1. Budget 2009 A Policy Perspective  Budget Allocation  Budget Deficit & Growth Rates  Revenue Streams  Impacts on the Middle-Class Malaysian  Businesses Enhanced?  It’s the Economy, Stupid

2. Total = RM176.9 b Total = RM207.9 b (4.4% increase) 1. Budget Allocation

3. “Blink”  Expansionary Budget  Low-income groups  East Malaysia  Civil service & Retirees  Budgeted spending: 3.9% increase in 2008 22.1% increase in 2009  Huge jump in subsidy bill (food & fuel) 2007: RM10.5 bn (8.5% of op. ex.) 2008: RM34.1 bn (225% increase, 22.6% of op. ex.; Fuel subsidies form 18.1 bn) 2009: RM33.9 bn (Fuel subsidies form 21 bn)

4. -Rental -Maintenance -Stationery supplies -General supplies -Emoluments -Compensation to toll concessionaires -Civil service wages -Services -Administration expenses Source: Tony Pua, PJU MP Increase of operational expenditure by almost 200% in 8 years

5. 2. Budget Deficit  2009: 12 th year running in deficit (since 1997 Asian financial crisis)  Attempt to move to a lower deficit for 2009  Lower revenue growth forecast of 9.1% (15.5% in 2008)  Unhealthy fiscal management  “Obsessed with growth; pump-priming the economy”  Inflation being fuelled (8.5% in July), lessening the “bang for the buck”

7. 3. Revenue Streams  Revenue Inflows: RM139.9 bn (2006) to RM176.2 bn (2009)  Revenue from oil & gas industry 2008: estimated 37% 2009: estimated 46.4% (due to oil price increase) Net oil importer in several years 40% of oil & gas revenues from investments abroad – sustainable? (not to mention the countries we invest in: Sudan, Burma etc.) Petronas generated RM60 bn profit, 2007 (9% of GDP)  “Off-Budget”  Increasing Tax Base GST?

8. 4. Impacts on the Middle-class Malaysian  Low-wage earners-those earning a taxable income of RM35,000 per year or less-can claim RM400 rebate (vs. RM350 previously).  RM35k – RM50k p.a.: 1% reduction in marginal tax rate (13 to 12%)  RM230k p.a.: 28% to 27% reduction in tax rate  Tax exemption medical benefits provided by employer extended to maternity expenses, traditional medicine (acupuncture, ayurvedic)

9. Impacts…  Cigarette prices: 60 sen more per 20-pack.  Free electricity from October 1st 2008 until end-2009 will be provided to those using < RM20 a month.  Reduced import duties on various consumer durables (rice cookers, electric kettles, blenders) and full import duty exemption from selected food items (biscuits, vermicelli, fruit juices, canned sweet corn).  Purchase of medium-cost houses up to RM250k – 50% reduction in stamp duty on transfer document & loan agreement.  Safety: Police receive RM5.4 b increased allocation New equipment for crime prevention New police stations with facilities  Education RM14.1 b for institutes of higher learning

10. … for employees  Travel allowance for commuting to work provided by employers be given full tax deduction, while the employees receiving such allowance tax exemption up to RM2.4k p.a.  Tax exemption given to employees on: Interest subsidies on housing, motor vehicles & education loans. (up to RM300K) Mobile phones, telephone & internet bills paid by employer Childcare allowance (up to RM2.4K p.a.)

11.  Public Transportation (2009-14): RM35 bn LRT lines extended in KJ and Ampang, Kota Damansara – Cheras Upgrading KTMB Contractors  Cars Road tax rates for diesel cars = petrol cars Abolishing 100% import duty & 50% excise duty for hybrid cars = definition very narrow (only Civic Hybrid & Prius; franchise holders) “encourage local assembly”

12. 5. Businesses Enhanced?  Firms can claim working capital allowance for upgrading staff skills  Corporate responsibility: companies contributing to charitable institutions, increased tax deduction (10% of agg. Income)  Recruitment costs (payments to employment agencies) & participation in job fairs – tax deductible.  Venture capitalists: 5-yr tax exemption  SME assets acquired in 09 & 2010 Accelerated Capital Allowance  No substantive initiatives to encourage businesses  No significant plans to increase investment confidence

13. 6. It’s the Economy, Stupid  Rakyat-centric Budget but little to grow the economy itself; welfare state can only be sustainable with growth  GDP growth 2008: 5.7% (estimated) 2009: 5.4% (estimated)  UNCTAD’s latest figures in World Investment Report 2008 Malaysia INFLOW OUTFLOW 2004 4,624 2,061 2005 3,967 2,971 2006 6,048 6,041 2007 8,403 10,989 (for the first time) 2008: Net inflow RM21b (Q1); Net outflow RM24b (Q2)  International reserves RM388 bn  But June-September, more than RM20 bn erased from reserves  Current account surplus up 56% in Q2  Manufacturing sector shrinking  Services sector “engine of growth” – to liberalise sector  Inflation rate 8.5%, a 27-year high (overall of 4.8% in 2008)

14. Source: Malaysiakini Fuel prices reduced by 10 sen today, to RM2.45 Public subsidy of 33 sen per litre on gasoline

15.  US economy and its effects on Malaysia Malaysia is US’ 17 th largest trading partner Impacts of Paulson Plan; crisis deepening into global crisis  Malaysia must contain growth of development and operating expenditure Public spending must be efficiently spent  Liberalisation of economy Removal of import duty & sales tax exemptions on broadband Stimulating investment Removing FIC requirements; transparent Bumi policies Public tenders  Institutional reform Money allocated upfront for judiciary etc. Accountability in implementing budget

16. Rapid, changing environment  Budget is important but environment changes daily  Need to consider policy decisions on daily basis  Stop focus on hard infrastructure but reforming of soft skills, human capital, channel ideas and not instruments  Need for quick, rapid response to the changing economy.