Najib unveils an 'F' budget: 6% GST but keeps mega projects, govt debt SOARS

UPDATE4 KUALA LUMPUR - As expected, Prime Minister Najib Razak announced the implementation of Goods and Services Tax, to be effective from April 1, 2015.

The GST start rate at 6% is higher than the 4% expected, although not as bad as the 7% first pitched by Minister in the Prime Minister's Department Idris Jala.

“The government will do what is right for our economy. Some measures may not be popular now, but over the medium term what is good for the economy is also good for the people,” Najib said in his Budget 2014 presentation.

Horrid set of priorities: I give him an 'F'

Nonetheless, the move will open the floodgates to public anger once Malaysians start to grapple with already fast-rising prices of everyday items.

"Horrid set of priorities, still going for mammoth mega projects, fanciful pursuits of making Malaysia a shopping haven and thoughtlessness in adopting the regressive GST without walking the talk of addressing wastages," Nurul Izzah, the Opposition MP for Lembah Pantai, told Malaysia Chronicle.

"An overall 'F' for the PM. What's more worrying is the face of future Malaysia. What more can the average Malaysian worker suffer."

Mega projects push already high govt debt to 54.8% of GDP from 53.3%

Indeed, Malaysians and foreign investors may soon find that the 60-year-old Najib has been playing both sides of the fence.

His minders have painted a picture of an urgent need to trim the deficit and record-high government bogey, using the recent Fitch downgrade in country outlook as a bogey, so as to justify the GST implementation which is expected to raise tax revenue from April next year.

However, despite projecting higher economic growth and a 50 basis points cut in the fiscal deficit for 2014, government debt has been forecast at 54.7% of GDP or hardly budged from this year's record-high.

“Despite collecting the significantly higher than expected revenue, the deficit for 2013 remained at RM39.3 billion. It means that almost every single sen of extra revenue collected by the Government is immediately expended, instead of contributing towards reducing our debt,” MP for PJ Utara Tony Pua said in a statement.

The just released Finance Ministry's Economic Report had forecast government debt at an unprecedented RM541.3 billion or 54.8% of the GDP this year versus RM501.6 billion or 53.3% in 2012.

"This is really like sleight of hand. You say the government needs money to cut borrowings, so you introduce GST. We can argue the borrowings were in the first place unjustified, with a lot of corrupt wastage. Then now, we can see very clearly the GST is not going to be plowed back to cut debt but to allow Najib to keep financing mega projects," Opposition MP for Batu Tian Chua told Malaysia Chronicle.

"My sense tells me we can expect GST to be raised and subsidies to be continually cut in the future. There is no sincere commitment to cut debt. What this means is soaring prices and the poor getting poorer while the richer keep getting richer."

Higher growth, lower deficit, higher government debt

Najib had this afternoon unveiled total budget of RM264.2 billion for 2014. Operation expenditure was estimated at RM217.7 billion and development expenditure at RM46.5 billion versus revenue of 224.1 billion.

He projected a lower fiscal deficit of 3.5% of GDP in 2014. This compares against the 2013 target of 4%, which most analysts already expect him to miss.

While the government insists that GST was necessary to expand Malaysia’s narrow tax base, which has been limited as only 10 percent of the workforce pay income tax, critics say that real wages have not risen and in fact have turned negative for many due to runaway property prices.

The GST will replace the Sales and Services Tax. Items to be exempted from GST are rice, sugar, salt, flour, cooking oil, dhal, chilli, herbs, salted fish, cincalok, budu, belacan, pipe water, electricity (for domestic use), government services, public transport (bus, LRT, ferry, toll) sales and purchase of property or rental of property.

Total budget: RM264.2 billion

Operation expenditure: RM217.7 billion
Development expenditure: RM46.5 billion

GDP growth 

2014: 4.5% - 5.5%
2013: 4.5% - 5.0%
2012: 4.5% - 5.0%

Revenue 

2014: RM224.1 bil
2013: RM220.1 bil
2012: RM206.2 bil

Deficit 

2014: 3.5% of GDP
2013: 4.0%
2012: 4.5%

Domestic economic prospects:

• Net foreign direct investment was higher at RM18.2 billion in the first half of 2013 compared with RM15.9 billion during the same period in 2012.

• International reserves remained strong at RM444.9 billion at Oct 14, sufficient to finance 9.7 months of retained imports and 3.9 times the short-term external debt.

• For entire 2013, domestic economy expected to expand 4.5% - 5%. Growth supported by private investment, increasing 16.2% to estimated RM165 billion.

• Private and public consumption expected to grow 7.4% and 7.3% respectively

• Domestic economy projected to grow at a stronger pace of 5% to 5.5%. Growth to be driven by private investment at 12.7%, and private consumption 6.2%.

• Exports of goods expected to grow 2.5% over improving external demand. On the supply side, construction sector expected to grow 9.6%, services sector at 5.7%.

• Unemployment rate estimated at 3.1%, inflation rate to remain low between 2% and 3%.

• Per capita income for 2014 expected to reach RM34,126. Plans to achieve the target per capita income of RM46,500 in and even "achieve developed nation status much earlier than 2020".

Goods and Services Tax

• Government to introduce Goods and Services Tax (GST) at 6% starting April 1, 2015. Sales and Services Tax to be abolished.

• Items to be exempted from GST - rice, sugar, salt, flour, cooking oil, dhal, chilli, herbs, salted fish, cincalok, budu, belacan, piped water, electricity (for first 200 for domestic use), government services, public transport (bus, LRT, ferry, toll) sales and purchase of property or rental of property.

Projects and allocations

• Projects to be implemented include 316km West Coast Expressway from Banting to Taiping. and double-tracking projects from Ipoh to Padang Besar and later from Gemas to Johor Bahru.

• RM700 million to build new air traffic control and management system at KLIA. This is to replace the existing one in Subang.

• RM312 million to upgrade Kota Kinabalu, Sandakan, Miri, Sibu and Mukah airports, additional upgrade of terminals in Langkawi International Airport and Kuantan Airport.

• Services sector blueprint to be launched next year, the logistics sector master plan and national aviation policy to be formulated.

• National Entrepreneur Development Office to be established to plan and coordinate all entrepreneurship activities.

• RM1 billion investment in companies scoring high on Environmental, Social and Governance Index.

• Second phase of the High-Speed Broadband (HSBB) project in collaboration with the private sector involving RM1.8 billion investment to expand coverage to major towns. Internet speed to be increased to 10 Mbps.

• RM1.5 bil to build 1,000 new telecommunications tower over three years. RM850 mil to build new undersea cable to improve internet in East Malaysia over 3 years.

• To allocate RM210 mil for a private retirement scheme (PRS) to encourage young to start saving. Starting Jan 1, the government will top up RM500 into the account for those aged 20-30 years old who can save RM1,000. It is estimated that 420,000 youths may join this scheme to run for five years.

• To help the employer's burden of implementting of minimum wage scheme - RM900 in Peninsula Malaysia and RM800 in Sabah and Sarawak, the govt will introduce extra tax incentives for whole of 2014. This is to help employers to top up salaries of their employees to the minimum level.

• Government to allocate RM47bil for subsidies in 2013 and 53% or RM24.8 bil went to petrolem products that benefitted all, even the rich, the businessmen and foreigners. Najib cites the recent petrol price subsidy cut as an example of this structural changes to come for subsidies, which make up to a fifth of the total national budget.

• RM2 bil for Special Tourism Infrastructure Fund to finance building tourism infrastructure.

• RM6 bil allocated to implement high value-added and commercially viable agriculture programmes.

• RM2.4 bil for agricultural subsidies and incentives for paddy and fish farming.

• RM265 mil to resolve electricity cuts in Sabah.

Education

• Education budget for 2014: RM54.6 billion or 21 percent of total budget.

• RM450 mil funds for school maintenance. Breakdown: RM100 mil for SK, and RM50 mil each for all the rest: SJK(C), SJK(T), Sekolah Mubaligh, Sekolah Asrama Penuh, MRSM, government-aided religious school and sekolah agama rakyat.

• Government to continue giving RM100 cash to all primary and secondary school students.

• Baucer Buku 1Malaysia for pre-U studentss of RM250 to continue. RM325 mil to be allocated and it is estimated that this will help 1.3 million students nationwide.

MORE TO COME

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