Is Budget 2023 Void?

Budget 2023 has no legality with Parliament now dissolved before it (Budget) was approved. The Federal spending plan for next year would only remain a Bill until it undergoes the complete process of debate and voting approval. Consequently, any measures or policies announced in the budget cannot be implemented until a new one is tabled by the next government. The same Bill could be tabled again in order for it to proceed to the second reading when debate could take place, or a new one submitted entirely. Either scenario could lead to significant delays in passing Budget 2023 as both would have to wait until the 15th Parliament is sworn in, which could be weeks or months after the general election.

Source: https://budget.mof.gov.my

The tabling of Budget 2023 was expedited by three weeks to October 7 and on hindsight reflects a propaganda piece or perhaps an election manifesto.

In 1999, Tun Dr Mahathir Mohamad, who was the prime minister at the time, sought the dissolution of Parliament shortly after the tabling of Budget 2000 in November, and his finance minister was forced to table another one at the end of February 2000 or around three months later, after Barisan Nasional prevailed.

It is a disservice to Malaysians at a time when the country should be grappling urgently with an impending monsoon, a cost-of-living crisis and a rapidly depreciating currency. The present Budget does not take care of anybody’s needs, including the civil service (since it is not approved as yet). On all accounts it was an academic exercise and a pure waste of many people’s time. Commentaries were made by many including accounting firms, captains of industry, academics and newspapers/media columnists on the positives of the Budget. But it all seems rather futile in the light of what has happened. Will the PM or FM remain in a new Government? That is for the voters to decide. Meanwhile, this Budget could be said to be dead on arrival!

Reference:

Budget 2023 void if Parliament disbands before its passage, constitutional experts say, Opalyn Mok, The Malay Mail, 2 Oct 2022

Do You Need RM1m to Retire?

Those retiring in 20 to 30 years will need to have at least RM900,000 to RM1mil, according to Employees Provident Fund’s (EPF) chief strategy officer. The basic threshold now is RM240,000. The “bare minimum” after factoring inflation and medical bills is the higher figure of RM1m.

For those retiring soon, about RM600,000 is required to have a “dignified” retirement in Kuala Lumpur. Based on this, only about 4% of Malaysians could afford to retire.

Alor Setar was the cheapest place to have a comfortable retirement. A person would need RM480,000 to retire there. Still this is twice the basic threshold for retirement savings of RM240,000 earlier held.

Some 56% contributors, who are 54 years old, have less than RM50,000 in their accounts.

Source: https://ms.wikipedia.org

With RM50,000, one can only sustain for a little over four years, assuming that their expenses amount to RM1,000 a month. Currently, about 52% EPF members have less than RM10,000 in their accounts while about 27% have less than RM1,000.

Prior to the Covid-19 pandemic, about 22% members met the basic saving requirement but the numbers fell to 14% after several rounds of special withdrawal schemes namely i-Sinar, i-Lestari, i-Citra and most recently the special withdrawal facility of RM10,000.

Deputy Finance Minister I told the Dewan Negara in August that in total, RM145bil was withdrawn by EPF members under the four withdrawal facilities. Overall, the impact of these programmes related to Covid-19 on members’ savings was estimated at RM155bil, comprising RM145bil withdrawn by members under the four withdrawal programmes, and almost RM10bil from the impact of the employee share statutory contribution rate reduction programme.

Solutions are not easy. One may need to debate on extending retirement age to 70? Use the Socso funds for retirement – like a pension? Restore EPF savings partially though a government “bail-out”? Use “excess profit” earned by corporate for the EPF restoration fund?

None of the measures mentioned above are simple to implement politically but the government has a responsibility and an obligation to restore the funds after permitting the withdrawals from the four facilities.

Reference:

RM1mil needed for retirement, Fatimah Zainal, Ragananthini Vethasalam, The Star, 23 September 2022

The U.S. Dollar or an Asian Dollar?

The interest rate differential in favour of the US dollar and it’s safe haven status will continue to keep USD strong. This is until inflation expectations and interest rates projections peak and policymakers start to roll back measures.

The ringgit closed lower at RM4.65 against the dollar on 4 October 2022. More gains for the USD could be on the cards. The ringgit now having crossed 4.60 levels, it is now expected to weaken to 4.65 in the near term.

The local unit has depreciated by about 12% against the greenback since January 2021. In comparison, it fell by about 27% against the dollar over a 36-month period in 2014-2016 when crude oil prices crashed and from the Fed tapering action. The ringgit also fell by some 28% against the dollar during a 10-month period following the Global Financial Crisis and 43.7% (from April 1998 to January 1999) during the Asian Financial Crisis in 1997 and 1998.

The weak ringgit in the meantime would benefit export-oriented industries such as palm oil producers and, electrical and electronics manufacturers while costing domestic market oriented industries with high import content.

Despite Malaysia’s annual food imports over RM60bil and core inflation in August rising to 4.7% driven by higher food prices, inflationary pressures on consumers could be limited as final consumption goods account for about 9% of the overall consumer price index basket.

Cost pressures will likely be felt via imports of intermediate goods which account for some 55% of the country’s imports. US dollar debt, meanwhile, is low at 5% of total external debt.

Current projections imply another 125 basis point tightening over November and December which would take the Fed fund rate to the 4.25% and 4.5%. The consensus is for Bank Negara to raise its overnight policy rate (OPR) by another 25 basis points in November.

Is this enough? No, another 0.25% rise is not going to stem the ringgit’s decline. It has to be significant and impactful to be meaningful. Why doesn’t BNM do it? It is into “growth with stability” mentality which means measured and “behind the curve” increase. What is the upshot? Many countries in Asia face outflow of funds with the Fed’s actions. Can it lead to the Asian Financial Crisis 2.0? Yes and no. Yes, if the outflows damage markets which lead to a contagion. No, many Asian central banks hold higher foreign reserves which could stem outflows.

In the immediate, it is necessary to follow the U.S. in “upping” the rates or at least to keep the interest differential as low as possible. In the medium to long-term, develop an Asian dollar backed by rare earth, commodities and other reserves as the new reserve currency for the region. 

Asia needs a central bank like the ECB for Europe. Many have also asked what if China dumps its reserves in U.S. Treasuries – that’s over USD 3 trillion! China will not do that in the immediate because it has to sell the dollars it receives for another reserve currency – the yuan? This is not feasible. It will prefer an Asian Central Bank and a reserve currency like the proposed Asian dollar before it dumps U.S. Treasuries. That may end the hegemony of the USD. A prospect that the U.S. will oppose strongly and call it “economic terrorism”.

Reference:

US dollar likely to keep going strong, Bhupinder Singh, The Star, 28 September 2022

British Chancellor Kwasi Kwarteng Hails “New Era”!

Chancellor of the Exchequer Kwasi Kwarteng unveiled the highest tax cuts in 50 years and hailed it a "new era" for the UK economy.

Income tax and the stamp duty on home purchases will be cut and planned rises in business taxes have been scrapped. It comes as the Bank of England warns the UK may already be in recession. The pound sank to a 37-year low against the dollar as the chancellor gave his statement. The basic rate of income tax was reduced from 45% to 40% but u-turned under pressure—and he was thrown under the bus by Truss.

Other measures include:

• The threshold people in England and Northern Ireland start paying stamp duty on home purchases will rise to £250,000

• For first-time buyers the threshold will rise to £425,000 and the value of the property they can claim relief will increase from £500,000 to £625,000

• Planned increases in the duty rates for beer, cider, wine and spirits will be axed

• The cap on bankers' bonuses will be lifted

• New investment zones, where business will benefit from tax cuts and planning rules will be relaxed to encourage house building, will be established

• Planned corporation tax increase from 19% to 25% is scrapped.

• Reversed the rise in National Insurance payments 

 

The total cost of the permanent tax cuts announced by the chancellor is estimated at almost £45bn by 2027. The Government borrowing will increase by £72bn as a result. The changes to income tax do not apply in Scotland but cuts to corporation tax and national insurance are UK-wide.

The independent Institute for Fiscal Studies, said the statement amounted to the biggest tax cuts since the 1972 Budget, with the cuts constituting 50% bigger than had been expected.

The government normally releases an independent forecast of how major tax changes will impact the economy, but Mr Kwarteng has opted not to do this, as his statement is not technically a Budget. However, Mr Kwarteng promised the Office for Budget Responsibility would publish a full economic forecast before the end of the year, with a second to follow in the new year.

The huge increase in borrowing comes at a time when inflation - the rate at which prices rise - is at a 40-year high, leading to higher interest payments. The Bank of England raised interest rates on 22 September from 1.75% to 2.25% - the highest level for 14 years - in an attempt to cool soaring prices.

This is the classic “trickle-down” economics, which is really the “trickle (or tickle) up” version. The U.K. cannot afford this, in the midst of rising inflation. A stimulus budget is in a recession not when prices are rising. Yes, there is a need for help to the most vulnerable, with rising cost of living but not for the ultra-rich! This will certainly cause a bad situation to get worse – a tropical storm is now upgraded to a hurricane!

So, what is this new era? More of the old Labour ways of borrow, borrow, borrow (sounds like Bora-Bora, a tropical island in the South Pacific) and spend!

Reference:

Chancellor Kwasi Kwarteng hails “new era” as he unveils tax cuts, Becky Morton, BBC, 24 September 2022

Trickle-Down Economics: Does it Work?

Trickle-down economic theory states that benefits for the wealthy trickle down to everyone else in the economy. These benefits for the wealthy include tax cuts for dividends, capital gains, high-income earners, and businesses.

Trickle-down economics assumes that company owners, savers, and investors drive growth. This theory promises that they will expand businesses using any extra cash from tax cuts. For example, owners will hire workers and invest in operations; banks will increase lending, and investors will buy more stocks and companies. Then, all of this expansion will trickle down to the working class, where they will drive demand and economic growth by spending their wages. 

Supply-side economics, which is a theory that states that all tax cuts lead to economic growth, is similar to trickle-down economic theory. However, trickle-down economic theory is more specific, saying that targeted tax cuts are more effective than general tax cuts. Trickle-down economics recommends cuts to capital gains, corporations, and savings taxes, but it doesn’t promote tax cuts across the board. Instead, the wealthy receive all of the tax cuts, and the benefits trickle down to everyone else. 

Proponents of supply-side economics and trickle-down economics prove their theories using the Laffer Curve. This is a curve created by Arthur Laffer, who showed the way that tax cuts create a powerful multiplication effect. These tax cuts create sufficient growth to replace the government revenue that was lost from them, resulting in an expanded, prosperous economy that provides a larger tax base. 

Laffer did note that this effect is best when taxes are in the “Prohibitive Range,” which goes from a 100% tax rate to around 50%. When tax rates fall below this range, further cuts won’t be able to stimulate enough economic growth to offset lost revenue. 

During Reagan’s administration, his policies (known as Reaganomics) made it seem that trickle-down economics worked since they helped to end the 1980 recession.

Not only did Reagan cut the top tax rate from 70% for people earning $108,000 or more down to 28% for those earning $18,500 or more. He also cut the corporate tax rate down from 46% to 40%. 

However, trickle-down economics wasn’t the only reason for the recovery. In addition to the tax cuts, Reagan increased the government’s spending by 2.5% a year, and he also tripled the federal debt. It went from $997 billion in 1981 to $2.85 trillion eight years later in 1989. Most of this spending went to defence, supporting Reagan’s efforts to bring down the Soviet Union and end the Cold War.

Because of these other factors, Reagan never tested trickle-down economics in its pure form. It’s very likely that his huge amounts of spending played just as large a role as trickle-down economics in ending the recession.

According to trickle-down economics, Reagan’s and Bush’s tax cuts should have helped those at all income levels. But the opposite result took place: income inequality worsened. Between the years 1979 and 2005, the bottom fifth saw a 6% rise in after-tax household income. While this on its own seems great, it’s important to note what the top fifth experienced an 80% increase in after-tax household income. The income of the top 1% tripled, showing that prosperity was trickling up rather than down.

Trickle-down economics generally doesn’t work for the following reasons:

• Tax cuts for the wealthy don’t often translate to increased consumer spending, rates of employment, and government revenues in the long term.

• Instead, tax cuts for the middle- and lower-income earners drive the economy through the trickle-up phenomenon.

• The increased income for the wealthy that comes from the tax cuts only increases income inequality

So, Liz Truss and her tax cut plans may only result in a “trickle-up” phenomenon than a “trickle-down” expectation. That’s what happens when you don’t have a sense of economic history.

References:

Trickle-down economics: Why it only works in theory, Economics Online, 29 July 2021

Trickle-down economics, Tejvan Pettinger, Economics Help, 22 September 2022

Are Singaporeans Tourists Not Welcome in Malaysia?

Tourism Malaysia has released the figures for foreign visitor arrivals for the first half of 2022. The total number of foreigners that entered our country from January to June was 3,016,113, comprising 2,132,160 tourists and 883,953 excursionists.

During the same period last year, the total number of foreign visitors was 188,922, consisting of just 50,613 tourists and 138,309 excursionists. In contrast, there were 5,965,137 foreign visitors to Malaysia in the first half of 2020, with 4,252,997 being tourists and 1,712,140 excursionists.

Source: https://en.wikipedia.org

It would take several years for foreign visitor arrivals to return to 2019 levels. As many as 18,137,162 entered Malaysia in the first half of that year, with 13,354,575 tourists spending an average of 7.4 nights and 4,782,587 excursionists departing on the same day of arrival.

For the first half of this year, 60% of all foreign tourists and 75% of all excursionists were Singaporeans. In the four years from 2012 to 2015, more than half of all foreign tourists to Malaysia were Singaporeans, averaging 12.9 million per year. But after that, the percentage dropped to 49.6% in 2016, 47.9% in 2017, 41.1% in 2018 and 38.9% in 2019, averaging 11.6 million per year.

One of the main reasons was congestion at entry points by road that affected not only excursionists but also tourists. Bear in mind that expenditures by Singaporean tourists travelling all over peninsular Malaysia, Sabah and Sarawak were among the top three on per diem basis, just below nationalities from Saudi Arabia and Brunei, and above those from Australia and China. Together, the 5,381,566 Singaporean tourists contributed RM11.56 billion to our economy in the first half of 2019.

Shouldn’t we make Singaporean tourists feel more welcome? This is especially true for our immigration officers, as they exert a huge impact on the first impression of our country. There are immigration officers on duty who habitually make sarcastic remarks on frequent entry by Singaporeans into Malaysia. Instead of welcoming them, they are bothered by foreigners entering Malaysia.

Over 25% of foreign tourists cited visiting friends and relatives as the main purpose for visiting Malaysia in the first half of 2019. But unlike 71% of domestic tourists that stayed at free accommodation provided by friends and relatives, foreign tourists prefer to stay in licensed hotels or private residences booked online.

To surpass the target of 10 million foreign tourists by the end of this year would require an average of 1.33 million arrivals per month or eight million over six months, as 2,132,160 tourists came in the first half of this year.

Under the National Tourism Policy 2020-2030, there are 22 strategic action plans in place with four on governance capacity. They are for strengthening high-level coordination to monitor the implementation of the policy; enhancing tourism core skills of related government agencies; increasing the capacity and tourism knowhow of local authorities; and embracing innovative governance models to facilitate participatory processes and public-private sector partnerships.

To be more competitive, the Tourism Ministry should reinvigorate the Mesra Malaysia programme. It is the most effective training for public and private sector front liners to become warm and friendly hosts. We have a serious deficiency in manners especially to our neighbours. Next, we could improve entry point experience with reduced waiting times, especially amplified in a holiday season. That may require some initiative and a few ringgits to increase spending (in Malaysia). Why can’t we do that?

Reference:

Make Singaporean Tourists feel more welcome, YS Chan, Letter to the Editor, FMT, 14 September 2022

What If PAS Rules?

The survival of an inclusive multi-racial Malaysia could be under threat if PAS were to rule. The Islamist party is confident that its time has arrived to take charge of the country’s destiny. To climb this peak, PAS will have to capture more political power in every general election, and it probably reckons it can only achieve this by getting more Malay votes. In PAS’ calculations, the other ethnic groups do not count.

PAS election director Sanusi Md Nor has got the party’s long march to Putrajaya all mapped out. This controversial Kedah menteri besar expects PAS to “attack” 80 parliamentary seats and is confident of capturing at least 40 in GE15. The party now has 17 MPs, of which three are ministers and eight deputy ministers. 

 

Source:https://www.bharian.com.my

PAS has already mapped out a 30-year plan to capture federal power. It foresees that by 2050, it will have enough MPs to form the next government, with its candidate as the prime minister.

The coming general election (GE15) will be a crucial test on whether PAS can make further inroads. If the party led by Hadi Awang can seize 40 seats, it would have a big say in the corridors of power. Hadi can drive his Islamic agenda to the forefront of national politics to reshape the landscape of this multi-racial nation. If PAS can continue to improve its electoral outings over the next 30 years, it will inch its way to a simple majority eventually and later, an overwhelming victory.

But PAS alone without UMNO or PN will fare badly. That’s the perception of a UKM political analyst. It (PAS) was in the PH camp for GE14.

The above scenario could only happen if the other Malay parties like UMNO and Berstu fall by the wayside. And the multi-racial parties like PKR, DAP and Amanah are unable to muster Malay votes.

PAS won’t find it easy to secure Malay support, let alone the non-Malay votes. Perhaps, the good news is PAS is performing poorly in the states it governs, its leaders have no clear direction and ministers are incompetent. But if a leader with the calibre of Tok Guru emerges, then the proposition may look possible. Otherwise, this will remain a pipe-dream! We cannot be complacent to this possibility. The consequences of which are seen in Pakistan, Afghanistan, Libya or other Islamic republics –all failed economies.

References:

If PAS rules, the lights of freedom will grow dim, Philip Rodrigues, Aliran, 7 Sept 2022

PAS growing unpopular even among Muslims, says analyst, Shahrul Shahabudin, FMT, 

12 September 2022