DAP’s MENUS Budgetary proposals

Two days before the formal budget presentation by the Prime Minister-cum-Finance Minister, Datuk Seri Abdullah Ahmad Badawi in Parliament last Friday, DAP presented its first alternative budget for 2008, themed “Malaysian First: Unity Driven Equity, Growth & Innovation”.

The proposed DAP 2008 Malaysian Budget focuses on the twin challenges of globalisation and the country’s high dependence on oil and gas resources.

With increasing competition from other developing countries and the rapidly evolving technology markets, it is critical that Malaysia puts in place a system which will be able to exploit the opportunities provided by, and at the same time mitigate the negative impact resulting from, globalisation.

At the same time, a 40% dependence on government revenue from the oil and gas sector is of serious concern, especially in the light of oil reserves which will last for only another two decades and Malaysia becoming a net oil importer by 2011.

The proposed DAP Budget is meant as a distinct departure from the current administration’s New Economic Policy (NEP) which is driven by race. The underlying rationale and approach to the proposed DAP Budget is the “Malaysia Economic & National Unity Strategy” (MENUS) which will be based on performance, competence and needs of all Malaysians.

The key policy measures proposed in the DAP Budget should be given full consideration by the government. In fact, a copy of the DAP budgetary proposals was presented to the Prime Minister’s Office in Putrajaya on Thursday, the eve of Abdullah’s Friday presentation.

The key highlights of the proposed DAP Budget 2008 are:

1. Legislating the use of oil and gas revenue to ensure that a substantial portion of the revenue is spent on education as well as research and development to build the necessary economic capacity for Malaysia, to ensure that the increases in productivity and innovation will more than compensate for the expected decline in oil revenues. It is proposed that 50% of oil and gas revenues be invested in human capital and research and development, while another 25% be used to strengthen the social security for Malaysians who are in need. Legislating the utilisation of funds will also prevent the mis-allocation of resources to bailout failed projects or other non-productive sectors.

2. Hence, RM43.3 billion is allocated for education and training, accounting for 26.3% of the overall 2008 Budget. The focus of the expenditure will be to enhance the qualitative elements of education instead of the quantitative elements. Of 250 new schools to be built, 60 and 15 will be Chinese and Tamil schools respectively to resolve the often severe overcrowding faced by these schools. RM3.2 billion has also been allocated for Research & Development.

3. RM13.6 billion is allocated to improve the quality of the nation’s transportation infrastructure, particularly the public transport system. The bulk of the increase goes to development expenditure for transportation, which will increase from RM7.3 billion to RM9.5 billion. Key attention is given to the 3 highly congested urban centres — the Klang Valley, Penang Island and Johor Bahru. A blueprint for the “Valley Circle” rail network will also be developed to improve inter-suburban connectivity, by-passing the congested Kuala Lumpur city centre.

4. Barisan Nasional’s policies of guaranteeing highway toll concessionaires as well as independent power producers (IPPs) extraordinary profits with grossly unequal contracts with little or no risks to the latter are the clearest cases of the Government failing to protect public interest. The impact of these policies are increasingly felt today with rapidly rising toll rates and energy prices. It is hence imperative that the Government renegotiate these contracts to protect the interest of the public within a 6 month period. In the event whereby no significant headway is made in the negotiations, it is proposed that the Government move to acquire the assets of these entities. The resultant savings will then be passed on to consumers or be diverted to other public interest projects, such as the public transport system.

5. When the Government launched the Multimedia Super Corridor (MSC) project 10 years ago, it promised to make every effort to grow and support local MSC status companies. However, despite the rhetoric, the Government being the largest consumer of information technology services in Malaysia has not given preference to these companies. Malaysian MSC status companies should be given specific preference in tendering for the Government IT-related contracts to help nurture these companies into successful regional players.

6. As part of our philosophy that every person or community in need, irrespective of race or religion will receive the necessary government assistance, proposal for “FairWage” Policy. This is a policy to improve the livelihood of low-wage earners above the age of 35, which will at the same time incentivise employers to provide increased employment opportunities. A “Malaysia Bonus” of up to RM1,200 will be granted to Malaysians with income not more than RM3,000 per month. In order to assist the elderly above the age of 60, many who are having problems making ends meet, those qualified will enjoy the “Senior Malaysian Bonus” of up to RM1,000. These bonuses are to be channelled into their respective EPF accounts.

The FairWage policy and Malaysian Bonus will cost approximately RM9.3 billion to administer. It is part of the proposed programme to share the fruits of the nation’s wealth, particularly from the oil and gas sector with all Malaysians in need. In the longer term, more assistance programmes will be carried out in this grant-based mechanisms which are means-tested instead of via subsidies which are distortionary in their impact, and often disproportionately benefiting the wealthy.

7. One of the core pillars of MENUS is that all Government contracts should be tendered in an open, competitive and transparent manner. All qualified companies shall be provided with equal opportunities to secure Government supply contracts and projects. To prevent overwhelming disruptions to the current system, this policy, free from race-based requirements, shall be implemented on a gradual basis, commencing with projects or supply contracts sized above RM10 million for 2008. In view of the challenges brought by globalisation, all tenders shall be made competitive, open and transparent by 2015. Assuming a conservative 10% savings is achieved via the new tendering system, this will result in absolute savings in excess of RM5 billion per annum in conjunction with quality improvements.

8. The transformation of the Malaysian economy into one that is knowledge-based will not succeed without the critical ingredient of innovation and entrepreneurship. Therefore it is proposed that the Government set up a new RM250 million seed fund, STARTUP where we will act as a matching co-investment fund with reputable private investors who will assist in the mentorship of the start up companies. To encourage private investor participation, losses incurred by such investments shall be tax deductible from the investors’ individual or corporate income tax. To further boost entrepreneurship, start-ups shall enjoy full tax exemption on their first RM200,000 chargeable income for each of their first 3 years of assessment.

9. Government revenue from small medium enterprises which constitutes more than 99% of all enterprises in the country has clearly declined with the dependence on oil and gas revenue. To revitalise the SME sector, and to assist many SMEs whose counterparts in many countries in the region enjoy significant tax advantages, it is proposed that the tax rate for SMEs on their first RM500,000 chargeable income be reduced to 18% from the current 20%. In additional a new partial tax exemption threshold will be set at RM200,000 and taxed at 12%. This means that a SME with a chargeable income of RM900,000 will be taxed at an effective rate of 18%, in line, particularly with its competitors across the causeway in Singapore. This measure will help make Malaysian SMEs to be more competitive and at the same time attract more SMEs to set up business in Malaysia, creating more employment opportunities.

10. A 1% reduction of the top tax bracket to 27%. More importantly however, there will be a revision and a simplification of the progressive tax brackets which will result in significant reduction in taxes by all. Most importantly, to assist Malaysians to cope with the rise in living expenses, particularly in urban areas, the first RM15,000 chargeable income will become tax exempt, with the subsequent RM15,000 taxed at 7%. Currently, only the first RM2,500 is tax exempt while the next RM2,500 is taxed at 1%. Based on the new tax structure, a married worker with RM3,000 pay per month, a full-time housewife who looks after 2 young children will pay no taxes, whereas under the previous tax structure, he will be expected to pay between RM55 to RM445 depending on his insurance premiums and medical expenses for his family, including parents.

11. The rate of global climate changes is accelerating and it has become absolutely necessary for Malaysia to play its part in protecting the environment. Hence, a “Green Tax” is proposed to be implemented in 2010 whereby a “carbon tax” is charged at RM25 per tonne of CO2 equivalent, with the exception of methane emissions from the agricultural sector as well as special exemptions for carbon intensive businesses which adopts global best practices on emissions. In addition, a 5% severance tax is proposed on the extraction of metals and forestry products in the country. However, companies which secure certification from The Forest Stewardship Council (FSC) accredited certification bodies will be granted the severance tax exemption for promoting responsible management of the forest.

12. As a part of our new source of revenue as well as to negate the rent-seeking culture, the approved permits (APs) current issued for free by the Ministry of International Trade & Industry to a select pool of “businessman” should be auctioned to the highest bidders instead. Based on an estimated 70,000 APs issued per annum and a conservative RM25,000 market price, the auction will provide an additional RM1.75 billion to the government coffers.

13. Women will also benefit significantly with the proposed extension of paid maternity leave from 60 to 90 days if they have worked for at least 180 days prior to delivery with the employer. Their pay will be shared equally by both the employer as well as the government. This together with other measures proposed in the Budget will play their role in strengthening the bond between the mother and child, promoting strong family values, while at the same time, encourage more women to join the workforce. As at 2004, Malaysian women participation in the work force stands at 47.3%, significantly below that of our neighbours, Singapore and Thailand at 53.9% and 64.2% respectively.

14. Finally, this proposed DAP budget seeks active involvement from the civil society. Instead of attempting to tackle all issues on its own, which the government will not be able to competently and effectively, sizeable grants will be made available to specialist non-governmental organisations (NGOs) to promote, educate and run various social causes and programmes. The sum of RM240 million is proposed to be set aside as partial or full grants for NGOs to pursue environmental causes, eliminating poverty, promote healthy living, managing women issues or assisting the disabled, to be disbursed over the next five years.

(Speech 16 on 2008 Budget in Parliament on Monday, September 10, 2007)