Budget Inadequate – A Critique of the 2011 Budget

PM Najib announced the 2011 Budget last Friday.  There were immediate shockwaves that permeated the entire nation.  The Opposition obviously didn’t think anything good of it.  But more astounding is the lack of overwhelming agreement with Najib coming from BN leaders.  The statements made appear to be hardpressed to find positive supportive words.  Perhaps many are still in shock from the announcement.

Why should the 2011 Budget give a shock to everybody? Regardless how Najib sugarcoats this Budget, the country must come to terms with it as we all have to live with it, good or bad.  Here’s glossing over some pertinent thoughts about the 2011 Budget.

People’s Budget?

There is very little for the people in reality.

Additional tax on cigarettes was imposed on October 1 before this budget was announced.  This will hit all the smokers out there but not enough to stop them from smoking.  They will not have any more change coming from buying a pack of cigarettes anymore but that’s about it.

Then there is the removal of sales tax for mobile phones of all sorts which also covers PDA phones. If we are expecting phones to come down in price soon, we will be in for a surprise. There won’t be any price reduction at all for most brands.  Furthermore, there won’t be a rush to change mobile phones either.  There has been a serious slowdown in the handphone sales across the country for many years now.

Then the 300 imported items that will have their import duty abolished.  Why would Malaysians who have not had their salary increase for many years want to buy more imported items?  Our disposable income has shrunk so much that we hardly have savings nowadays.  Did anyone notice that food prices have started to creep upwards by 10 sen to 20 sen in recent days?  Would Malaysians be spending more money buying imported cosmetics and not eat?  Would we be buying imported running shoes to boil soup with?  We hardly have enough income to survive.  Why is the PM asking us to spend more?  And of all things, buy IMPORTED and not buy MALAYSIAN?

Did the PM on one hand want money to circulate in the system by spurring more spending and then on the other hand encourage buying imported goods only to have the money leave the system?  This defeats the purpose of encouraging spending to spur the economy.  The nett effect will be less money in the system.

Now an increase to 6% service tax from 5% is going to be hard on everyone who watches Astro and spend money eating out at restaurants, including McDonald’s and KFC.  The man-on-the-street will be further burdened directly.  Is this the prelude to GST even though it is deferred indefinitely for now?

Certainly, the civil service will get a RM500 angpow from the Government instead of a bonus or pay increase. The lower income group of the civil servants will benefit most.  The rest will not feel much from RM500.  Maybe they will be the ones who will be buying new mobile phones or imported cosmetics.  Then we will have the effects of money from the Government flowing out of the country.  As if the severe reduction of FDI is not enough that we have to chase our own Ringgit out of the country by encouraging to buy imported goods.

Stamp duty for first time buyers of homes will be halved.  Now that the property prices have risen significantly in the past year or two with no increase in salaries, they can hardly afford to think about buying their first homes.  So how will this help?

In a nutshell, the Rakyat really gets nothing at all.

Construction Stimulus?

Najib announced a few big and bold construction projects that were intended to greatly spur the economy through trickle down effect.  In the past, Malaysia has depended on the construction industry to kick start a dull economy and has worked. Najib is now attempting to steal a page from that book. And that might just work, at least in concept.

Such stimulus in the past went to many construction projects that benefited many local construction companies.  They in turn hired a lot of Malaysian workers who in turn spent their income in our local markets which in turn encouraged local retailing business. At the same time, these construction companies bought from Malaysian suppliers who also hired Malaysian workers. That’s the trickle down effect.

Now, Najib is trying to do one better than Mahathir in the 100-floor Menara Warisan Merdeka estimated to cost RM5b. Can anyone explain if the Petronas Twin Towers had helped the Malaysian economy and by how much? The reason this question must be asked is that all the crucial players in the development of the prestigious project were from overseas. Architects (USA), Construction (Japan and Korea), construction workers (Indonesia, etc.) and materials (steel, glass and concrete of foreign origin). Of course, there were many Malaysian skills involved but the bulk of costs went away to the home countries of origin.  So what trickling effect was there. This will make a good 3rd year Economics thesis topic.

So if that was the case then, what would the 100-floor tallest tower mean to our economy? Yes, we will again have the tallest structure in the world for a short period but so what? Many have asked if Malaysia needs another tallest structure in the world again or we need something to stimulate the economy.

Najib may have good intentions here but expensive super structure projects always require foreign expertise, labor and materials.  It’s not about constructing many townships across the country.  It’s a singular piece of land in the heart of Kuala Lumpur and potentially be the most expensive office space in the country generating enormous traffic headaches.

Then there is the RM43b Mass Rapid Transit (MRT) project for the Klang Valley folks.  If there is transparency to award this mega project, there may be some hope yet.  This is a very complex project and presents enormous challenges that require lots of money to finance for land acquisition and construction.   This RM43b has a lot to go around too if the procurement is not carefully and transparently done.

The RM26b KL International Financial District sounds like a Malaysian Wall Street in the making.  Certainly, there will be a significant real estate play for the ones who already know where this is being set up much earlier.  This project may just contribute to domestic spending because it sounds like something Malaysian companies are very capable of pulling off.  If they can build Putrajaya, they can build this Financial District.  There will be lots of drag along projects with this mega construction.

Financing Big Government

The 2011 Budget sees the largest Malaysian budget in our history.  A hefty RM212b was tabled by Najib, thereby, creating history of sorts. It also shows that Najib believed in huge spending to get the economy going again.

Notwithstanding the historical size of the Budget, Najib also announced the largest operational budget for the Government ever. A humongous RM163b or 75% of the entire 2011 Budget is going to take care of the oversized civil service and all the other unannounced Government projects by various Ministries. It will not be surprising that the Defense Ministry will get a whopper of a budget from this allocation.

Little do we realize that it is probable that the Government will be using a large chunk of this operational budget to repay all the loans for 2011 period too, the inheritance from Mahathir’s rule. If Najib didn’t go for an oversized budget, he will not have adequate funds for anything.

Badawi dared not go for broke in budgeting but Najib went for it.  Perhaps this might be the only way to force the country to wake up again, financially speaking, if corruption is contained.  Otherwise, cronyism and corruption will ruin Najib’s party if he is not careful.

Day of Bigger Government

The days of Big Government is gone. Here comes Bigger Government. Such gigantic budget may have been concocted to cover all the already committed expenditure of future administrations.  If Najib gets his way, he may inevitably add to the future expense commitments unless we are clear that the financing of KL International Financial District, the MRT, the 100-floor Wawasan Merdeka tower, etc. are not coming via long term borrowings again.

As the 2011 Budget is slowly unveiling in more details and through the Parliamentary debates, let’s hope that Najib is not going to repeat Mahathir’s financial commitments that is causing future administrations mega headaches. It stopped Badawi in his tracks but Najib may have found a way to get out of the mire.

Let’s pray that Bigger Government is just a mere illusion and that the reality of the Najib Administration is in prudent management beneficial for future generations of Malaysian while removing the threats of cronyism and corruption vultures already hovering at Putrajaya.

Good luck, Najib!

You have lots of challenges and oppositions both within BN and the Pakatan Rakyat that will chew you up on the 2011 Budget. The Rakyat will soon know what they will really get from this incredible RM212b Budget and how much more will the Rakyat has to suffer before the Government will act positively on our suffering as food and property prices continue to rise.  And we don’t need another mobile phone or eat imported lipsticks for lunch.

Oh, where is NEM in this Budget or is it deferred like the GST? And we are looking forward to the further removal of subsidies that will hurt the Rakyat even more.


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