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Friday, October 25, 2013

Budget 2014 to strengthen national resilience

Posted on 24 October 2013 - 09:31pm
Last updated on 25 October 2013 - 11:44am

KUALA LUMPUR (Oct 24, 2013): If the all-time high closing on Bursa Malaysia today, due to expectations that Budget 2014 will include proposals to raise revenue is anything to go by, it is a clear indication that financial planners have got their strategies right in steering the country in the right path.

Expectations of subsidy cuts, new tax reforms and a variety of measures to to boost national coffers lifted sentiment to push the FTSE Bursa Malaysia KLCI to close at a new high of 1,818.93 points.

And, strategies for the 2014 budget that would continue to serve Malaysia well would be strengthening national economic resilience alongside ensuring the well-being of the rakyat, while accelerating Malaysia's transformation agenda.

These will form the thrust of next year's financial blueprint and tax proposals, incentives and development programmes to be unveiled by Prime Minister and Finance Minister Datuk Seri Najib Abdul Razak tomorrow at the Dewan Rakyat.

But, this is no easy task for financial planners as they have to take into account the vagaries in the international marketplace including adverse effects from the tapering of quantitative easing measures by the US Federal Reserve.

To respond to these uncertainties, Malaysia must reinforce its economic resilience, which in effect would include fiscal discipline to ensure the allocation of funds in the budget goes to sectors which can create new wealth.

This could include continuing incentives for small-and-medium enterprises (SMES) as well as micro enterprises and continued emphasis on areas such as biotechnology and innovation.

Fiscal discipline will also entail the effective implementation of the subsidy rationalisation programme, whereby the stress will be on targeted subsidies so that those who need it most receive it.

Although there has been concern over the move to reduce subsidies, it is inevitable to reduce wastage and ensure a more efficient economy which is financially strong to ward off the adverse effects of an economic crisis.

As the spate of global economic crisis has shown -- from the 1997/98 financial crisis and subprime credit and eurozone economic fallout -- it is not a question of whether such crisis would happen but rather as to when it will occur, hence the need for financial resilience.

Financial resilience would help the country to achieve a Gross Domestic Product (GDP) growth of 4.5 to 5.0 per cent this year and expand further to 5.0 to 5.5 per cent in 2014.

For this year alone, it is estimated that the government's subsidy bill would amount to RM42 billion, of which RM24 billion would be for petrol and RM15 billion for gas, with the latter taken up by Petronas.

And taking petrol alone, RON95 is heavily subsidised in Malaysia evidenced by its retail price of only RM2.10 per litre while in neighbouring Thailand, it costs RM4.60 per litre.

Therefore, the crucial need to be pragmatic and realistic for the long-term financial health of the country. For the layman, he has to consider that making the economy more efficient by reducing the budget deficit and national debt would endear Malaysia to international rating agencies and global investors.

The budget deficit in 2013 at 4.0 per cent is expected to be reduced to 3.5 per cent by 2014 and 3.0 per cent in 2015 and set the stage for achieving a balanced budget by 2020.

Greater investments in the economy would increase revenue that can be utilised for development purposes in a more comprehensive manner from which the people would stand to gain.

If the government continues to provide the bulk of the subsidies, it will adversely affect the financial position of the country and cause the rakyat to bear the consequences, as has been in other countries.

Even the United Kingdom bears a huge financial burden in dishing out welfare aid or "dole" including to those unemployed.

As Najib pointed out at last year's budget presentation: "As a responsible government, we will never allow this to occur."

In upholding the promise for it not to be burdensome, lowering subsidies will continue to be implemented gradually and having the least impact on the most vulnerable, especially the poor and those in the lower-income bracket.

The government, as promised, is also expected to raise the BR1M social safety payment in the 2014 budget. However, the people should be realistic and not expect to receive handouts unabated for it is crucial to be prudent and focus more on spending in sectors that ensure returns or create new wealth.

To this end, Malaysia must also not rest on its laurels in beefing up its global competitiveness in attracting investments, create jobs and ensure ease of doing business in the country via tax proposals and incentives.

One crucial component is upskilling its human capital, where there must be no-let up in efforts to this end so as to ensure that local workers are an asset and not an obstacle to national competitiveness.

Affordable housing would continue to be addressed in the budget, with steps expected to be taken to increase the supply of affordable houses, in view that it is both an economic and moral imperative for a responsible government.

As to the Goods and Services Tax (GST), it is left to be seen what the government's decision would be on the much-talked proposed new tax system. But, the need to have a broad-based tax system to ensure its finances remain strong warrants that the GST needs to be implemented sooner than later.

In the final analysis, the government can easily be populist, but in doing so it will jeopardise the people's economic future, which is why it continues to adhere to being prudent and pragmatic in unveiling its annual budgets. Budget 2014 will be no different. – Bernama

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