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Friday, November 1, 2013

A pragmatic budget for a tougher economic climate

Posted on 25 October 2013 - 04:47pm
Last updated on 25 October 2013 - 09:42pm

KUALA LUMPUR (Oct 25, 2013): Alerting Malaysians to be vigilant in the face of global political and economic uncertainties, Datuk Seri Najib Abdul Razak today unveiled the Budget for next year that aims to strengthen economic resilience, accelerate transformation and fulfil promises.

The Prime Minister, who is also the Finance Minister, said the nation's financial blueprint highlights five thrusts: invigorating economic activity, strengthening fiscal management, inculcating excellence in human capital, intensifying urban and rural development, and ensuring the well-being of the people.

He told the Dewan Rakyat that although Malaysia's highly open economy is not spared from the expected global growth of 2.9 percent this year, the country's strong economic fundamentals and accommodative monetary policy should mean growth at a sustainable pace, with the nation's economy growing at 4.2 percent in the first half of 2013.

Najib's brighter economic picture for 2014 sees exports of goods growing by 2.5 percent, the construction sector expanding by 9.6 percent and the services sector rising at 5.7 percent.

The unemployment rate is estimated at 3.1 percent for next year and the inflation rate at a low 2 to 3 percent. The Prime Minister also expects the per capita income for 2014 to reach RM34,126 compared with RM24,879, an increase of 37 percent over six years.

"In this regard, we are confident of achieving the target per capita income of RM46,500 or US$15,000 in 2020," he added.

"It is even possible that we will achieve developed nation status much earlier than 2020."

The 2014 Budget will allocate a total of RM264.2 billion to implement programmes and projects for the well-being of the rakyat and national development. Of this amount, RM217.7 billion is for operating expenditure while RM46.5 billion is for development expenditure.

Under operating expenditure, RM63.6 billion is allocated for emoluments and RM36.6 billion for supplies and services. In addition, RM114.5 billion is for fixed charges and grants, RM1.4 billion for the purchase of assets and the remaining RM1.5 billion is for other expenditure.

Of the development expenditure, RM29 billion is allocated to the economic sector while RM10.5 billion goes to the social sector for education and training, health, welfare, housing and community development.

A further RM3.9 billion is allocated to the security sector, while RM1.12 billion is for general administration and RM2 billion is for contingencies.

The government expects to rake in a larger amount as revenue next year. At an estimated RM224.1 billion, it will be RM4 billion more than this year's expected amount.

What this means is that the federal government's fiscal deficit will further decline from 4 percent of GDP in 2013 to 3.5 percent in 2014, prompting Najib to remark: "This clearly indicates the government's commitment towards fiscal consolidation to further strengthen the financial position of the nation."

On the 2014 Budget's first thrust on invigorating economic activity, Najib pointed out that the government's continued efforts to provide a conducive environment to attract more domestic and foreign investments have led to an increase in private investment, with its share in relation to GDP growing from 12.4 percent in 2010 to 16.7 percent currently.

Next year should see private investment increasing to RM189 billion or 17.9 percent of GDP, paticularly in oil and gas, textile industry, transport equipment and real estate development.

Noting that public investment is estimated to reach RM106 billion, the Prime Minister said the projects to be implemented include the 316 km West Coast Expressway between Banting and Taiping and the double tracking rail projects between Ipoh and Padang Besar as well as between Gemas and Johor Bahru.

In the oil and gas sector, the Petronas projects include the Sabah Ammonia Urea Project (SAMUR) in Sipitang; the integrated oil and gas production development project in Kebabangan; the regasification plant project in Lahad Datu; and RAPID in Pengerang, Johor.

Najib said the government will continue to encourage investments in the five regional economic corridors by providing basic infrastructure and implementing high-impact projects.

As at end 2012, investments worth RM124 billion or 41 percent of the total committed investments were realised in the regional corridors.

In the first nine months of this year, the regional corridors attracted committed investments of RM53.4 billion with almost 50 percent realised. These include three projects in the Iskandar Region - Pinewood Studio, Gleneagles Medini Hospital and Pegasus International School.

Next year the five regional corridors will be allocated RM1.6 billion with the main projects to include the agropolitan project and oil palm-based industries in the Sabah Development Corridor as well as the Samalaju Industrial Park and a halal hub in the Sarawak Regional Corridor.

In the East Coast Corridor, Kuantan Port will be expanded while an integrated petrochemical complex will come up in Gebeng and Kertih. In the Northern Corridor, the main projects include the planting of commercial crops and a fertigation system.

On invigorating the services sector, Najib said the government will launch the Services Sector Blueprint in 2014 which will outline strategies and measures as well as identify potential subsectors to be developed. These include logistics, aviation, tourism, Internet, financial market and pension.

To ensure a more efficient logistics sector, the government will formulate a Logistics Sector Master Plan to provide the strategic direction for the development of logistics infrastructure and supply chain as well review regulations and laws.

In addition, RM3 billion will be given as soft loans to encourage the development of the shipping industry, shipyard construction, oil and gas as well as maritime-related support activities.

To promote the aviation industry, there will be a National Aviation Policy that will have measures to strengthen the ecosystem and services network, as the government recognises Malaysia's potential to be an aviation hub in the region.

Among the projects for this sector will be the replacement of the air traffic control management system at Subang with a RM700 million centre at KLIA that will facilitate an increase in air traffic from 68 to 108 movements per hour on three runways.

"This will be among the highest capacity in handling air traffic worldwide," said Najib.

The airports at Kota Kinabalu, Sandakan, Miri, Sibu and Mukah will be upgraded at a cost of RM312 million, while the passenger terminals at Langkawi and Kuantan will be upgraded.

On the tourism sector, Najib said it is expected to generate revenue of RM65 billion this year, and with 2014 being Visit Malaysia Year, RM1.2 billion is being allocated for operating and development expenditure. In addition, he announced that 2015 will be the Year of Festivals to showcase a variety of cultural programmes and festivals.

As such, investments particularly in new four and five star hotels will be encouraged, with the application period for pioneer status and investment tax allowance incentives being extended for another three years until Dec 31, 2016.

There will also be a RM2 billion Special Tourism Infrastructure Fund to provide soft loans to build infrastructure such as hotels, resorts and theme parks as well as purchase and replace equipment related to the tourism sector.

On expanding Internet access, Najib said the High Speed Broadband (HSBB) project will move into its second phase with private sector collaboration. This RM1.8 billion initiative is expected to benefit 2.8 million households nationwide with the Internet speed being increased to 10 Mbps.

HSBB will also be expanded to suburban areas at a cost of RM1.6 billion and also to rural areas, where 1,000 telecommunication transmission towers will be built over the next three years with an investment of RM1.5 billion. For Sabah and Sarawak, new underwater cables will be laid within three years at a cost of RM850 million.

On strengthening the financial market, Najib said laws will be amended and the Netting Act will be drawn up to protect the enforcement rights of "close-out netting" under financial contracts. This is to reduce credit risk and promote the derivatives market as well as reduce the cost of doing business.

This move is necessary as Malaysia's domestic bond market is the largest in Southeast Asia with a value exceeding RM1 trillion, while daily transactions in the foreign exchange and money markets are more than RM30 billion.

The Prime Minister also announced significant measures to entrench Malaysia's position as a leader in the Islamic capital market, especially in promoting the country as a market for socially responsible investment (SRI).

There will be an Environmental, Social and Governance Index to raise the profile of listed companies which have high socially responsible practices. Also in the cards is a Framework of Socially Responsible Sukuk Instrument or SRI Sukuk to finance various sustainable and responsible investment initiatives. Also, the government will set up a SRI Fund for investment in listed companies that promote SRI.

On the 1Malaysia Pension Scheme (SP1M) for the self-employed without fixed income, Najib said the government will double its contribution to 10 percent or a maximum of RM120 a year.

To encourage youths to undertake long-term investment through the Private Retirement Scheme, there will be a one-off incentive of RM500 to contributors with a minimum cumulative investment of RM1,000 within a year.

The Prime Minister also touched at length on moving up the value chain in the agriculture sector, mentioning three specific measures. A Food and Agro Council for Export (FACE) will be formed to facilitate an increase in the exports of agricultural produce. The Federal Agriculture Marketing Authority (FAMA) will organise an Agro Bazaar in Singapore and increase durian exports to China.

To ensure fair prices for food products, an additional 60 farmers markets, 50 fish markets, 50 agricultural caravans and 100 fresh fruit stalls will be opened nationwide.

There are subsidies and incentives for agriculture and aquaculture activities as well as for produce with high demand such as fish cage farming, seaweed and birds nests, high value herbs and lobster rearing. Under a new Bioeconomy Community Development programme, idle land will be used for contract farming.

Also, there will be tax breaks for companies that acquire technology platforms in the bio-based industry. To stimulate entrepreneur development, a National Entrepreneur Development Office will plan and coordinate all related activities, in addition to the Malaysian Global Innovations and Creativity Centre (MaGIC) announced recently to empower entrepreneurs.

The government will also allocate RM50 million under the Graduate Entrepreneurship Fund.

The 2014 Budget also focuses on small and medium enterprises (SMEs) which make up about 98 percent of registered businesses, with a RM120 million allocation to increase innovation and productivity, in addition to the extension of various incentives and assistance to end-2017.

There will also be soft loans for night market traders. On the Budget's second thrust of strengthening fiscal management, the Prime Minister spoke of transformation of the civil service.

This will include a transformation plan for each ministry and the creation of integrity management units in all government units. He also stressed that stern action will be taken against officers responsible for the issues highlighted in the 2012 Auditor-General's Report and for non-compliance with financial procedures.

For taxpayers, Najib announced the end to one hassle: they will not have to submit tax returns if they are satisfied with their monthly tax deductions, effective 2014 year of assessment.

Subsidy rationalisation was a pre-Budget focus of discussion, and the Prime Minister said the government will gradually restructure the subsidy programme to ensure that only those who truly deserve will enjoy it. He then moved on to another hotly-debated pre-Budget topic: Goods and Services Tax (GST).

Najib said the GST will replace the sales tax and service tax, hence "GST is not a new tax." He said the GST rate will be six percent and effective from April 1, 2015 or 17 months from now. He described it as the lowest rate in Asean.

The GST will be excluded from basic food items such as rice, sugar, salt, flour and cooking oil. It will not be imposed on piped water supply and the first 200 units of electricity for domestic consumers.

Also out of the GST coverage are services provided by the government such as passports, licences, health services and school education, as are transportation services (bus, train, LRT, ferry, taxi, highway toll), purchase or rental of residential properties and selected financial services.

Najib promised various forms of assistance to the rakyat (people) at the early stages of the GST implementation, including one-off RM300 cash assistance to BR1M recipient households; reduction by between one and three percentage points for individual income tax payers; and reviewing the individual income tax structure with the chargeable income subject to the maximum rate being increased from more than RM100,000 to more than RM400,000.

Also, the current maximum tax rate of 26 percent will be reduced to 24 percent, 24.5 percent and 25 percent. These measures will be effective from 2015.

Najib also announced six additional packages to ensure smooth implementation of GST by businesses, including training grant and further tax deductions.

On the 2014 Budget's third thrust of inculcating excellence in human capital, Najib assured that the government will continue to provide quality and advanced skills training to meet the demands of the job market.

Towards this, RM54.6 billion or 21 percent of the total allocation for 2014 will go towards accelerating academic achievement, competencies and skills.

On the 2014 Budget's fourth thrust of intensifying urban and rural development, Najib said the government will allocate RM278 million to launch more urban and rural transformation centres and use buses and vans as mobile community transformation centres.

To strengthen the public transport network, he said the projects will include park and ride facilities at LRT, KTM and ERL stations, and a centralised taxi service system.

The government will set up Jawatankuasa Perwakilan Penduduk (JPP or Residents Representative Committees) to support community development programmes and address issues in their areas.

The government will spend RM1.2 billion to build and upgrade dams and treatment plants aimed at increasing the coverage of water supply to 100 percent, especially in urban areas.

Rural development projects include upgrading rural road networks, expanding 24-hour electricity supply to more than 16,000 houses, building and refurbishing 20,000 houses for poor people, promoting economic activities as well as upgrading the living standards of the Orang Asli community.

Turning to the Budget's fifth thrust of ensuring the well-being of the rakyat, the Prime Minister said RM8.8 billion will go to the Royal Malaysia Police and RM13.2 billion to the Armed Forces to reduce crime and enhance military preparedness.

Najib also announced a slew of measures to promote environmental conservation and resource management. These include a National Carbon Reporting Programme for the corporate sector, and the establishment of a National Conservation Trust Fund for degraded areas and permanent forest reserves.

There will be an investment tax allowance for the purchase of green technology equipment and income tax exemption on the use of green technology services and systems.

A Malaysian Green Foundation will be set up to enhance the use of green technology. The RM22.1 billion allocated for the health sector includes the construction and expansion of hospitals as well as the provision of specialist equipment.

Because diabetes is on the rise in Malaysia and to curb the excessive usage of sugar, the sugar subsidy of 34 sen per kilogramme is abolished from tomorrow.

The sports community will benefit from a RM239 million allocation to pursue excellence, and this will include talent identification in primary schools, a future professional coach programme and upgrading sports complexes.

To enhance the role of women and the well-being of families, the steps being taken include setting up an academy to implement programmes relating to leadership, entrepreneurship and innovation.

On empowering the Bumiputera, Najib said the government will implement various programmes including intensifying skills training for youths and a professional leaders programme while the student intake into UiTM will increase to 250,000 by 2020 from 180,000 at present.

The SME Bank will create a RM300 million Bumiputera Equity Fund to provide loans to credible Bumiputera companies to take over listed companies or those with listing potential.

The same bank is also providing a RM200 million loan facility for the development of Malay Reserve land in strategic areas such as Kampung Baru, Kampung Pandan and Kampung Datuk Keramat in Kuala Lumpur.

To thank the Malaysian Indian community for its support of the Barisan Nasional in the 13th general election, Najib announced funds for education, skills training and entrepreneurship.

Home ownership was another popular pre-Budget topic, and Najib outlined four steps to make this more affordable, including a rise in rates for the Real Property Gains Tax (RPGT).

Foreigners can now only buy property that are priced at RM1 million or more while developers face two new hurdles. They have to display the detailed sales price including all the benefits and incentives offered to buyers such as exemption of legal fees, stamp duty, sales agreements, cash rebates and free gifts.

Developers are also prohibited from implementing projects that have features of the Developer Interest Bearing Scheme (DIBS) to prevent them from incorporating interest on loans in house prices during the construction period. This also means financial institutions cannot provide final funding for projects involving DIBS.

While the government has allocated RM578 million for building affordable houses, it will also introduce the Private Affordable Ownership Housing Scheme (MyHome) as a step to encourage the private sector to build more low and medium cost houses, with a RM30,000 subsidy to the private developers for each unit built.

Najib also spoke of the differences in the prices of goods between Peninsular Malaysia and Sabah and Sarawak due to higher shipping and distributions costs. To help allay this situation, RM331 million has been allocated to provide subsidies including transport costs, while 60 Kedai Rakyat 1Malaysia (KR1M) will be set up.

On tax relief for the middle-income group, the Prime Minister announced a special tax relief of RM2,000 for tax payers with a monthly income of up to RM8,000 received in 2013. At the conclusion of his speech, Najib announced that 81 schemes in the civil service will be improved from November.

BR1M will also be improved, with that for households with a monthly income of less than RM3,000 receiving RM650, and individuals aged 21 and above with a monthly income not exceeding RM2,000 receiving RM300.

He also announced further BR1M benefits for other categories. Najib said pensioners will receive RM250 and civil servants will be given a half-month bonus with a minimum of RM500, both to be paid in early January. – Bernama

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