KUALA LUMPUR, Oct 27 — The main thrust of Malaysian Prime Minister Datuk Seri Najib Razak’s maiden Budget last Friday appeared to be containing the fiscal deficit.
He made courageous cuts in operating and development spending. Najib, who is also finance minister, cut operating expenditure by almost 14 per cent and development expenditure by over 4 per cent. The cuts will bring the deficit down from 7.4 per cent of GDP this year to 5.6 per cent in 2010.
Like the rest of Asia, Malaysia has been spending its way out of the recession following the 2008 Wall Street crash.
Although the prospects for global economic recovery are still uncertain, it is only prudent for Malaysia to slow down the pace of its pump priming. The slack that may ensue from reduced government spending is expected to be offset by an uptick in exports — at least 3-4 per cent in 2010 — and higher private consumption, almost 5 per cent more.
Malaysia estimates real GDP growth for 2010 to come in at 2-3 per cent. Even so, the government could probably cut operating expenditure further by injecting transparency and accountability into the government procurement process. The recently released Auditor-General’s report is rife with examples of wastage.
A novel feature of Najib’s budget is his proposal that people residing and working in the Iskandar region in Johor be taxed at a flat rate of 15 per cent. This could kickstart the region’s development. But in the Malaysian context, such a low tax rate could create problems. Najib’s proposed cut is a whopping 11 percentage points off Malaysia’s current minimum income tax rate of 26 per cent and could entice a lot of less-than-bona-fide companies and individuals to the area.
Administering two separate tax zones in a single country is a difficult proposition and enforcement could be tricky. This is not the same thing as a free trade zone or a duty free area, which Kuala Lumpur has long experience in dealing with.
The Budget also proposed the restoration of the real property gains tax at a flat 5 per cent on all such assets, irrespective of the tenure of holding. This appears to be a rollback of a liberalisation by former prime minister Tun Abdullah Ahmad Badawi in 2007 — although Abdullah had only suspended the tax rather than abolishing it.
But that said, it’s notable that originally, the tax was 30 per cent of the disposal gain if the seller had kept the asset for less than six years. Thereafter, the tax got progressively less until it reached zero, depending on the tenure. In short, it was to deter land and property speculation. On the other hand, Najib’s proposal would appear to penalise those who were never speculators.
Finally, Najib proposed a RM50 charge on each credit and charge card and a RM25 fee for each supplementary card. The rationale is to curb the aggressive growth of credit card debt. Malaysia, with an estimated working population of about 14 million, has a staggering 11 million cards in circulation. Najib is right to assume that that is several million too many. — Business Times Singapore
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It's not like he's done an 'Obama' anyway...
Free-ing up small sectors and other expenditure cuts are just small offerings..it is in fact a foundament for good governance.
It's sickening to hear and read heaps of praises being lavished on something like this.