The recent budget revealed by the Prime Minister has all the ingredients necessary to continue on the path of growth with financial stability to achieve our aims of achieving developed-country status by 2020 – a per capita income of US$15,000 (RM47,212).
Three main things struck me about the budget – the programme towards fiscal consolidation, the continuation of both the government and economic transformation programmes and fulfilment of the promises the government made ahead of the last general elections.
With political considerations out of the way, the Prime Minister moved boldly forward to announce the introduction of the goods and service tax (GST) by April 1, 2015, giving a 17-month lead time for preparation and fine-tuning so that problems of implementation are minimised.
This is brave because a lot of effort has been mobilised against this value-added tax by many without properly understanding the basis and reason for the imposition of the tax. I have explained this in my last column.
Suffice to say here that the imposition of a 6% GST will have minimal impact on the poor because a range of essential items will be zero-rated and exempted. There will be no longer the requirement to pay both sales tax (up to 10%) and service tax (6%) upon implementation.
This is a consumption tax to broaden our tax base and will tax most those who consume the most, which of course will be the rich.
The imposition of the GST paves the way for a cut in the corporate and individual income tax. As for the individual income tax, the structure has also been reviewed to take into the consideration the grouses of the working class.
The other part of fiscal consolidation is the gradual roll-back of subsidies. The Prime Minister announced the removal of the sugar subsidy of 34 sen per kg of sugar and in time other areas of subsidy will be rationalised.
The money that the government will save from these subsidies can be ploughed back into development activities, especially infrastructure development such as transport schemes and enhancements that will benefit all.
It will also enable the payment of an increase in direct cash grants to middle and low income group to RM650 under BR1M, the 1Malaysia cash assistance programme. Further the programme is widened by increasing the income eligibility for this by a third to RM4,000. An insurance scheme was also introduced, Group Takaful Rakyat 1Malaysia (i-BR1M), for all BR1M household recipients which provides protection of up to RM30,000 to BR1M recipients in the event of death or permanent disability.
A direct cash assistance to alleviate the problems of those who may be affected by subsidy cuts is much fairer than a blanket subsidy which everyone, including those who can afford it, benefit from.
This targeted assistance is much more efficient as it redirects aid to those who really need it and meets our concomitant goals under the transformation programmes of inclusiveness – including as many people as possible in the development process.
To deflate any build-up of a property bubble and to decrease speculation in the property market, the real property gains tax has been increased. This will help redirect property activity to areas where there is real demand such as medium-cost housing.
On a macro basis, the fiscal targets are still being met. Government debt remains below the self-imposed target of 55% of annual gross domestic product, or GDP, the sum of goods and services in a year.
We are marching steadily towards fiscal balance by having a balanced budget by 2020, with the target of 4% this year likely to be achieved and a projected 3.5% for 2014.
We are laying the blocks to put the economy on a firm base of sustainability where fiscal prudence will ensure that we can spend the needed amounts in terms of building infrastructure and facilitating income growth while helping the poor in the meantime.
All these cannot be achieved by measures to both increase revenue and restrain expenditure. In fact total government expenditure for 2014 is expected to increase to RM264.2 billion, an increase of less than 2%. The government is NOT going on a spending binge.
The other thing that is heartening is the government’s commitment to continue with the transformation programmes – both government and the economy. It is very necessary for us to continue with strategic reform initiatives such as measures to strengthen competitive legislation and improve human capital to make the economy internationally up to par.
We have identified national key results areas such as reducing crime, fighting corruption and improving student outcomes which are areas of great public concern where we need to improve to meet with public expectations.
And then we have the 12 national key economic areas which we have identified as sectors that have particular importance for economic growth and increasing incomes. These include greater Kuala Lumpur/Klang Valley, oil and gas, health and education amongst others which will spearhead our drive for increased economic activity.
In a difficult environment, the government has succeeded very well, with the aid of the private sector, in keeping economic growth up. For this year, this is expected to be a respectable 4.5%-5% and it is forecast to increase to 5%-5.5% next year. That’s really quite good overall.
Recently, we received international recognition for ease of doing business when we broke through the top ten barrier for the first time ever in the World Bank ranking of countries deemed friendliest to doing business.
Malaysia vaulted to sixth from 12th a year ago after easing procedures for registering a company, applying for a construction permit and getting electricity, the bank said in its 2014 “Doing Business” report.
These figures borne out in the Budget and additional international recognition are things that we can be justifiably proud of and should encourage us to move relentlessly towards becoming a developed country with inclusiveness and sustainability.
They also show that the government is keeping its promises to the rakyat.
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Idris Jala is CEO of Pemandu, the Performance Management and Delivery Unit, and Minister in the Prime Minister’s Department. Fair and reasonable comments are most welcome at idrisjala@pemandu.gov.my
