By Stephanie Jacob
As expected the Budget 2014 announcement introduced the goods and services tax framework and outlined measures that will be taken by the government to cool the property market, which many see as speculative and out of range for the ordinary Malaysian. Yet, it was also what was not in the budget, that had people talking; many were not satisfied that the government has done enough to show that it is serious about curbing wastage, inefficiency and corruption.
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The much awaited Budget 2014 announcement last Friday came with few surprises in terms of what was included in it. It contained the controversial and largely misunderstood goods and services tax, as well as cooling measures for the property market which many fear is heading into a bubble on the back of speculative behaviour and inflated prices.
Neither of the two was surprising, as the government had been expected to act upon concerns over a lack of fiscal discipline and unchecked spending; in early August, Malaysia’s credit outlook was revised down to negative by international ratings agency Fitch Ratings, which highlighted a lack of progress in terms of fiscal consolidation measures and the country’s ballooning expenditure.
Furthermore, with both the general election and Umno election victories tucked under his belt and with no other election battles on the horizon, Prime Minister Najib Abdul Razak was in a position of relative strength to push through these reforms.
Three days since the announcement and having had time to digest the government’s plans, economists and financial analysts have largely commended the budget announcement, saying that the Prime Minister, who is also the Finance Minister has done what he can to introduce the necessary measures into the country’s economic and financial system to begin the process of strengthening it.
SM Thanneermalai
Chartered Tax Institute of Malaysia (CTIM) president SM Thanneermalai said that the moves were bold, and that the government had done what was necessary to protect the country’s credit rating, while perhaps even increasing revenue.
He said, “although the 6% GST rate is higher than the rate which it (GST) is usually introduced at, by biting the bullet now, we will not have to tinker with the system for a few years.” He added that at this rate by 2015/2016, the government’s position will be stronger in terms of revenue collection, with a revenue stream based now on consumption (GST is a tax on consumption), rather than being reliant on the performance of companies and the state of the economy.
Economists also acknowledged the fact that GST will have a mildly inflationary impact, but said that proposed changes to the income tax code, which raises the minimum taxable income to RM4000, and increases the income limit from RM100,000 to RM400,000 before the maximum tax rate kicks in are expected to help mitigate its impact on consumption, said CIMB Investment Bank’s head of economics Lee Heng Guie.
The government also moved to address fears that the country’s property market could be heading into a bubble by increasing the real property gains tax (RPGT), and creating two tax structures – one for local buyers and the other for foreigners.
Furthermore from next year onwards, foreigners looking to buy property in Malaysia will also have to fork out more, as properties purchased must costs RM1 million at least, which will leave more mid range housing for local first time buyers.
Reaction to the raise and the stricter rules, has divided opinion in the property segment with some lauding the fact that the government has taken steps to arrest speculative practices and increasing prices; while others have said that the moves will only curb investors enthusiasm in the market and such cooling measures are only stop-gap solutions.
In the coming articles, Kinibiz will look at both the proposed GST framework, the changes to the income tax code and the measures taken in the property market to make sense of what they mean for Malaysians, and their potential impact on the economy at large.
The Prime Minister also made it clear that they first round of subsidy cuts announced in late September, was only the beginning of the proverbial iceberg. In the Budget, the government announced that in line with the rationalisation plans, and as a health measure it would remove the entire sugar subsidy that is currently in place.
The removal left a bitter taste for many, but perhaps is unsurprising as the government has already said that it plans to substantially cut subsidies which are seen as unsustainable and ultimately, ineffective in helping those it sets out to assist.
Budget 2014 strongly indicated that more cuts were on the way, and it is widely anticipated that the next in line will be an increase to electricity tariffs, and possibly another round of fuel subsidy cuts.
As expected though, the government had to perform a balancing act between making necessary (painful) decisions and therefore included various incentives across the the various sectors and levels of society.
The Bantuan Rakyat 1Malaysia (BR1M) was promised for a third time, and raised from RM500 to RM650 for households with a monthly income of RM3000, while for single individuals aged 21 and above with a monthly income not exceeding RM2000, the handouts will be increased from RM250 to RM300.
Furthermore, new allocations under the BR1M programme were introduced, with RM450 to be given to households with a monthly income of RM3000 and RM4000; in addition the government will also make a contribution of RM50 to the Group Takaful Rakyat 1Malaysia (i-BR1M) for all BR1M household recipients, which would give them protection of up to RM30,000 in the event of death or permanent disability.
Najib Abdul Razak
Elsewhere, the government maintained school assistance schemes that are in place to help families deal with the associated costs, such as school supplies and books. Also included in the budget is a half month bonus salary for civil servants, a RM250 payment for pensioners and a monthly assistance of RM250 in nursery fees for families earning less than RM900 a month for children enrolled in private nurseries registered with Jabatan Kebajikan Malaysia.
While the handouts were perhaps not unexpected, the quantum of some of them was surprising, there had been suggestions that the BR1M payments might be doubled this time around, however that did not transpire. Thanneermalai said that by keeping the incentives small but spreading them across the economy, the PM has managed to appear caring while being frugal and pragmatic.
Perhaps what did come as a surprise, were the measures that had been left out of the annual spending list rather than what was in it. In the months building up to the budget, the government had been saying a lot about sequencing mega projects to prioritise those with high multiplier effects and low import content.
Although the Budget 2014 did not outline progress or plans to push controversial projects like the KL-Singapore high-speed rail or the many questionable 1MDB related development projects, neither was anything said to imply that the government had identified projects that it is putting on ice until the economy is in a stronger position.
The Federal Government is estimating that its expenditure for 2014 will be RM264.2 billion; expenditure is to be divided into two main groups; RM217.7 billion (RM15.8 billion more than 2013) is for operating expenditure, while RM46.5 billion (RM3.2 billion less than 2013) is for development expenditure.
Opposition MP Ong Kian Ming also questioned how the administration led by Najib could ask Malaysians to tighten their belts, when the government does not seem to doing it themselves – as according to estimates, the Prime Minister’s Office estimated expenditure for 2014 is RM16.45 billion, up around RM1.8 billion from 2013.
DAP’s Tony Pua meanwhile questioned the government’s rationale in asking Parliament to increase its operating expenditure allocation even after outlining plans to cut RM7.3 billion in subsidies in 2014 and questioned where the savings that are touted by the government to come as a result of subsidy rationalisation is going.
He further questioned the government’s priorities in asking for a larger operating budget, but slashing the development expenditure budget to RM44.5 billion or 17% of the national budget – the lowest in the country’s history; as the development budget caters for the “social sectors for education and training, health, welfare and community development”.
In an op-ed piece, he questioned the need for such a large operating expenditure budget and singled out the RM36.6 billion portion for supplies and services, asking why the government needed such a substantial allocation and highlighting that many instances of questionable conduct in the recent Auditor General’s report, especially in terms of purchases of hugely overpriced goods and services had come from the misuse of the supplies and services allocation.
He was not the only one, Lee Heng Guie also emphasised the importance of the government being more accountable for spending in general, and the operating expenditure in particular. Lee noted that especially since the government was likely to see more revenue in the next year, it will be important that its accounts are in better order in the 2014 auditor general’s report.
Umno politician Saifuddin Abdullah meanwhile pointed out that while there had been some good measures included in the Budget, he wished that the government had better outlined how it planned to be more prudent in its spending and had taken a clearer stance on fighting corruption.
Perhaps it can be summed up best, like this; all in all, the government has taken some steps towards fiscal discipline and consolidation, but for now it is all just talk – the government still has to put all these plans into action and also prove that it is willing to do what is necessary to reduce efficiency, wastage and corruption.
Tomorrow: GST and you
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