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The Prime Minister (Y.A.B. Dato' Seri Najib Razak) started his 2015 Malaysian Budget with an overview of the Malaysian economic landscape that is thought to be conducive for a bright future: GDP growth of 6.3%, KLCI record achievement of 1,892 points, USD10,000 per capita, budget deficits of 3.5% and record breaking foreign investment level of RM38.7 billion.
AJIB (Y.A.B. Dato' Seri Najib Razak, the Prime Minister of Malaysia) had, yesterday, revealed Malaysia's 2015 Budget with the theme 'Ekonomi Keperluan Rakyat' (Citizen's Needs Economy) (the 'Budget'). I am not quite sure what that really means because at the back of my mind, shouldn't all national budgets address citizen's needs? I suppose you do have budgets not for the people such as those of the American's where significant portion of their (Americans) budgets are/were indeed channelled to wars outside America. Let's digest Najib's 2015 Budget with a positive and open mind, shall we?
The Prime Minister started his budget with an overview of the Malaysian economic landscape that is thought to be conducive for a bright future that is coming ahead. With Gross Domestic Product ('GDP') growth of 6.3% estimated for 2014, Malaysia is believed to be amongst the highest economic growth countries in ASEAN. Its stock market measured by the Bursa Kuala Lumpur Composite Index ('KLCI') has grown from 864 in 2009, when the country last got hit by a recession, to a staggering 1,892 points in July 2014 making it the highest point ever in the history of Malaysian stock market. In its (Malaysia) quest for higher income nation, the country now reports a USD10,000 per capita. This, coupled with a reduced budget deficits of 3.5% (estimate for 2014 vs 6.7% in 2009) indicate an optimal recipe for an encouraged propensity for consumer spending and a fair level of Government expenditure. The result is undeniably shown in empirical development particularly when Malaysia had recently achieved its highest ever foreign investment level of RM38.7 billion.
I do not intend to spell out the entire Budget as you can easily get it from newspapers and other publications. I will just touch base on 4 critical areas that I perceive to be of importance and as the essence of what the Budget entails. These 4 areas are: 1. Strengthening the Economic Growth, 2. Taxes, 3. Human Resources Investment; and 4. Bumiputra Agenda.
Strengthening the Economic Growth
The are 13 touch points where Y.A.B. Najib and his administration are planning to tackle in order to boost the economic growth further. They are as follows:
1. Services Sector: This sector contributes 55.2% of the country's GDP. Such contribution is targeted to increase to 60% by 2020 as stipulated by the country's Service Industry Blueprint. How does the Government plan to do so? The Budget has allocated RM5 billion for the Government to implement a guarantee scheme that will back companies venturing into this sector. These companies will also benefit from researches and commercialisation efforts fuelled by RM10 million funds allocated for researches, RM300 million funds allocated for export activities and RM27 million funds for franchise development.
2. Islamic Market: The Islamic banking products have so far contributed 25% to the country's banking sector. With Malaysia leading the World in sukuk issuance (60% of the World sukuk), it is only natural to nurture this further. The Budget has allocated some RM190 million for further promotion of such emerging offerings.
3. Shipping Sector: The shipping industry plays an important role for inter-economies trade and at the same time, is also exposed to threads that are inherent in the international arena especially in the international water ways. Those threads need to be protected and shipping insurance is the best protection financially. The Budget aims to tackle this via incentives to promote or to ease the use of shipping insurance. A more detailed mechanism of this effort shall be revealed in due course.
4. Rural Areas: It is undeniable that a developing nation like Malaysia still has pockets of under served population particularly from economic perspective. The rural areas need to be vitalised with the hope of growing their economic activities. For this, the Government will be intensifying its efforts currently rolled out via the various economic corridor projects. To name a few, the East Coast Economic Corridor and the Iskandar Region down South.
5. Industrial Parks: Malaysia has shown significant transformation from an agriculture nation into a neo-industrialised country in the 1980's as well as 1990's. We now have industrial parks that contribute significantly to the economy particularly in electronics and electrical products. To further boost this area, the Government will be giving tax exemptions to companies within this sector up to 70% of their business income for the next 5 years.
6. Industrial Capital Expenditure: As a complementary effort to the tax exemption on business income, the need to assist companies in the industrial sector for their capitalisation movements especially on equipment and machineries arises. The Government will be allowing double tax deduction on RM2 million worth of capital expenditure in 2015.
7. Automation Capital Expenditure: Similar to the double tax deduction given for the first RM2 million of industrial capital expenditure in 2015, the same will be given to companies that invest in technologies that allow automation in their production line. This will allow efficiency and transfer of technology into the country for better production improvement.
8. Infrastructure: Economic development in any country can only be made possible when the infrastructure that allows trade is in existence adequately to connect areas and people. As a comprehensive effort to ensure that the entire country is well equipped with the necessary infrastructure, the Government will be allocating these budgets for the respective infrastructure projects: RM5.3 billion for 59km Sg. Besi - Ulu Kelang Expressway, RM5.0 billion for 276km Pantai Timur Expressway, RM2 billion for 47km Shah Alam - Damansara Expressway and RM150 million Gemas - Pahang Railway tracks. In addition, the existing Medium Rail Transport ('MRT') project will also extend to include 56km Selangor - Putrajaya route.
9. Hub Principle: Not much was mentioned on this in the tabling of the Budget but the Government has expressed willingness to build more hubs for various sub-industries within the economy.
10. Creative Content: In 2012 the Government allocated RM200 million to MyCreative Ventures to serve the gap in the creative industry ecosystem when it comes to financing. A further RM100 million will be injected into the creative industry but this time via Malaysian Communication and Multimedia Commission ('MCMC') to be given as grants to entrepreneurs who produce creative content.
11. Digital Infrastructure: In the past, so much effort has been put in the High Speed Broadband project to ensure that the digital network in the country is upgraded. Further allocation shall be made to continue this effort but via other aspects of digital infrastructure.
12. Tourism: 29 million tourists arrive Malaysia every year contributing RM89 billion to the GDP. To further ensure that this healthy arrivals are maintained and improved, RM316 million will be used to create tourism programmes.
13. Small and Medium Enterprises ('SME'): This group of businesses contributes 33% to the GDP and is expected to grow to 41% in 2020. RM375 million will be channelled to s special SME Investment Partnership funding arrangements where SME Bank shall manage RM250 million and the remaining RM125 million to be managed by the private investment houses. SME Corporation will also be allocated RM10 million for facilities to create conducive environment for this effort. A specialised fund under the existing TEKUN amounting to RM500 million shall be broken into many smaller funds to serve the entrepreneurs' needs in the sub-groups Bumiputra, Indian, Chinese, Women and the Army. Meanwhile RM1.3 billion will be allocated for science and technology companies to produce at least 300 high impact product commercialisation in 5 years. RM120 million shall be allocated for Research, Development and Commercialisation efforts. RM100 million will also be split between Malaysian Technology Development Corporation ('MTDC') and Agensi Inovasi Malaysia ('AIM') to be given out as grants to technology entrepreneurs.
Taxes
944 of the goods and services that are in the Consumer Price Index ('CPI') basket are affected by the GST but the question is, 'Are they negatively or positively affected?' 56% of the goods and services will experience an average price reduction of 4.1%.
In 2015, Malaysia is expected to collect RM235.2 billion revenues, that is RM10 billion higher than RM225 billion expected to be collected in 2014. Out of this, only RM23 billion is expected to be collected from Goods and Services Tax ('GST') that is only going to produce a net increase of approximately RM5.6 billion from the previous consumption based taxes collection of RM17 billion under the Sales and Services Tax (and other consumption taxes, if any). RM4.9 billion out of the net increase of RM5.6 billion shall be channelled back to the people via BR1M programme to help boost the disposable income of the low income earners.
As a response to the opinions collated from the general public, the Government is declaring more goods and services to be at zero rated GST. Amongst them are fruits, bread, coffee, tea, noodles, reading materials, some 2,900 different brands of medication for 30 critical illnesses and, the much awaited decision, RON95 petrol, diesel and Liquid Petroleum Gas ('LPG'). 944 of the goods and services that are in the Consumer Price Index ('CPI') basket are affected by the GST but the question is, 'Are they negatively or positively affected?' 56% of the goods and services will experience an average price reduction of 4.1%. This includes food, medication, electrical items, textile, polymer goods, diapers and many more. On the flip side, 43% of goods and services will experience a price increase at an average of 5.8%. The Government will soon release a list of items that will have their prices increased.
In many precedent cases of GST implementation in other countries, the logical balancer for an increased or broadening of consumer taxes is a reduction in personal income taxes. For the Year of Assessment 2015 onwards, the personal income tax of 26% will be reduced to 24%. In addition, to attract more investments, corporation tax will be reduced from 25% to 24% and SME's will enjoy a tax reduction from 20% to 19%. This will simultaneously allow expansion of consumer spending from the improved disposable income and the increase in economic activity via influx of entrepreneurship movement. Both shall contribute to an expansionary economic projection. To facilitate the implementation of GST, RM100 million will be allocated for GST training sessions, RM150 million worth of accounting software grants will be given to the SMEs and a tax relief for all expenses relating to the accounting system and ICT developed for GST purposes.
Human Resources Investment
To recognise the multiracial society in Malaysia, apart from RM450 million allocation for the national schools (SRK), RM50 million each will be given to ethnic based schools (SRJK) for the Indian and Chinese communities.
The success of an economic quest for any nation is dependent on many aspects such as political stability, natural resources, infrastructure and, the one that is the closest to the people's heart, is the talent of the people. Skills need to be developed and sustained. Technologies need to be learnt, unlearnt and relearnt. After all, 34% of the GDP consists of people's salaries. This is expected to increase to 40% in 2020. For this, allocation from the Budget has been made to ensure that the people are prepared to drive the national economy.
Urban Transformation Centres ('UTC') will be opened across the nation starting with Terengganu, Negeri Sembilan and Perlis to house up to 5,000 trainers. RM5.6 billion will be allocated for building new schools and RM200 million for hiring specialists and consultants to enhance the education system. 46,000 jobs are still vacant to absorb vocational skilled workers and hence, the vocational student intake will be intensified into the various vocational institutions with the RM1.2 billion help from the Government. Double tax deductions are also given to scholarships for vocational, internships and trainings for professional courses. Tax incentives are also given for Skim Latihan 1Malaysia (SL1M).
To recognise the multiracial society in Malaysia, apart from RM450 million allocation for the national schools (SRK), RM50 million each will be given to ethnic based schools (SRJK) for the Indian and Chinese communities. RM50 million each will also be given to residential schools, Islamic schools and Maktab Rendah Sains Mara ('MRSM'). An additional RM20 million is also allocated to 'Sekolah Pondok' (Traditional Islamic schools). Under the MyBrain programme, 60,000 doctorate holders ('PhD') is targeted by 2023. This programme shall be enhanced. To help reduce the non-performing loan ('NPL') rate of the education loan agency, PTPTN, the Government is prepared to allow 10% rebate to students who repay their education loans continuously for 12 months and 20% rebate for full lump sum repayments.
Whilst the education institutions are given Budget allocation, the Government is also aware that the marketability of these students into the work force is crucial for an effective human resources movement. It is believed that 53,000 graduates cannot get jobs 6 months after graduating. To help prepare these graduates, Talent Corp is given RM30 million to run academia-corporations collaboration programmes to ensure that graduates do get work placements as soon as they leave their tertiary education institutions. This effort includes boosting the global recognition for industrial and certification of education under the 1Malaysia Dream programme. The Human Resources Department will also provide skills training for 176 professions with RM570 million Budget allocation. To those who seek facilitation in applying their skills towards entrepreneurship quests, Malaysian Global Innovation and Creativity Centre ('MaGIC') has been set up in Cyberjaya as a hub for entrepreneurs to capitalise on.
Bumiputra Agenda
Realising that economic disparity exists between the different ethnic groups particularly 70% of the country's population who are Bumiputras that are at a disadvantaged position, more efforts have been put to address this. An additional RM30 million will be allocated to TERAJU to be disbursed as grants to Bumiputra entrepreneurs under the Skim Usahawan Permulaan Bumiputra ('SUPERB'). To assist Bumiputra companies push their products and services into the market, selected Bumiputra 'TERAS' companies as certified by TERAJU will undergo pre-export branding and market survey exercise.
A further RM600 million will be put under the private equity fund management of Ekuinas who has so far invested RM2.3 billion in equity investments that train Bumiputra business managers. From the debt venture side, RM200 million and RM1.8 billion shall be allocated to Lembaga Tabung Haji and Amanah Ikhtiar Malaysia respectively. Majlis Amanah Rakyat ('MARA') and Yayasan Teraju Bumiputra will also be allocated with RM2 billion and RM72 million respectively to further boost education scholarships for Bumiputras. And finally, realising that there is an acute shortage of professional accountants amongst the Bumiputras, the Malaysian Institute of Accountants ('MIA') is trusted to manage RM10 million to run professional training centres in collaboration with Universiti Institute Teknologi Mara ('UiTM').
The Budget has a lot more to offer but highlighting these 4 broad areas will suffice to give you a flavour of what Y.A.B. Najib Razak is up to (or will be up to) for 2015. Our only hope is that the Budget serves the people appropriately when it is being rolled out. God willing.
* kopihangtuah
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