Thursday, November 06, 2008

Report Card On The RM7 Billion

You can get a good idea of the "thinking and strategy" behind the plans being announced, and make an assessment of whether they "know" the problems ahead, have a good appreciation of the problems ahead, and whether they are tackling them with the right medicine. I would rank them from A to E, A being excellent, C being neutral and E being flawed.

The government yesterday cut its economic growth forecast for 2009 to 3.5% from 5.4% and announced several measures to keep the economy ticking, including putting more money in the hands of the people, creating more jobs and boosting the construction and real estate sectors. (A+, The statement show a very sobering and realistic acceptance of the cascading effects from the global financial tsunami. In fact many other countries have only downgraded growth for next year minimally. The 200 basis points downgrade shows a willingness to err on the side of caution, which is good).

Deputy Prime Minister and Finance Minister Datuk Seri Najib Razak, in winding up the debate in parliament on Budget 2009, also gave a commitment that "a big number" of government procurements will, from now, be done via either an open or limited tender process to ensure it gets "value for money". Contracts targeted at bumiputera companies will also be put to competitive bidding among bumiputera firms. Direct negotiations will, however, continue on a discretionary basis. (A, Hard not to be cynical, the words sounded right, will give him benefit of the doubt for 6 months and see if reality mirrors the message. Even a 75% figure for open tender will be a blast).

While the country's fundamentals remained strong, Najib said Malaysia would still be impacted by the current global financial turmoil and economic downturn. This left the government with no choice but to follow other countries and pursue an expansionary fiscal policy to ensure continued economic expansion, albeit at a slower pace. As a result, the government's budget deficit for 2009, originally projected at 3.6%, has been revised to 4.8%, which is the rate anticipated for this year. Inflation, currently running at around 8%, will dip to between 3% and 4% next year, if crude oil price remains at the current level, he said. (A, a responsible statement, and yet aggressive view for a higher budget deficit in 2009. Its fair, committed, responsible tactic without iviting major problems in the future for the country's balance sheet. Whoever is advising najib is doing really well so far).

Najib unveiled an additional RM7.0 billion fiscal stimulus that will be funded by the savings obtained from the recent cut in petrol subsidies. The money will be spent, among others, on:

• RM1.5 billion to set up an Investment Fund to attract more private investments (C, too vague).
• Building RM1.2 billion worth of low- and medium-cost houses (C, good but not good enough. There are plenty of property projects which people have paid deposits but may be in grave danger of being abandoned, look into them as well).
• RM500 million to upgrade police stations, army camps and quarters (C+, smaller construction projects to boost activity, ok la, at least they stayed on the right course by having no mega projects).
• RM600 million to build roads, bridges and community halls in kampungs (B, this is in addition to the latest budget, still better than nothing).
• RM500 million to upgrade schools and hospitals (B, same as above, keep it smallish and spread around the country).

To boost consumer spending, he said employees can opt to cut their contribution to the Employees Provident Fund to 8% from 11% in 2009 and 2010. If all EPF contributors do that, it will free RM4.8 billion a year for them to use (E, reprehensible and irresponsible. Why do you have to boost spending by consumers via their OWN SAVINGS. Already we have a retirement scheme which is really insufficient to care for the MAJORITY of Malaysians. You still want the public to chip in to keep domestic activity going. Its forsaking the future for the present, when the future is already not good enough. The government MUST always regard EPF savings as something sacred and immovable, and must be a very last ditch effort. Once you reduce, it will be very hard to put it back up again. People have to learn to live with a certain mandatory savings rate. If anything, the savings rate should go higher (not at the present time) as the employer and employee contributions should equal 25% sometime within the next 5 years onwards in order for EPF to remain meaningful for Malaysians to retire on).

Najib also said government employees would now enjoy bigger car loans, ranging from RM55,000 to RM70,000 compared with the current RM45,000 to RM60,000. And those with existing housing loans can extend the repayment period to 30 years from 25 years. (C+, while that is good, the government should also think of how these loans would tie down public servants. If the government is intent on improving efficiency and reduce manpower over the next 5 years, such "tie downs" will make it very hard to streamline staffing issues. How to cut 5% of workforce when all of them have these loans dangling everywhere. There are a few firms already extending generous personal loans for government servants only, using direct debit of their salary as paying installments. This instills a mentality that a civil service job is forever. How to improve efficiency properly? These personal loans in addition to their other loans do make their disposable income very tight indeed. You can forecast the compounding ill-effects from this scenario).

Najib also announced steps to boost the construction and property development industry by:
• Removing the import duty for cement and long iron and steel products and exempting the companies from applying for Approved Permits (APs) (B+, I would have given it an A if this WAS MADE PERMANENT. We cannot and should not do things on an adhoc basis, take away now, put back later. It allows for many subsidised industries to always run to the government crying for help whenever the situation does not suit them. All industries, worth having, should learn to compete regionally and globally, or else they don't deserve to exist, we can very well just import from Thailand or Indonesia... just like Singapore. There is really no need to have a steel or cement or auto industry... we are really too small a nation).
• Allowing a foreign individual or entity to buy commercial properties priced above RM500,000 without requiring FIC approval if it is for own use (B+, again, make it permanent, no more flip-flops).

To create jobs, the government through GLCs like Khazanah and PNB will launch a Graduate Employability Management Scheme (GEMS) that will train 12,000 graduates over the next two years (B, has the ability to be really useful, only because Khazanah is involved. Learn to have good spreadsheet skills, pass a basic understanding of accounting, do simple financial modelling, learn how to do power points, improve business English, conducting yourself professionally, learn about priorities and tasks completion scheduling, improve thinking like an entrepreneur and innovator, take up courses to improve your marketability ...).

Stating that the "export-led" strategy used during the 1997/98 crisis cannot be used now because other countries are also slipping into recession, he said the government has to focus on boosting domestic activities. (A, good understanding and good strategy. It would have been too easy and too simplistic to revert to a 4.0 to the USD strategy to export our way out. It would have set our economy back 5-10 years as sunset industries will find more reasons to live, and value add industries will find things hard).

One step to raise revenue and spur domestic economic activity is for the government to maximise returns on its assets, including land that has not been developed, especially those in strategic locations. He cited the Rubber Board land in Sungai Buloh as well as government land in Jalan Cochrane and Ampang Hilir in Kuala Lumpur as examples. Tenders will be opened to private companies and GLCs to develop the parcels of land based on guidelines set by the government. (A, about time, but again everytime you announce such a plan, there will be 2,500 vultures at your door... which would make these plans a D- ... keep it transparent, relevant and open).

If I was on the 4th floor, and they still listens to 4th floor boys ... I would push for:
a) reviving abandoned property projects with capital injections, it will free up capital and improve liquidity in many thousands of property buyers left in the lurch

b) going around and making sure property developers currently selling or building are properly capitalised to avoid any projects being abandoned

c) fast track the removal of import and excise duties on cars to 0% by end of the year, now that will put a lot more cash into people's hands ... AP holders get their money back and current dealers with stock will go through a mediation process to get back a minimal portion of the losses
, or get an export subsidy to send the used cars to other less developed countries
d) implement a gradual removal of oil and gas subsidy for commercial firms, listed and unlisted companies: 50% reduction in subsidy effective Jan 2010, and complete removal on Jan 2012
. Everybody knows how to spend, but we also need to know where to save so that we can spend wisely. Subsidy for commercial firms have to go. The savings will be used more diligently to invest in other value add areas. Need to move up the value chain if everybody is to have higher wages.

p/s photo: Elanne Kong


Jason said...

For passenger car, the biggest tax component comes from excise duty ( Government should remove it and gradually reducing the 30 cents gasoline subsidy. I doubt they will, because Proton will have ZERO chance to survive. By doing this, consumer will save energy and have money for other consumption and our auto industry will flourish.

pica said...

Malaysians have spent 30b in last six seven years on car tariffs.

"Years of high automotive tariffs on non-national cars has extracted a high cost in consumer welfare foregone and taken a toll on the economy.

Between 2001 and 2007, car buyers paid more than RM30 billion in duties and tariffs on the vehicles they bought. They forked out between RM9,000 and RM16,000 on average in taxes on each car purchased. And those who took car loans paid interest on those taxes.

Additional disposable income injected directly into the economy has a higher multiplier effect, so that money would probably have had a far bigger impact, in helping create jobs, say, than as development expenditure spent by the government. It would have more than made up for higher pump prices."

Ivan said...

Wonder msia politic guy always say msia are not involve in recession, but how come we want to have a RM7b plan?

to enhance the politic plp chair or. .. ?

solomon said...

Could these projects stir the economy up? Too generic and doubtful to have impacts.

Given a choice, I prefer to have a mega project like building up a good transportation systems linking all the economic corridors.

Instead of building schools etc, why not fund R&D of oil palms and rubbers. Develop intellectual patterns for new products that are world class.

Talk abt cars, refocus Proton to be a small capacity car producer like TATA Nano. You must have something that is demand puller.

If you want to remove fuel subsidies, then consider remove all the car taxes.

People are wiser now, giving a generic plan without the implementation plans and the purpose it serves, would you think it will help? Dali, what say u? Maybe I am too critique but that is a citizen expectation in a report card.