Malaysian Assessment: A Budget 2013 Critique

PM Najib presented his 2013 Budget last Friday. As widely expected, it was a so-called people centric budget filled with one-off handouts to practically all voter groups in anticipation of an imminent General Election. Najib is still waiting for what many people say is a pivotal electoral feel good spirit to spur his election fortunes and this budget is his last shot to attain this feel.

Also as expected, BN leadership comments will show unequivocal support and the opposition Pakatan Rakyat will be on the other end of the spectrum. Certainly, there are the independent commentators who try to steer the middle ground.

Let us put forth our views from a totally fresh viewpoint and you can weigh them out for yourselves.

1. Everybody Gets Some Money

Yes, everybody gets some.

From civil servants to long term service pensioners to households under RM3K income to singles above 21 with under RM2K income to college students to primary and secondary students as well as middle income earners all get something. For a summary of who gets what, read The Star, iMoney (with Infographics), The Malaysian Insider (#1), and another view than BN on the budget here.

Regardless of your political leanings, when money is given out, we shall not look at a gift horse in the mouth. It is very OK to take everything on the table. It is, after all, tax payers money even though many of us may not have contributed. It has been reported that only 20% of our workforce pays income taxes. That means 80% of our workforce does not qualify to contribute taxes. Perhaps, instead of giving fish, why can’t the Government make the environment better to fish?

And before the environment can be made better, be aware that after GE13, the 80% who are not paying taxes now will be made to pay through the implementation of the GST. You can’t escape and you can expect your disposable income to shrink further by then. The next Budget 2014 will definitely see the implementation of GST when BN is returned to power for yet another term.

Do not be mistaken that GST is bad. It is good for the Government to have a broader base to generate income. However, it must not be done in isolation with little to no regard given to the earning capabilities and income environment of the people. When salaries do not go up in real terms for over a decade, GST will shrink the already small disposable income of the people.

2. Questionable Statistics

In the Budget 2012 presented in September 2011, Najib submitted a RM232.8B budget. In last week’s Budget 2013, he submitted a RM251.6B while stating the 2012 projected budget to be RM252.4B, an increase of virtually RM20B. It is by using this new projected figure that Najib proudly proclaimed that his 2013 budget is smaller than last year’s budget. What a baloney!

Just as additional billions of Ringgit were requested in Q1-2012 and Q2-2012 Parliamentary sessions for unplanned expenditure, we can expect Najib to do the same in Q1-2013 because the budget presented last week is not the complete picture.

Hence, making questionable comparisons just to create a perception that the 2013 Budget is more prudent is an attempt to make Malaysians look like idiots.

Another questionable stat is the federal debt. The debt rose 10.1% to a new high of RM502.4 billion or 53.7% of the GDP this year. That is only 1.3% short of the 55% legislated debt ceiling (read here for a view of this alarming news).

Then UDA Holdings Chairman came out to pacify Malaysians stating the BN line that this is not alarming at all and is no cause for concern. He says that we are safe, far from the US and European problematic countries like Spain and Greece debt ratios. He believes the BN Government can ensure that even passing the 55% legislated debt ceiling is not something we Malaysians should lose sleep over (read here).

We should question anyone who posits such strange assurances when BNM puts forth personal debt guidelines of no more than 1/3 of monthly income to service cumulative loans. Here, we have a legislated ceiling of 55% of GDP, far more than our 1/3 personal income.

If simple stats can be manipulated to keep the public misinformed, what more will the BN Government do to hide other liabilities from our view and not included conveniently in this 2013 Budget? This we can expect to happen. So be forewarned.

3. Strange Places to Budget For

One will be very hard pressed to find some very tangible and strategic areas where Najib feels will reinforce and/or improve our near term and mid term economic foundation. Economists call this the fiscal strategy. Sad to say there is none.

What we do find is not economics but popularity gains from handouts or aids or assistance to voter banks, depending on who says it. The Budget is where the Government of the day will tweak the economy, shock it if needed and prepare the people to embrace tough measure where required.

Again, sadly there is none as Najib has to call a General Election and such measures will be counter to his feel good election strategy. Hence, no such tough measure for now until after the GE13. Meanwhile, take some cash for yourselves, won’t you?

To be fair, there were feeble attempts to budget for some strange areas.

a) RM386mil to ensure the prices of essential goods in Sabah and Sarawak as well as in Labuan are sold at lower prices through the opening of 57 KR1M; and to bear the cost of delivering products from Peninsular Malaysia to Sabah, Sarawak and Labuan including the interior areas.

Now, this appears insulting to East Malaysians because it presumes that only the Government can bring down the prices of essential goods and this by an incredible RM386M in opening 57 KR1M stores. Why can’t East Malaysian businesses do this? Is it because the actual cost of transportation is just too high and require the Budget 2013 to bring it down for the operator of KR1M (is it still Mydin?)? This is only a measure for a year. What happens to future years? This appears at best a transportation subsidy for the chosen one or at worst the cornering of a retail market for a crony. How does this help East Malaysians and their businesses? We don’t see fundamentals of the consumer market being improved here.

b) Lots of tax breaks in the form of tax deductions, tax-free incentives, tax exemption, income tax waiver are keywords you can spot from the Budget 2013. This is built-in to the Budget as at best a loss of income or at worst no effect. Why? If you don’t make profit, you don’t pay taxes. So generally speaking, it is a good incentive for businesses to start with no skin off the Government’s nose. But this spells danger for the Government where already established businesses are involved. Read further.

One interesting point to take note though. We can now see Najib besting Tun M in his MSC Cyberjaya brainchild. Najib has taken the Tun Razak Exchange (TRX) and inadvertently done a one-up on Tun M. He expects 250 foreign companies generating 40,000 jobs with an instant 10-year tax break. Here in lies the flaw of the tax break that Najib did not learn from the Cyberjaya days. In the haste of gaining big brand names to anchor Cyberjaya, the already big and established IT companies obtained innovative ways of gaining the 5+5 years tax break. In the TRX case, we are quite certain this will also be the case and this will mean that existing taxes they are paying will already have been factored to be collected but will be lost through this loop hole. Something to watch closely.

c) Another curious project is the RM500mil to be allocated for the River of Life project to rejuvenate Klang River. This sounds like someone is trying to revive the Linear City of the past decade during Tun M’s time. The Government will clean up the Klang River and possibly widen and deepen some parts and to ensure the upstream mud will not track downstream. Then a private entity will be chosen to build a vast commercial area above and alongside the river. It will not be surprising that the eventual commercial concern will cost Billions of Ringgit to construct.

So why can’t the private entity pay for the cleaning up and maintaining the river in exchange for the commercial project? If the project is truly viable, it should have included the river preparation into the picture as that will be the crowd puller. Imagine our Klang River to be like the Singapore River at Clark Quay and Boat Quay. You can have all kinds of attraction from boat rides to crowd pulling activities including night life as KL’s new tourist puller.

Enough said about the strange areas in the Budget. Certainly, it is far easier to comment than to create the Budget so suffice not to beat it to death. We shall just present some thoughts to jog the brains of thinking Malaysians.

4. Some Good Areas

Obviously, we can’t say the Budget is all bad. It can’t be, right?

Besides giving cash handouts or assistance in real hard Ringgit or the 1% tax break to key voter banks, there are attempts to address a few areas of Malaysian hardship.

a) Education – at least some money is set aside to improve the teachers. Aside from teaching Math and Science in English arguments, for once, the Government is also addressing the content side of the equation. We have argued in the past that Math and Science should not just be focused on the medium of instruction but to look beyond that to the teachers themselves. Many teachers are just not capable in their area of responsibilities or are not dedicated as teachers of old.

A whopping RM38.7B is allocated for the Education Ministry, courtesy of Muhyiddin, our DPM. One wonders where this will be used as it excludes RM1B to upgrade schools, RM500M to train teachers, and RM1.2B for pre-school development. Aside from MOE operation costs, where else will this RM38.7B be used? We shall have to pay close attention to how our Education Minister plans to improve our children’s education with this vast amount of money. More free textbooks or new syllabi to be created to benefit textbook benefactors? We shall see.

b) Health – From various sources of funding, the Budget paid a little attention to personal health to be paid by SOCSO which we don’t understand why it is even mentioned. This is like the 2012 Budget announcing that PNB will undertake the construction of TRX. The only real budget affecting the Government is the RM19.3B for MOH. Now, we do know that the quality of healthcare in public hospitals have improved and hopefully this whopping RM19.3B will be put to good use.

Spread across the Budget are allocations for 1Malaysia Clinics as well as upgrades of 350 clinics and the procurement of dialysis machines. This is quite welcomed indeed.

Alas, 20 sen is removed from the sugar subsidy and on that Saturday after Najib had his day in Parliament, Malaysians had to pay 20 sen more for a kg of sugar. In the guise of discouraging excess intake of sugar, we can expect foods and drinks to go up, and that includes cakes, kuih, cookies, biscuits, soft drinks, etc which are many that touches Malaysian lives. Let’s hope that this has minimal impact on food prices but from past history, we should be mindful that at the least food and drink prices may go up. After all, 20 sen is almost 10%. Watch your pocket and your health.

c) Security – Budget for the police to buy 1,000 motorcycles for Patrolling Units, 496 CCTVs at selected areas, raising 10,000 police volunteer reserve personnel, RM40M to residential associations for patrolling activities, RM39M for Rukun Tetangga, RM90M for new uniforms for 300,000 Rela members (that’s RM300 per member), and RM276M for MACC.

Quick question: which of these were recommendations by the RCI on Police to improve national security and perception of the Police Force? These seem to be hap hazard budgets for dishing out money to buy equipment, uniforms, motorcycles and get together activities. Will these improve our daily personal security on the street and in our homes?

d) Housing – this is a real issue that bemoans many younger people of Malaysia in that they can never afford to buy a home for themselves. In this Budget, Najib has set aside quite a lot of money for building housing. Some of them includes RM1.5B by Felda for 20,000 homes (again nothing to do with the Government), expanding the My First Home scheme to cover more people, PR1MA will spend RM500M to build 80,000 houses in KL, Seremban, Shah Alam, Johor Bahru and of course, Kuantan, PR1MA will also provide RM500M to build houses in collaboration with private developers to ensure they cost 20% lower than market prices to be distributed via open balloting, and the Government will spend another RM1.9B to build 123,000 houses in “strategic areas” (locations to be announced before GE13 probably).

All in all, the Government is trying to make buying a house real in the supply side of the equation. But can the buyers afford to buy them and service the loans given their salary prospects and job insecurity in a possible recession in the coming years?

Certainly, there are more goodies in the Budget but this shall suffice for our purpose.

5. At the end of the day…

We are not told how much the Ministry of Defense (MOD) will be spending as it is a matter of national security. We can be sure that it will be very high indeed. Also, instead of finding ways to improve the productivity of an already bloated civil service, the Government has chosen to give more bonus not tied to improvement of the service. Understandably, most services by Government agencies have a lot to improve, there are marked and memorable improvements in a few Government agencies like the Immigration Department for the issuance of passports. Malaysians will want to see the improvements rather than being told they have improved when they obviously have not. And dishing out more money to them do not help the KPI at all but it helps in the voter bank perception.

Not all industries are treated here and that in no way implies they are unimportant. The Budget did not give them adequate treatment and much of the Budget has slanted to a few traditional Ministries like MOE, MOH and MOD.

After peeling off the onion of the 2013 Budget, Najib is re-using his once proven tool of improving popularity by giving out direct handouts. Polls done earlier this year when BR1M was given out showed marked improvement in Najib’s popularity. After all, this is Najib’s Budget and as he continues this path of Najib-feel-good strategy, he will most likely call for the General Elections by the end of next January. Otherwise, he will lose the feel good perceptions of the Budget if he is to wait until after Chinese New Year. So, not a moment more to waste. And let’s hope that nothing will happen to rain on his parade in January 2013.


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