Budget 2009
A Policy Perspective
 Budget Allocation
 Budget Deficit & Growth Rates
 Revenue Streams
 Impacts on the Middle-Class Malaysian
 Businesses Enhanced?
 It’s the Economy, Stupid
1. Budget Allocation
Budget 2008
Total = RM176.9 b
48.1; 27%
Operating Expenditure
Development Expenditure
128.8; 73%
Budget 2009
Total = RM207.9 b (4.4% increase)
53.7; 26%
Operating Expenditure
Development Expenditure
154.2; 74%
“Blink”
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Expansionary Budget
Low-income groups
East Malaysia
Civil service & Retirees
Budgeted spending:
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3.9% increase in 2008
22.1% increase in 2009
Huge jump in subsidy bill (food & fuel)
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2007: RM10.5 bn (8.5% of op. ex.)
2008: RM34.1 bn (225% increase, 22.6% of op. ex.; Fuel
subsidies form 18.1 bn)
2009: RM33.9 bn (Fuel subsidies form 21 bn)
Increase of operational expenditure by almost 200% in 8 years
-Rental
-Maintenance
-Stationery
supplies
-General supplies
-Emoluments
-Compensation to
toll
concessionaires
-Civil service
wages
-Services
-Administration
expenses
Source: Tony Pua, PJU MP
2. Budget Deficit
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2009: 12th year running in deficit (since 1997
Asian financial crisis)
Attempt to move to a lower deficit for 2009
Lower revenue growth forecast of 9.1% (15.5%
in 2008)
Unhealthy fiscal management
“Obsessed with growth; pump-priming the
economy”
Inflation being fuelled (8.5% in July), lessening
the “bang for the buck”
Budget Deficit (% of GDP)
6
5
4
3
2
1
0
Budget Deficit (% of GDP)
2003
2004
2005
2006
2007
2008
(original
estd)
3.3
3.2
4.3
3.3
3.2
3.1
2008
(actual)
2009
(estd)
4.8
3.6
3. Revenue Streams
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Revenue Inflows: RM139.9 bn (2006) to RM176.2 bn
(2009)
Revenue from oil & gas industry
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2008: estimated 37%
2009: estimated 46.4% (due to oil price increase)
Net oil importer in several years
40% of oil & gas revenues from investments abroad –
sustainable? (not to mention the countries we invest in:
Sudan, Burma etc.)
Petronas generated RM60 bn profit, 2007 (9% of GDP) 
“Off-Budget”
Increasing Tax Base
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GST?
4. Impacts on the Middle-class
Malaysian
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Low-wage earners-those earning a taxable
income of RM35,000 per year or less-can claim
RM400 rebate (vs. RM350 previously).
RM35k – RM50k p.a.: 1% reduction in marginal
tax rate (13 to 12%)
RM230k p.a.: 28% to 27% reduction in tax rate
Tax exemption medical benefits provided by
employer extended to maternity expenses,
traditional medicine (acupuncture, ayurvedic)
Impacts…
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Cigarette prices: 60 sen more per 20-pack.
Free electricity from October 1st 2008 until end-2009 will
be provided to those using < RM20 a month.
Reduced import duties on various consumer durables (rice
cookers, electric kettles, blenders) and full import duty
exemption from selected food items (biscuits, vermicelli,
fruit juices, canned sweet corn).
Purchase of medium-cost houses up to RM250k – 50%
reduction in stamp duty on transfer document & loan
agreement.
Safety: Police receive RM5.4 b increased allocation
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New equipment for crime prevention
New police stations with facilities
Education
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RM14.1 b for institutes of higher learning
… for employees
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Travel allowance for commuting to work
provided by employers be given full tax
deduction, while the employees receiving such
allowance tax exemption up to RM2.4k p.a.
Tax exemption given to employees on:
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Interest subsidies on housing, motor vehicles &
education loans. (up to RM300K)
Mobile phones, telephone & internet bills paid by
employer
Childcare allowance (up to RM2.4K p.a.)
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Public Transportation (2009-14): RM35 bn
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LRT lines extended in KJ and Ampang, Kota
Damansara – Cheras
Upgrading KTMB
Contractors
Cars
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Road tax rates for diesel cars = petrol cars
Abolishing 100% import duty & 50% excise duty for
hybrid cars = definition very narrow (only Civic Hybrid
& Prius; franchise holders) “encourage local
assembly”
5. Businesses Enhanced?
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Firms can claim working capital allowance for upgrading
staff skills
Corporate responsibility: companies contributing to
charitable institutions, increased tax deduction (10% of
agg. Income)
Recruitment costs (payments to employment agencies) &
participation in job fairs – tax deductible.
Venture capitalists: 5-yr tax exemption
SME assets acquired in 09 & 2010 Accelerated Capital
Allowance
No substantive initiatives to encourage businesses
No significant plans to increase investment confidence
6. It’s the Economy, Stupid
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Rakyat-centric Budget but little to grow the economy itself; welfare state
can only be sustainable with growth
GDP growth
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UNCTAD’s latest figures in World Investment Report 2008
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2008: 5.7% (estimated)
2009: 5.4% (estimated)
Malaysia INFLOW OUTFLOW
2004
4,624
2,061
2005
3,967
2,971
2006
6,048
6,041
2007
8,403
10,989 (for the first time)
2008: Net inflow RM21b (Q1); Net outflow RM24b (Q2)
International reserves RM388 bn
But June-September, more than RM20 bn erased from reserves
Current account surplus up 56% in Q2
Manufacturing sector shrinking
Services sector “engine of growth” – to liberalise sector
Inflation rate 8.5%, a 27-year high (overall of 4.8% in 2008)
• Fuel prices reduced by
10 sen today, to RM2.45
•Public subsidy of 33 sen
per litre on gasoline
Source: Malaysiakini
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US economy and its effects on Malaysia
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Malaysia must contain growth of development and
operating expenditure
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Public spending must be efficiently spent
Liberalisation of economy
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Malaysia is US’ 17th largest trading partner
Impacts of Paulson Plan; crisis deepening into global crisis
Removal of import duty & sales tax exemptions on broadband
Stimulating investment
Removing FIC requirements; transparent Bumi policies
Public tenders
Institutional reform
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Money allocated upfront for judiciary etc.
Accountability in implementing budget
Rapid, changing environment
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Budget is important but environment
changes daily
Need to consider policy decisions on
daily basis
Stop focus on hard infrastructure but
reforming of soft skills, human capital,
channel ideas and not instruments
Need for quick, rapid response to the
changing economy.