Monday, 9 November 2020

Budget 2021: Boring, Timid and Unimaginative!


The new Minister of Finance had the rare opportunity to shine with a courageous, stunning and sensible Budget; but, what did he do? Produced another run-of-the mill boring piece.

In any Budget speech of any nation you set out the problems you face. That’s how a thesis or dissertation is done. It then outlines how to tackle the problems and solutions are proposed. And if you have little clue of the problems except for Covid, your solutions are going to be mundane.

Malaysia faces several issues before Covid and with Covid these and others have become more acute. For some time many have advanced critical reforms needed to move forward as a united nation:

·       Reduce growing inequality between the T20 and the B40;

·       Rising mismatch of skills and unemployable graduates;

·      Incompetence in the public service with no accountability (whether the Auditor-General reports it or otherwise);

·       Corruption at almost all levels;

·       Decline in total factor productivity (“TFP”)

That’s just a short list, but that has now been amplified with Covid-19. So, we have sectors and businesses in serious trouble:

·       Aviation sector and its employees;

·       Tourism resorts;

·       Hotels;

·       Restaurants, cafes, retail outlets;

·       SMEs in services and manufacturing;

·       Private educational institutions;

·       Private medical practices;and

·       Private developers and the construction sector with further property overhang levels

Source: Starbiz 6, Nov 2020/ CIMB Research, Napic

 

And what is the answer?

The key sectors or ministries that received significant sums include:

 

RM’bil

Defence

16

Home

17

Infrastructure

15

MCMC

7.4

Religious Affairs

(Jakim has another RM4.0b)

1.4

Higher Education

14.4

TVET

6

Contractors (G1-G4)

2.5

Housing (B40)

1.2

Human Resources (JanaKerja)

3.7

Human Resources (My STEP – Civil Service/ GLCs)

0.7


Then there is JASA, a propaganda machine with RM80 million. The above table of allocations add-up to over 26.4% of total budget of RM322.5 billion (which is 20.4% of GDP). Of this total, 73.3% is for operating expenditure and only RM69 billion or about 21% for development expenditure. Balance (RM17 billion) is for Covid fund. Operating expenditure as usual rises every year with increments and bonuses. Productivity is not the issue!

How is this funded?

Expectations or hopes on stellar growth; releasing revenue of RM236.9 billion or 15.1% of GDP. Of this, 41% from income tax, 19% from non-tax revenue and 13% from indirect taxes and 26.5% from borrowings! The ratio of borrowings to GDP will increase to over 60%. And revenue conveniently just covers operating expenses.




What “super optimism” from the Minister, especially when businesses are shutting down. And what is plan ‘B’? More borrowings or slash development expenditure? What about the self-imposed debt ceiling, it is now revised from 55% to 60% (of GDP)?

What is the use of allowing Account 1 under EPF to be withdrawn up to RM6,000? And why give relief on contributions to EPF from 11% to 8% for 2 years? Government does not have the money and you are left on your own! Too bad if you don’t have any for retirement!

In all this, the glove manufacturers got away with a donation of RM400 million. A windfall tax on them could have netted RM4.8 billion. In this budget also the rich have nothing to complain. Bumiputras are well taken care of, with HR schemes and other incentives. The Nons who contribute the bulk of the taxes just be happy and do take it “on the chin”. 

There is increasing discontent, mutterings and grumblings from the poor, the unemployed, the aviation sector, tourism, hotels, SMEs and a host of others of their fate – literally “thrown under the bus” or “what a bummer of a budget”.

Couldn’t he or his staff devise a super-tax for the rich, forex transaction tax and an inheritance tax? And possibly addressed income inequalities, create stabilisation funds for Covid-affected industries, provided a boost to renewable energy sector and lessened system inefficiencies. Or, was that too difficult?

 

Reference:

Economic Outlook 2021 highlights, The Star, 6 Nov 2020

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