NAJIB'S FINAL FLING: RM3bil in handouts despite clear signs govt running out of funds

UPDATE 6 It looks like the BN's past excesses have finally caught up with their leaders, who are now left with little financial room to maneuver. Prime Minister Najib Razak was forced to announce a slightly smaller spending plan for 2013 of RM249.7 bil, down 1.1% versus the previous year, despite a looming general election.

Nonetheless, disregarding the clear signs of a shrinking trend in revenues due mainly to not having made sufficient productive investments in the past, loss of funds from corruption and leakages, Najib did not hesitate to unleash a host of short-term one-off election goodies to win the hearts and minds of voters.

The center piece of his Budget 2013 was the slew of cash handouts totaling at least RM3bil to families earning RM3,000 per month and a 1.5 month bonus to some 1.4 million civil servants.

The PM began his speech at 4pm amid expectations he would propose measures to stop spiraling home prices as well match the Opposition's alternative budget in raising disposable income and lowering car taxes. But while Najib raised the capital gains tax slightly to douse speculation, he left car taxes untouched. He is expected to call for the 13th general election by June 2013 at the latest.

"The goodies are not unexpected given that the next general election is very near. We congratulate those who qualify for the aid as well as the civil servants for their bonus windfall. But the lower income groups should not have to rely on election gifts for relief," PKR vice president Tian Chua told Malaysia Chronicle.

"If BN had planned the economy well, and plugged up corruption and wastage, the Malaysian standard of living would automatically rise. Now, the people must think twice about what will happen next year? It is clear, revenue is shrinking and there is very little money left due to past excesses. In the end, everyone will  be forced to tighten their belts or we will go the way of Greece and face national bankruptcy. This budget is the BN's final fling, the people must realize this and how badly they have abused the country's resources."

End of an era: Past mismanagement catches up with the BN

Other Opposition lawmakers echoed Tian's views.

"Budget 2013 signals the end of an era of record budgets with a slow down in Government revenues.  Over the past few years, the Government has been able to increase its budget tremendously to achieve record expenditures annually. This has allowed the Government to prop up the economy as we faced challenges in attracting private investments, as well as a drop in our trade contributions," DAP MP for PJ Utara Tony Pua said in a statement.

"However, the Budget 2013 has projected an increase of only 0.7% (2012: 11.8%; 2011: 16.1%) in projected revenues from RM207.2 billion to RM208.6 billion in 2013. This is the slowest projected increase in the tabled budget since 1999, barring the global financial crisis in 2009.The marked decline in revenue growth will have a very significant impact on the Government’s ability to impact growth in the Malaysian economy through fiscal means. The fact that we have not been able to reduce our budget deficit below 4% over the past few years reflects the years of wasted opportunities, where we have failed to curb our expenditure through reduced wastages, abuses and corruption.

Record low development expenditure: Lack of economic multipliers

Tony also lamented the fall in allocation for development expenditure, which he argued could create greater multiplier effects for the economy.

Najib, who is also the Finance Minister, had announced operating expenditure of RM201.9 bil for 2013, down by 0.3% from RM202.6 billion in 2012, and development expenditure of RM46.7billion, down 0.4% from RM46.9 billion. The allocation for development was 18.6% of the total 2013 Budget expenditure. According to Tony, this was a "record low" and would impact negatively on the economy going forward.

"This represents lower investment by the Government with its current revenue, which will result only in lower returns to the economy in future years," Tony explained.

Goodies

As expected, Najib repeated the distribution of 1 Malaysia People’s Aid (BR1M) and also extended the cash assistance to cover payment of RM250 to single unmarried individuals aged 21 and above and earning not more than RM2,000 a month.

BR1M was first given out under Budget 2012, involving a payment of RM500 to households earning less than RM3,000 per month.

Schoolchildren would get RM100 each from the government next year, while RM1.2 billion has been allocated for senior citizens, children, disabled workers and those with chronic illnesses under the 1 Malaysia Welfare Programme.

Armed forces personnel would receive RM200 a month incentives while the allowance for reserve corp and territorial army was nearly doubled to RM7.80 an hour from R4.00. A one-off payment of RM1,000 was also announced for some 224,000 army veterans who have served for at least 21 years.

The PM cut one percentage point in income tax for the first RM50,000 of chargeable income, providing minor relief to the 1.2 million taxpayers in the country of 28 million.

However, he reduced the sugar subsidy by 20 sen/kg, leaving the subsidy now at 34 sen/kg, bringing down the sugar subsidy bill to RM278 million at current prices.

Najib also said the government would also spend RM1.9 billion to build 123,000 housing units for those earning between RM3,000 and RM5,000.

He forecast economic growth of 4.5 to 5.5% in 2013, slightly more optimistic than the official estimate for this year of 4.5 to 5%.

In 2011, Malaysia recorded GDP growth of 5.1%, but given the Eurozone crisis and slower pace of business in East Asia, many private forecasters are anticipating a more modest 4.5% clip.

Deficit would have hit 6.7% if not for "un-budgeted" revenue

Najib also forecast a fiscal deficit of 4.5% for 2012 and 4.0% for 2013 but it remains to be seen whether either target can be achieved given the slew of 'goodies' he unveiled as well as the precarious position of the country's revenues.

As critics were quick to point out, the deficit for 2012 would have hit 6.7%, exceeding the official target if not for an "un-bdugeted" revenue of RM21 billion.

"If not for the above, based on the Government’s expenditure in 2012, our deficit would have increased to 6.7%," Tony warned. "The government has announced its plan in the 2013 budget to keep the deficit at 4.0%. However, it has become clear that the government’s original target as late as 2011 to reduce our deficit to 2.5% by 2015 is no longer achievable. The steep decline of growth in the government’s revenue will make the task seemingly impossible."

'Artificial' debt figure

Based on the Finance Ministry's Economic Report released simultaneously, federal government debt is anticipated to rise 10.1% to RM502.4 bil in 2012 from RM 456.1bil in 2011. Total debt in 2012 will hit 53.7% of GDP in 2012, approaching the 55% legal ceiling and versus 51.8% in 2011.

"The rate at which our debt servicing commitments are growing will severely constrict our future operational and development expenditure," said Tony.

"This together with a much slower rate of growth in government revenue as shown in the budget for 2013 will have a major impact to our economy, given its current heavy reliance on public spending and investments. Even the 53.7% is an artificial figure as it fails to take into consideration the Government’s contingent liabilities and hidden debts which amounted to RM117 billion as at Dec 2011."

Alarming rise in contingent items due to RM53bil MRT project

Indeed, the government’s contingent liability is expected to increase exponentially in 2013 due to the expenditure for the RM53 billion MRT project as well as other mega-infrastructure projects. These too are debt-driven expenses but are booked as off-balance sheet items and as such, they are not considered part of the official federal government debt even though they are ultimately funded by the federal government.

Tony warned that Malaysia was not far off from the situation in Europe and Spain where the governments too had lulled themselves and the public into complacency by refusing to admit that their “official” debt to GDP ratio was actually much higher due to the "various contingent liability and bank bailouts".

"The real ratio which is significantly higher has caused a near collapse of the economy, in a crisis that is still evolving. We must not allow ourselves to get entangled in a similar crisis," said Tony.

“We have seen the boom and the bust times, while others – even Indonesia, Thailand and Australia – are having good times and enjoying not just a balanced, but a surplus budget. That tells a lot about how reckless and unscrupulous we are in terms of fiscal discipline in the development that we all choose,” said PAS MP for Kuala Selangor Dzulkefly Ahmad.

KEY POINTS

Macro

• Total expenditure - RM249.7 bil, down 1.1 percent, but 7.2 percent higher than 2012 initial budget

• Deficit - Expected to go down by 0.5% to 4% in 2013. Target is to reach 3 percent by 2015

• Federal government debt 2012 - RM502.4 bil (highest in history) or 53.7 percent (highest since early 1990s)

• Government revenue RM208.6 bil, up RM1.4 bil

• Government estimated to have overspent RM19.6 bil in 2012

Small and medium industries

• RM1 bil SME development scheme

• Group insurance for petty traders with maximum RM5,000 coverage

• New loan facilities for petty traders

Tourism

• Target for Visit Malaysia Year 2013/2014: 26.8 mil tourist

• Three-year tax holiday for tourism companies handing 750 foreign tourists and 1,500 local tourists.

Agriculture

• RM705 mil for replanting, technology development, smallholder assistance and product development, particularly for oil palm.

• RM200 monthly allowance, 10 to 20 sen/kilo income support and up to RM100,000 coverage for fishermen

• RM2.4 bil in subsidies and incentives for rice plantations.

Commerce

• 10-year tax holiday for Tun Razak Exchange companies, expected to attract 250 companies related to finance sector

• Skim Jaminan Modal Kerja expanded for companies with shareholdings worth RM20 mil, and offered up to Dec 31, 2013

• RM350 mil for entreprenuers under TEKUN programme, including RM50 mil for the Indian community

• SME Bank bumiputera fund - RM1 bil

• Bumiputera equity holding up: 23%

Education and labour

• RM1 bil to improve school infrastructure

• RM1.2 bil for pre-schools under government programmes including Permata

• RM10,000 launching grants for private pre-school operators

• Five-year tax holiday and building allowance for pre-school operators

• Six pilot pre-schools for the disabled

• RM3.7 bil for vocational training

• Additional allocation of RM500 million for training of teachers in core subjects: Bahasa Malaysia, English, Science and Maths

• Free health checks, twice a year, for Perkeso members

Research and development

• RM600 million R&D grants for five universities. Focus: Nanotechnology, automotive, bio-technology and aerospace technology

• Tax holiday for research and development investment (10-year tax holiday for statutory earnings)

• RM2 billion for green technology scheme

Pensioners and senior citizens

• Minimum pension for those who served at least 25 years up from RM720 to RM820.

• 50 percent off passport fees for senior citizens starting Jan 2013

Armed forces

• RM200 a month incentives for armed forces personnel

• Allowance hike from RM4.00 to RM7.80 an hour for reserve corps and territorial army

• One-off payment of RM1,000 for army veterans who served for at least 21 years, where 224,000 will qualify.

• Insurance coverage of up to RM15,000 for police and army.

Crime

• RM591 million for crime prevention

• 1,000 motorcycles for the police neighbourhood patrol unit.

• Additional 10,000 volunteer police

• 496 CCTV in 25 local councils

• RM10,000 grants for neighbourhood associations for patrols

• New uniforms for 300,000 Rela members

• Incentives for companies that install security systems

• Additional 150 staff for Malaysian Anti-Corruption Commission (MACC)

• RM20 million for legal aid

Rural development

• RM88 million for Orang Asli development

• 40,000 water tanks for those in the interiors of Sabah and Sarawak

• 19,000 homes to get electricity and 24,000 homes to get tap water

• 441 kilometers of new rural roads

Health

• RM100 million to improve 350 government clinics

• 70 more Klinik 1Malaysia to be established, increasing total number to 240.

Malaysia Chronicle