The Budget 2013

— Lim Guan Eng
The Malaysian Insider
Sep 30, 2012

SEPT 30 — Even though many goodies where announced during yesterday’s Budget 2013 speech by Prime Minister Najib Tun Razak, this budget has failed the Malaysian people by not addressing three crucial areas which are necessary to guarantee the long term well-being of our country and its people — namely fiscal prudence, economic sustainability and cost of living increases.

Firstly, even though the budget deficit is projected to come down from 4.5 per cent in 2012 to a ‘mere’ 4.0 per cent in 2013, this figure masks the poor track record of the BN government in sticking to its spending plans.

For example, total expenditure for Budget 2012 was announced at RM232.8 billion in last’s year’s budget speech. But in this year’s Economic Report 2012 / 2013, total expenditure for 2012 is projected to total up to RM252.4b.

This is almost RM20b more than the projected expenditure announced last year. We were fortunate that projected revenue is expected to be RM207 billion for 2012, RM20 billion more than the RM186.9 bilion projected revenue announced last year. Without this tax ‘windfall’, our budget deficit would have ballooned up to 6.7 per cent of GDP rather than the projected 4.5 per cent for 2012.

But we cannot expect that actual revenue will continue to exceed projected revenue especially given the slowing global economy. Furthermore revenue from oil related tax revenue is likely to decrease given the change in the dividend policy of Petronas as well as political uncertainty in Southern Sudan which could decrease Petronas’s bottom line by as much as US1 billion.

While we do not object to giving financial assistance to the truly deserving, there is nothing to indicate that the government has stopped leakages in the BR1M program which went to people like an MCA Datuk in Pahang.

The initial RM1.8 billion that was allocated to BR1M for 3.4m households in the 2012 budget ballooned to over RM2 billion for over 4 million households. A country whose GDP is projected to expand by 5 per cent in 2012 should see fewer households earning less than 3000RM. And yet, BR1M recipients are projected to increase to 4.3 million households with another 2.7m individuals earning less than 2000RM joining them.

Without proper checks and balances, the RM3b that has been allocated to BR1M 2.0 for Budget 2013 can easily increase to more than RM4b, if not more. The same lack of fiscal prudence could be seen in the expenditure on subsidies.

An allocation of RM32.8 billion was given for subsidies in Budget 2012 but the actual expenditure on subsidies is projected to be at RM42.4 billion, an increase of RM9.6 billion or 29.3 per cent over the original budget! If the same kind of trajectory is followed, the RM37.6 billion which is allocated for subsidies in Budget 2013 could easily increase to almost RM50 billion!

Given the BN’s poor record for fiscal prudence and especially if elections are held next year, it is likely that BN will break the bank to funnel out as much taxpayer’s money as possible in a blatant attempt to buy votes by giving handouts irresponsibly. I would not be surprised if our total expenditure will be RM30 billion over budget and our budget deficit for 2013 would end up well in excess of 5.0 per cent!

Secondly, this budget provides incentives and handouts which favours certain projects and parties rather than providing the basis for longer term sustainable economic growth that will benefit all.

In fact, many of these incentives will skew the system against hardworking Malaysian entrepreneurs who are not in the position to receive and benefit from these incentives.

For example, Budget 2013 continues to give preferred incentives and tax treatments for companies who want to locate to and developers who want to build in the Tun Razak Exchange formerly known as the Kuala Lumpur International Financial District (KLIFD) including tax exemptions for property developers, income tax exemption for 10 years for TRX-status companies, stamp duty exemptions, industrial building allowance and accelerated capital allowances for TRX Marquee-status companies.

The aggressive promotion of TRX not only increases the problem of a property glut in commercial office space in Kuala Lumpur, it also unfairly disadvantages developers who own and are in the process of developing commercial property which TRX is directly competing against.

These developers would lose out if existing or future tenants decide to relocate to TRX and at the same time, the taxpayer would also lose out since these companies would be given income tax exemption for 10 years.

As part of this initiative, 1MDB will be allocated an additional RM400m from the Prime Minister’s Department in Budget 2013, an unnecessary expenditure for what is essentially a property development project.

Similarly, under the guise of lowering prices of goods in Sabah and Sarawak, the government is introducing 57 Kedai Rakyat 1Malaysia or KR1M stores at the cost of RM386 million. Just like in Peninsular Malaysia, the ones who will be hurt by this move are the owners of the kedai runcit stores who cannot compete against the government subsidized KR1M stores.

It would make more sense for the government to abolish the cabotage policy and to improve the transportation network in Sabah and Sarawak to reduce prices of goods in Sabah and Sarawak, which is what Pakatan is proposing, rather than to subsidize KR1M stores that are run by one private company which would drive out many existing kedai runcit owners out of business.

These kinds of initiatives contradict PM Najib’s statement that the era of ‘government knows best is over’. Indeed, according to the Economic Report 2012 / 2013, the public sector is expected to expand by 13.3 per cent in 2012 to account for 25.2 per cent of GDP (up from 23.3 per cent in 2011), meaning that the government will play a larger role in the economy, rather than to reduce its footprint and to allow the private sector to thrive and drive the economy forward.

By promoting and undertaking these initiatives, Najib is contradicting one of the major thrust of the New Economic Model (NEM) and also the impetus behind the Economic Transformation Program (ETP). Thirdly, this budget fails to bring to the table long term solutions for the problem of rising cost of living, especially in the urban areas.

Crime is one of the main drivers of cost of living increases. Businesses which have to spend more on security pass the costs to consumers. Residents who have to pay for private security have less disposable income.

Sadly, the measures which are in Budget 2013 to reduce crime leave much to be desired. There are no recommendations to re-organize the police force by re-allocating Special Branch officers, which have twice as many investigating officers / detectives as the Criminal Investigation Department (CID), or by re-allocating some of the 14,000 General Operations Force (GOF) police personnel, an organizational legacy from the Communist fighting days, to the CID and the frontlines of fighting crime.

Instead, what was provided was the allocation of RM20m to buy 1000 motorcycles at a cost of RM20,000 per motorcycle to set up a Motorcycle Patrolling Unit. In addition, there were hardly any efforts proposed to involve the state and local authorities to fight crime.

All that was mentioned as the allocation to buy 496 units of CCTVs for 25 local authorities to prevent street crimes in urban areas. This works out to 20 units of CCTVs for every local authority which is not even sufficient to cover one neighbourhood, much less the area in one state authority.

Similarly, the ambitious program to build more than 100,000 affordable and low cost houses will come to naught if these housing projects are not integrated with public transportation. The MRT project and the LRT extension cannot possibly cover all the areas which have or will have low cost and affordable homes, assuming that they even get built.

Allowing the state and local authorities to provide bus services would be one possible solution to this problem. But instead of this, the federal government is expanding the federally owned RAPID bus services to other places, this time to Kuantan.

With car prices still at very unaffordable levels, especially for the lower middle income groups, the issue of affordable and low cost housing cannot be seen in isolation from the issue of public transportation.

Unfortunately, PM Najib does not seem to have realized this as seen by his Budget 2013. Pakatan Rakyat’s budget, on the other hand, exercises much more fiscal prudence. Not only is our projected deficit lower at 3.5 per cent of GDP or approximately RM37 billion, our revenue and expenditure projections are also much more conservative, at RM197 billion and RM234 billion respectively.

A more conservative budget would give us more room to maneuver if Pakatan does take over power at the federal level and puts its budget in place. PR’s budget is also more economically sustainable in that we do not attempt to favor one sector or project over another. Instead we will set out to abolish monopolies, abolish unfair practices and increase competition in all sectors of the economy.

Our budget also gives more focus on long term solutions to address cost of living issues including a proper redeployment and reallocation of police personnel to fight crime, more involvement of local authorities to reduce crime and provide public transportation alternatives, reduce and abolish toll rates to put money back into the pockets of the people and to find new ways of providing affordable public housing.

The choice for Malaysians is very clear. Najib’s 2013 budget is full of one shot goodies and handouts which do not adequately address the long term concerns of the country namely fiscal prudence, economic sustainability and cost of living increases.

Pakatan, through its Alternative Budget, and through the state governments in Penang and Selangor, have shown that it can govern with fiscal responsibility in mind, with sustainable policies which encourage fair competition and with measures that puts money in the pockets of the people in the long term. Let the people of Malaysia choose wisely.