One also cannot help but notice that the PM cum finance minister has on many occasions explicitly mentioned Sabah and Sarawak through out the speech. The two states this time around has received a bigger allocation totaling RM8.1 billion for infrastructure related developments and poverty eradication. Again, these goodies are seen as bribing the law makers from these two states to stay with the BN and not cross over to the opposition. The fact that the PM has also taken the opportunity to sternly warn against efforts to seize power unlawfully during the budget sends a strong signal that the threat of defection among BN lawmakers is real.
In the high days of the elections campaign period running up to Mar 8th, DAP, PAS and PKR spelled out a welfare state system in their manifestos. This idea of a welfare state drew strong criticism from many leaders of the BN denouncing that implementing this idea would cripple and bankrupt the country.
Fast forward to Aug 29th, the 2009 budget announced by the PM sounds nothing short of what was proposed by DAP, PAS and PKR now bandied together under and new opposition coalition called the Pakatan Rakyat or PR in their manifestos.
Among the “welfare” announcements are:
1. The exemption to pay electricity for households incurring a RM20 electricity bill or less in a month (doesn’t this sound like the government is copying the Selangor’s move to wave water bills accumulating to less than RM20 for every household?)
2. Increasing the eligibility for welfare assistance to RM720, RM830 and RM960 for the Peninsular, Sabah and Sarawak respectively,
3. Increasing tax rebates from RM350 to RM400 for those with taxable income of RM35,000 and below
4. Introduce a new minimum monthly pension for eligible retirees of no less than RM720 per month
5. Provide an extra RM150 allowance for the disabled who are unable to work
These announcements along with other goodies such as a 1 month’s bonus for the civil servants (subject to a minimum of RM1,000) and a huge RM35 billion allocation for public transport will see the 2009 budget deficit widen to 4.8% from the current 3.2%. The second finance minister, Nor Mohamed Yakcop described that the budget deficit is a “one-off thing” and that the deficit will likely be reduced to 3.6% next year due to a bigger revenue from Petronas’ profits.
Funny thing is, government revenue for 2008 is estimated at RM161.6 billion while RM207.9 billion is allocated for the 2009 budget. The government is spending 28.6% more than what it has. Simply put, its akin to you spending your RM20,000 credit limit credit card to the max every month when you only earn RM10,000 a month. If this trend continues, when do you think Malaysia will go bankrupt? To date the biggest bankruptcies in Malaysia is due to credit cards. This does gives rise to some serious questions on the fundamental flaws with the way the economy and wealth of the nation is managed.
First of all, Malaysia is highly dependent on tax revenue generated by Petronas. Petronas paid a total of RM60 billion in taxes on top of a RM6 billion special dividend on request from the government. This makes up about 41% in government revenues. This is truly worrying considering that optimistic analysts predict that Malaysia will run out of oil in 20 years. With 30% of Petronas’s revenue coming from overseas, this will seriously leave a large gaping hole in the government’s income in years to come.
To overcome this, the government should target to reduce the revenue from tax generated by Petronas from 41% currently to 33% by 2015 and 28% by 2020 and in the same time increase revenue derived from other sectors of the economy. This can be done by reducing over reliance on petrol, diesel and gas as the primary fuel for vehicles and generate electricity, increase and encourage the investment, diversification and use of renewable energy for the country’s energy needs, encourage investments in more energy and eco-friendly technologies to be used in buildings and vehicles, moving Malaysia up the economy chain by focusing on higher-end, value added, and knowledge based industries.
Secondly, the government has a lot of “excess baggage” in its budget. The government’s overhead, be it to paying for wages and bonuses to the 1.2 million civil workforce to paying for the day to day operations of buildings, lights and basic amenities are huge. The government should continuously strive to reduce operating expenditure by 1.5% every year and increase productivity, and efficiency of its workforce and public delivery system. An improvement to the public delivery system will bring many benefits such as reducing the occurrence of corruption, graft, and abuse. The government can further reduce wastage by being more transparent in its process of tendering contracts and procuring items.
Thirdly, Malaysia cannot claim to be a hub for cheap and affordable labor for factories to setup shop here as it did in the 90s. Malaysia is losing out to the likes of Indonesia, Vietnam, China, and in the next decade Cambodia. Malaysia has no choice but move up the economy chain, and attract more FDI’s from high-end industries that are knowledge based such as bio-tech, Business Process Outsourcing, high quality halal food manufacturing, and position itself as a hub for Islamic finance. The government also needs to focus on reducing importing goods and raw materials that can be produced locally such as rice, cattle and vegetables (if it is cheaper) and grow the agriculture industry significantly as a economic pillar on par with the manufacturing, oil and gas, and services industry.
This approach will bring in two significant benefits. First, we reduce the outflow of the Malaysian Ringgit and secondly more jobs and opportunities are created for the rakyat, thus enabling the government to increase its revenues from tax collected from these new-found and maturing industries.
Though the PM and DPM and many other ministers have continuously denied that this is a populist budget, the budget itself tells a different story. People are free to interpret what they see fit and what they see is that the current ruling coalition is taking the threat of defections and the crumbling of the current government seriously.
One also cannot help but notice that the PM cum finance minister has on many occasions explicitly mentioned Sabah and Sarawak through out the speech. The two states this time around has received a bigger allocation totaling RM8.1 billion for infrastructure related developments and poverty eradication. Again, these goodies are seen as bribing the law makers from these two states to stay with the BN and not cross over to the opposition. The fact that the PM has also taken the opportunity to sternly warn against efforts to seize power unlawfully during the budget sends a strong signal that the threat of defection among BN lawmakers is real.
The budget has been driven around a caring government theme. No doubt that is what they are trying to do, but its probably something that they should have done a long time ago. Furthermore, the government should be criticized for solely focusing on the needs of the poor and lower income level group while neglecting those from the middle and lower-middle income group. Just how much does a RM50 in our tax relief make a difference to our disposable income? That’s how much I spend on tolls in a month! Furthermore, the upgrade and extension of the rail lines will not be felt immediately. The earliest the LRT lines will be completed is by 2011!
As 16th Sept draws more closer, a lot of people are having restless nights. One such man is Pak Lah’s. His budget announcement with a lot of goodies for Sabah and Sarawak means that he’s finally awake to and realize his surroundings has changed since 2004. But I feel that he has overslept and missed the last flight to his reform plans a few years ago.
So…is this Pak Lah’s welfare or farewell budget?
IAG