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DAP 2009 Budget Brief
A. Introduction
The DAP 2009 Malaysian budget brief focuses on the twin challenges of
global economic slowdown and our high dependence on oil and gas
resources.
(i) Expected Global Economic Slowdown
The International Monetary Fund has announced that there was a 25 per
cent chance that global growth would also slump to below three per cent
in 2008, which is equivalent of a world recession. The IMF said global
expansion over the last several years had rapidly dwindled due to
financial turmoil created by the ongoing sub-prime mortgage crisis in
the US.
In this crisis which started in 2007, lenders offered loans to
higher-risk borrowers who were unable to pay their mortgages when
interest rates went up. It has been estimated that this crisis in the US
could spawn total losses of $945 billion.
As a result, housing prices in the US are sliding downward very rapidly
resulting in a major stress on the US financial system.
Warren Buffett, often regarded as the world's wealthiest man, said the
US economy is still in a recession and unlikely to improve before 2009.
Optimism among US Chief Financial Officers have plummeted with
three-quarters of them predicting a recession at some point during 2008
and nearly 90 percent say the economy will not rebound until 2009.
Therefore, Malaysia's economy cannot be expected to escape unscathed
from the global turbulence. The challenge for Malaysia's 2009 budget is
hence how to soften the impact of the global economic slowdown and at
the same time cushion its impact on the lower and middle income segments
of the rakyat.
(ii) High Dependence on Oil & Gas Resources
Based on the latest figures provided by Petronas, Malaysia's government
today is even more heavily dependent on oil and gas revenue than ever
before. For 2008, oil and gas receipts is expected to contribute in
excess of 40% of the Government's revenue, exceeding 37% the year
before.
This is a worrying trend in the light of oil reserves which will last
for only another 2 decades and Malaysia becoming a net oil importer by
2011.
The relative increase of the oil and gas dependence versus contribution
from the other economic sectors effectively means that the rest of our
economic activities have not grown by much, if at all. The all-important
manufacturing sector which contributes to in excess of 30% of our
economy, and employs 30% of our workforce, is expected by Bank Negara
Malaysia to grow by a shocking 1.8%.
This also provides the basis for the fact that the rakyat do not feel
any richer despite proclamations by the Government that the economy is
doing well, as the rise in income from oil and gas sectors has not
filtered down to the masses.
(iii) A Budget based on Competency, Accountability and Transparency
(CAT)
The DAP Budget will serve as a distinct departure from the current
administration's New Economic Policy (NEP) where racial factors plays
the dominant role.
The underlying rationale and approach to our Budget is the “Malaysia
Economic & National Unity Strategy” (MENU) which will be based on
competence, accountability and transparency (CAT). MENU is a policy to
bring about national integration through just and equitable economic
policies where the poor, regardless of race, religion or creed are given
priority. In Malaysia's context, where the bumiputeras comprises the
majority of the poor, particularly those from East Malaysia, they will
be the largest beneficiaries of our MENU strategy and its programmes.
At the same time, it is imperative for the Government to build new
capacities for the future to ensure that our productivity increase is
more than sufficient to replace declining contribution from the oil and
gas sector. We will also need to strengthen our social security system
to ensure that the poor, less fortunate and under-privileged are not
left behind in our pursuit for excellence. The wealth of natural
resources on our shores must be shared equitably to make sure that
everyone gets to benefit and taste the fruits of our land.
In implementing CAT policies, we must shake off our habit of designing
world-class blueprints, only to fail miserably in their implementation.
The DAP will put in place a robust system to improve productivity and
competitiveness of the government's delivery system.
B. Budget Allocation Overview
Finally, we will utilise responsibly all fiscal measures and tax
instruments to ensure that the country does not bury itself in debt and
to avoid expenditure on mega-projects which are unlikely to bring
significant benefits to the population. Our policies are designed to
make ourselves competitive relative to our neighbours as well as to
nurture dynamic innovative and entrepreneurial Malaysians.
We are anticipating a small increase in government revenue of
approximately 3%, largely driven by oil and gas revenues but limited by
a decline in corporate taxes to RM154.5 billion. However, we intend to
maintain budget expenditure to RM177 billion as per the Government's
budget 2008.
However, the allocations for operational and development expenditure
will be restructured to increase the efficiency and effectiveness of
government expenditure. Operational expenditure will be reduced from
RM129 billion to RM120 billion or a 7% reduction. On the other hand,
development expenditure will be increased from RM48 billion to RM57
billion or an increase of 19%.
Reductions in the government operating expenditure which has ballooned
by more than 43% since 2005 will be achieved through strict enforcement
via the policy of competency, accountability and transparency. The
effects of such policies will create greater expenditure savings over
the next few years.
Savings from reductions in operating expenditure will instead be
channelled towards development expenditure which will have a greater
economic multiplier impact. The major beneficiaries of the increase in
development expenditure in the DAP Budget 2009 will be the education,
transportation and health sectors.
As a result of financial prudence, increasing the effective utilisation
of the Government's revenue, the Government will be able to reduce its
budget deficit from its estimated 3.1% in 2008 to 1.4% in 2009, without
compromising its ability to pump-prime the economy in a weak global
economic environment.
C. Key Policies
1. Protect Oil Revenues
DAP intends to legislating the use of oil and gas revenue to ensure
that a substantial portion of the revenue is spent on education as well
as research and development to build the necessary economic capacity for
Malaysia, to ensure that the increases in productivity and innovation
will more than compensate for the expected decline in oil revenues.
It is proposed that a minimum of 30% of oil and gas revenues be invested
in human capital and research and development, while another 20% be used
to strengthen the social security for Malaysians who are in need.
A further 10% shall be locked and invested in a oil stabilisation fund
in the shape of the very successful Norway's “Petroleum Fund” managed to
protect the needs of our children and future generations to ensure that
the economy will be able to withstand shocks to the system, especially
when oil revenues run out within 2-3 decades.
Legislating the utilisation of funds will also prevent the misallocation
of resources to bailout failed projects or other non-productive sectors
ensuring transparency and accountability.
2. Investing in Education
RM45 billion accounting for 25% of the 2009 Budget will be allocated for
education and training. The focus of the expenditure will be to enhance
the qualitative elements of education instead of the quantitative
elements. Of 100 new schools to be built, 25 and 5 will be Chinese and
Tamil schools respectively to resolve the often severe overcrowding
faced by many of these schools.
In addition, teachers will be given an average of 20% increase in
pay-scale in order to attract some of Malaysia's best young talents to
join the teaching force. This measure to arrest the decline, and
increase the quality of teachers who are responsible for the education
of our young ones. This increase in pay-scale is expected to cost
approximately RM200 million for the 330,000 strong primary and secondary
school teachers.
3. Creating An Efficient Transportation System
The development expenditure for transportation will be increased by 122%
to from RM6.7 billion to RM15 billion to develop an holistic, efficient
and convenient public transportation system for all congested urban city
centres in Malaysia including the Klang Valley, Johor Bahru, Melaka and
Penang.
This measure will seek long term solutions towards reliance on private
motor vehicles ownership rate in Malaysia, which is among the highest in
the world. Besides increasing the productivity of Malaysia's workforce,
it will at the same time relieve the burden of the middle and lower
income groups in the light of rising inflation as a result of
significantly higher petrol prices.
A blueprint for the “Valley Circle” rail network will also be developed
to improve inter-suburban connectivity, by-passing the congested Kuala
Lumpur city centre.
4. Renegotiating Unfair Contracts
The Barisan Nasional Government's policies of guaranteeing highway toll
concessionaires as well as independent power producers (IPPs)
extraordinary profits with grossly unequal contracts with little or no
risks to the latter are the clearest cases of the Government failing to
protect public interest.
The impact of these policies are increasingly felt today with rapidly
rising toll rates and energy prices. It is hence imperative that the
Government renegotiate these contracts to protect the interest of the
public within a 6 month period.
In the event whereby no significant headway is made in the negotiations,
it is proposed that the Government move to acquire the assets of these
entities. The resultant savings will then be passed on to consumers or
be diverted to other public interest projects, such as the public
transport system.
5. FairWage & Malaysia Bonus
As part of DAP's philosophy, no person or community in need,
irrespective of race or religion will be denied the necessary government
assistance. In line with this, the DAP will implement “FairWage”, a
policy which serves to improve the livelihood of low wage earners above
the age of 35, which will at the same time incentivise employers to
provide increased employment opportunities.
The FairWage system represents a total reengineering of our existing
social welfare systems, and ensures that the most needy within our
society will receive the most assistance from the Government. The
following provides a summary of what FairWage entails.
1. To increase that take-home pay, workers will contribute a lower rate
to the EPF. For with pay below RM900 per month, employee contribution to
the fund will be waived while for those with income of not more than
RM1,400 per month, the employee's contribution to EPF shall be reduced
from the current 11% to 5%.
2. To make them more employable, employers will reduce their rate of
contribution to the EPF. For workers above the age of 35 to 55, earning
between RM900 to RM1,400 per month, the employer contribution shall
remain at the current 12%. For those earning less than RM900 per month
in the same age group, the employer contribution shall decline to 10%.
3. To compensate for the above, the Government will give workers
FairWage income supplements to achieve a higher level of income. For
workers aged 45 and above, receiving monthly income below RM900 per
month, they will receive an annual income supplement of RM2,400. For
those workers above the age of 35 earning less than RM1,400 per month
will receive RM1,600 per annum. An additional 10% on top of the income
supplement shall be applied to those who live in the Klang Valley, Johor
Bahru as well as on the Penang Island to cope with the higher cost of
living.
Of the supplement, a quarter shall be in cash form, while the balance
will be channelled into the EPF accounts. By channelling a larger
portion into the EPF, it will help the workers save for their future
needs.
Separately, a “Malaysia Bonus” of up to RM1,200 will be granted to
Malaysians with income not more than RM3,000 per month.
Also, in order to assist the elderly above the age of 60, many who are
having problems making ends meet, those qualified will enjoy an the
“Senior Malaysian Bonus” of up to RM1,000. These bonuses are channelled
into their respective EPF accounts.
The FairWage policy and Malaysian bonus will cost approximately RM9.3
billion to administer. It is part of the proposed programme to share the
fruits of the nation's wealth, particular from the oil and gas sector
with all Malaysians in need.
In the longer term, more assistance programmes will be carried out in
this grant-based mechanisms which are means tested instead of via
subsidies which are distortionary in their impact, and often
disproportionately benefiting the wealthy.
6. Open, Competitive & Transparent Tenders
It part of our MENU strategy that all Government contracts should be
tendered in an open, competitive and transparent manner, in line with
our CAT philosophy. All qualified companies shall be provided with equal
opportunities to secure Government supply contracts and projects.
To prevent overwhelming disruptions to the current system, this policy
which is free from race-based requirements, shall be implemented on a
gradual basis, commencing with projects or supply contracts sized above
RM10 million for 2009. In view of the challenges brought by
globalisation, all tenders shall be made competitive, open and
transparent by 2015.
Assuming a conservative 10% savings is achieved via this CAT-based
system, this will result in absolute savings in excess of RM5 billion
per annum in conjunction with quality improvements on the Government's
operational expenditure alone.
7. Open, Competitive & Transparent Auctions
Again in line with DAP's CAT philosophy, besides procurement, all sales
of state assets, award of licenses and special rights shall be conducted
via open, competitive and transparent auctions. All state land for
example, must be alienated and sold under a competitive bidding system
to ensure highest returns for the state.
In addition, as a part of our new source of revenue as well as to negate
the rent-seeking culture, the approved permits (APs) such as those
currently issued for free by the Ministry of International Trade &
Industry to a select pool of “businessmen” shall be auctioned to the
highest bidders instead.
Based on an estimated 70,000 APs issued per annum and a conservative
RM25,000 market price, the auction will provide an additional RM1.75
billion to the government coffers.
8. Seeding Creativity & Innovation
The transformation of the Malaysian economy into one that is
knowledge-based will not succeed without the critical ingredient of
innovation and entrepreneurship. Therefore it is proposed that the
Government set up a new RM250 million seed fund, STARTUP where we will
act as a matching co-investment fund with reputable private investors
who will assist in the mentorship of the start up companies.
To encourage private investor participation, losses incurred by such
investments shall be tax deductible from the investors' individual or
corporate income tax. To further boost entrepreneurship, start-ups shall
enjoy full tax exemption on their first RM200,000 chargeable income for
each of their first 3 years of assessment.
9. Revitalising Malaysian SMEs
Small medium enterprises constitutes approximately 99% of all
enterprises in the country. However, their proportionate importance in
terms of tax contributions to the Government has clearly declined with
the increased dependence on oil and gas revenue.
With substantial increases in the cost of raw materials as well as steep
increases in the price of fuel and electricity, many Malaysian SMEs are
facing difficulties in maintaining competitiveness.
To revitalise the SME sector, and to assist many SMEs whose counterparts
in many countries in the region enjoy significant tax advantages, it is
proposed that the tax rate for SMEs on their first RM500,000 chargeable
income be reduced to 18% from the current 20%.
In addition, a new partial tax exemption threshold will be set at
RM200,000 and taxed at 12%. This means that a SME with a chargeable
income of RM900,000 will be taxed at an effective rate of 18%, in line,
particularly with its competitors across the causeway in Singapore. This
measure will help make Malaysian SMEs to be more competitive and at the
same time attract more SMEs to set up business in Malaysia, creating
more employment opportunities.
10. Restructuring Personal Income Taxes
DAP is proposing a 1% reduction of the top tax bracket to 27%. More
importantly however, there will be a revision and a simplification of
the progressive tax brackets which will result in significant reduction
in taxes by all.
Most importantly, to assist Malaysians to cope with the rise in living
expenses, particularly in urban areas, the first RM15,000 chargeable
income will become tax exempt, with the subsequent RM15,000 taxed at 7%.
Currently, only the first RM2,500 is tax exempt while the next RM2,500
is taxed at 1%.
Based on the new tax structure, a married worker with RM3,000 pay per
month, a full-time housewife who looks after 2 young children will pay
no taxes, whereas under the previous tax structure, he will be expected
to pay between RM55 to RM445 depending on his insurance premiums and
medical expenses for his family, including parents.
11. Introducing Green Taxes
The rate of global climate changes is accelerating and it has become
absolutely necessary for Malaysia to play its part in protecting the
environment. Hence, a “Green Tax” is to be implemented in 2010 whereby a
“carbon tax” is charged at RM25 per tonne of CO2 equivalent, with the
exception of methane emissions from the agricultural sector as well as
special exemptions for carbon intensive businesses which adopts global
best practices on emissions.
In addition, a 5% severance tax shall be imposed on the extraction of
metals and forestry products in the country. However, companies which
secure certification from The Forest Stewardship Council (FSC)
accredited certification bodies will be granted the severance tax
exemption for promoting responsible management of the forest.
12. Increasing Women Workforce Participation
Women will also benefit significantly with the proposed extension of
paid maternity leave from 60 to 90 days if they have worked for at least
180 days prior to delivery with the employer. Their pay for the 3rd
month will be shared equally by both the employer as well as the
government.
This together with other complementary measures such as increasing
childcare facilities in the workplace will play their role in
strengthening the bond between the mother and child, promoting strong
family values, while at the same time, encourage more women to join the
workforce.
As at 2004, Malaysian women participation in the work force stands at
47.3%, significantly below that of our neighbours, Singapore and
Thailand at 53.9% and 64.2% respectively.
13. Reviving the Information Communications & Technology (ICT) Sector
When the Government launched the Multimedia Super Corridor (MSC) project
10 years ago, it promised to make every effort to grow and support local
MSC status companies. However, despite the rhetoric, the Government
being the largest consumer of information technology services in
Malaysia has not given preference to these companies.
It is therefore important that in this proposed budget, Malaysian MSC
status companies be given specific preference in tendering for the
Government IT-related contracts to help nurture these companies into
successful regional players.
14. Participation of Civil Society
Finally, this budget represents a budget which seeks active involvement
from the civil society. Instead of attempting to tackle all issues on
its own, which the government will not be able to competently and
effectively, sizeable grants will be made available to specialist
non-governmental organisations (NGOs) to promote, educate and run
various social causes and programmes.
RM240 million has been set aside as partial or full grants for NGOs to
pursue environmental causes, eliminating poverty, promote healthy
living, managing women issues or assisting the disabled, to be disbursed
over the next 5 years.
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