cars, with engine capacity below 2,000 cc, be given to franchise importers. This exemption is given for a period of two years to prepare for the local assembly of such cars.
I am a big fan of alternative energy. The least the government could do is not tax it and that is what happening at the moment.
106. Apart from this, in order to promote efforts to further diversify and attract more foreign investors to the domestic capital markets, the Government proposes that the current tax rate on dividends received by foreign institutional investors from Real Estate Investment Trusts (REIT) be reduced from 20% to 10%. Recognising that REITs is an attractive investment product for individuals as well, the Government also proposes a reduction in tax rate from 15% to 10%.
No. 21.
Now, stuff that I dislike.
19. As part of the Government’s effort to further reduce the financial burden of the lower income group, households which incur monthly electricity bills of RM20 or less, will not have to pay for electricity, for the period from 1 October 2008 to end of 2009. The Government will bear the cost of such bills, amounting to RM170 million for the period. A total of 1.1 million households will benefit from this measure.
Subsidy, subsidy, subsidy. Oh damn it. Just do transfer payment while you are at it.
In any case, the Barisan Nasional government just lost the moral authority to criticize the Pakatan government of Selangor for providing free water.
Anyway, I was thinking, would this actually encourage people to use less electricity? If a person typically consumed RM20.01 worth of electricity, it would be rational to cut consumption by RM0.01.
45. The Government will implement several agriculture programmes to ensure adequate food supply. For this, a sum of RM5.6 billion is provided under the National Food Security Policy, for the period 2008 to 2010. This allocation, among others, is to provide incentives to agriculture entrepreneurs to reduce production costs and encourage higher agriculture output. About 350,000 vegetable and fruit growers, as well as aquaculture and livestock breeders, will benefit from these incentives.
46. In an effort to increase fish landings, an amount of RM300 million is allocated. Of this, RM180 million is in the form of cost of living allowance to fishermen and fishing boat owners, as well as RM120 million as incentive for fish landings. This will benefit about 100,000 fishermen, including boat owners.
47. In addition, to increase poultry output, the Government proposes that the expansion of chicken and duck farms be given Reinvestment Allowance of 60% for a period of 15 years.
48. The Government will provide 220,000 padi farmers throughout the country with incentives to increase padi production, which involves an allocation of RM1 billion. In this regard, more than 1,300 hectares of abandoned land have been identified for padi and other food production, such as fruits, vegetables and livestock.
49. An allocation of RM475 million is provided in the form of agricultural inputs, fertilizers and pesticides to assist padi farmers. To further assist farmers, the Government proposes that import duty on fertilizers and pesticides be abolished.
David Ricardo. Comparative advantage.
Food security. Bad economics.
89. The Government remains committed towards corridor development initiatives to ensure more regionally balanced socio-economic development of the nation. The intention is to provide more investment, employment and entrepreneurial opportunities in the various regions. Thus far, all the five economic corridors have been launched and initiatives, as outlined in the respective Development Masterplans, are beginning to be implemented. The five economic corridors are Iskandar Malaysia, NCER, East Coast Economic Region (ECER), Sarawak Corridor of Renewable Energy (SCORE) and Sabah Development Corridor (SDC). In the Midterm Review of the 9MP, an additional ceiling of RM10 billion has been allocated for the development expenditure of the corridors, of which RM6 billion is provided in the 2009 Budget.
90. To further strengthen private investment in Iskandar Malaysia, an additional allocation of RM300 million is provided under the Strategic Investment Fund. The Fund is to finance the implementation of private-public partnership projects, in the areas of public transportation, healthcare services, education and creative industries. These are priority socio-economic areas, where Government will support the project viability, but with the private sector bearing the project risks. In healthcare, for example, instead of the Government constructing and operating hospitals, the provision of such public services can be partly met through the Government procuring such services from private sector providers.
91. Iskandar Malaysia will develop an integrated public transportation system, initially focusing on enhancing bus services by working together with existing bus operators. In the area of healthcare, a centre of excellence for postgraduate teaching and research will be established in partnership with private sector hospitals. Iskandar Malaysia will also set up and operate not-for-profit schools, initially on a pilot basis. These schools will have a mixed intake of Government and privately funded students. In addition, a creative cluster will be developed in Iskandar Malaysia, with funds channelled towards enhancing the capabilities of local creative talent.
92. Among the major projects being implemented in the ECER are Agropolitan in south Kelantan, Besut-Setiu and Pekan, including developing kenaf products. In the context of optimising the natural resources of the state, the Kertih Plastics Industry Cluster will be developed as a downstream industry, to enable the local residents to benefit from the petroleum resources in Terengganu. Similarly, the SCORE will focus on the development of hydroelectric power and coal, petroleum and gas downstream industries, as well as large-scale agriculture.
93. Towards realising the potential of agriculture in NCER, a number of projects are being implemented, including cattle breeding using the feedlot system in Tobiar, Laka Temin and Cuping, as well as the conversion of about 3,000 hectares of idle land for padi cultivation. In the SDC, a palm oil industry cluster in Lahad Datu and an integrated livestock centre in Keningau are being implemented.
Inorganic. Central planning.
98. Small and Medium Enterprises (SMEs) play an important role in the economic development of the nation. In order to further enhance the role of SMEs in the economy, the Government recently announced two new funds totalling RM1.2 billion, funded by Bank Negara Malaysia, to assist the modernisation of SME operations, especially for purchase or upgrading of machines and equipment, as well as reducing the impact of price increases. To further support SMEs, the Government proposes all assets in the form of plant and machinery acquired in the years of assessment 2009 and 2010 be given Accelerated Capital Allowance to be claimed within one year. In addition, SMEs are allowed to claim full Capital Allowance on all small value assets within one year.
Can we please make the Bank Negara to fully concentrate on monetary policy instead?
Now, some points which I think deserve comments.
56. In the 2008 Budget, I had announced the Housing Credit Guarantee Scheme (SJKP) to assist those without fixed income to own affordable houses. Under the Scheme, borrowers can obtain housing loans from Bank Simpanan Nasional and Bank Islam Malaysia Berhad to purchase low and medium cost houses. A fund of RM50 million was set up for this purpose. To date, nearly 500 applications valued at RM20 million have been approved. Beginning July 2008, the Government has rolled out the scheme to all local financial institutions. The fund size will be increased to RM100 million, enabling SJKP to guarantee loans amounting to RM2 billion. About 40,000 borrowers will benefit from this facility.
I wonder how these borrowers pay back their loans. I figure we could see a lot of write-off on behalf of the BSN and BIMB since these borrowers do not sound like those whom are able to pay back the loans.
112. The fiscal position of the Federal Government has strengthened over the past seven years, with the overall deficit reduced from 5.5% of GDP in 2000 to 3.2% in 2007. This reduction has provided greater flexibility for Government fiscal policy, especially in an environment of greater uncertainties in the global economy as well as increasing prices of goods.
Sounds fair.
118. The Malaysian economy is projected to grow by 5.4% in 2009, driven by domestic demand, with consumption and private investment increasing by 6.5% and 5.8%, respectively. Growth is expected to be broad-based with positive contributions from all economic sectors and spearheaded by the services sector, which is projected to grow by 6.9%. This is driven by robust growth in tourism, transportation, finance and banking as well as ICT related industries. External trade will remain buoyant with exports growing at 4.6%.
Good to know that consumption and private investment are the drivers of our economy. But it seems like government expenditure is the main driver of our economy.
123. I wish to reiterate that the Barisan Nasional Government, which has been given the mandate by the people in March this year, will continue to safeguard political stability and enhance economic prosperity of the nation. Efforts by certain parties to destabilise the country by attempting to seize power through illegitimate means, and without the mandate of the people, must be rejected. We cannot allow uncertainties to continue, as this will adversely affect foreign investment, economic sentiment and the capital markets. I will not allow these disturbances to continue. I will not permit the mandate given by the people to be seized from Barisan Nasional, which had won the last election with a majority of the seats, based on democratic principles. I am confident the people will continue to support the Barisan Nasional Government to govern the nation. We need to get on with the business of governing and not waste any more time with opportunistic threats to seize the people’s mandate through undemocratic means.
Crossing over is not an illegitimate mean of forming a government. It is freedom of association as guaranteed by the Constitution of Malaysia. Any effort to use coercion to undermine that freedom will be an illegitimate mean of maintaining power.
