A response to the 2010 Budget

The Budget 2010 that was announced on Friday, 23^rd October 2009 is overall a good budget, especially under this challenging economic condition. The Budget deficit will be reduced from 7.4% to 5.6% and there are no higher taxes. Generally, it does not burden the rakyat and is business friendly. I had the opportunity to gather some professionals for a brainstorming session on the budget and below are some essences of the discussion that I would like to share.

Real Property Gain Tax (RPGT)

The 5 percent Real Property Gain Tax (RPGT) as announced in the Budget 2010 will be effective from January 1, 2010.

It is seen as a counter-productive move in encouraging real property investments among local and foreign investors and less attractive compared to other countries that offer lower RPGT or no tax than Malaysia.

Goods and Service Tax (GST)

The time has come for the Government to seriously consider the implementation of the Goods and Services Tax (GST).

The Goods and Service Tax is more equitable compared to the sales and service tax. However, appropriate measures must be taken to ensure that the implementation of the GST is properly done.

The country’s oil and gas industry although contributing 40 percent of the government’s revenue will continue to drop in future and the GST could be another source of revenue to the government.

The GST has been implemented in many countries. You pay for services and goods. Hence, it is more equitable. Educating the rakyat and ensuring its proper implementation is important. There is a lot of red tape involved in its implementation. Hence, GST should not be introduced in haste.

Green Technology

In view of the current problem of global warming and climate change the PM Najib has announced a fund of RM1.5 billion soft loan in order to provide assistance to companies dealing with green technology and hopefully help to reduce carbon foot prints for the nation.

Apart from the tax exemption on the Green Building Index (GBI) certificate and the RM1.5 billion fund, the government should also consider implementing plastic bag tax. Many plastic bags are non-biodegradable and it causes great harm not only to the environment but also to the human beings. Countries like Ireland has passed a plastic bag tax in year 2002 and within weeks, it showed 94 percent drop in plastic bag usage.

The government should consider implementing before the plastic bag tax an educational program on reducing the usage of plastic bag. There should also be a tax for non-environment friendly practices such as usage of Styrofoam containers. Green taxes will also spur technological innovation.

As for the green technology, there are foods for thoughts by an environmentalist as follows:

1) Energy and water efficiency

· New Green Building Indexed building should result in 40 – 60 percent less energy and water usage.

· The rain water should be recycled and reused via inbuilt technology in the house via storage tanks (underground) and etc.

· Solar panels and photovoltaic cells to generate electricity and heating power

· Wind power whenever possible

2) Indoor environment quality

· Using good architectural design for better natural air flow and directional placing of buildings;

· Use of non-toxic paint and materials and environmental materials.

3) Sustainable building and development

· Using GBI buildings and more eco-friendly and energy efficient buildings.

· Cheaper and more eco-friendly low cost homes.

4) Usage of renewable and recyclable materials

· Using wood materials or waste materials using old tyres for retention wall and more cooler energy efficient homes (smart and cool homes)

5) Using new technologies

Quick build system that is 1/3 less cost, e.g. solar energy, green power, biomass power generation, sewerage systems that generate power, recycle water (drinkable) and produce fertilizer.

SME

The SME is an important component in the engine of growth in the country. Hence, there is a need for continuous support from the government in the form of soft loan or grant for SME entrepreneurs. Although there is a special funding under the stimulus package, the government should introduce a system for SME owners to be able to purchase their own factories rather than paying for the renting of the factories.

There should be more grants so that the entrepreneurs could:

1) Upgrade their equipments;

2) Acquire new technologies;

3) Expand the capacity and productivity of their factories and products and;

4) Research and technology.

Right now, we are told that the yearly fund allocated have often been fully utilized before the year-end.

Creative Industry

A total of RM200 million of fund is allocated for creative industry. This is the first time that such allocation is given. However, the amount of fund is inadequate since there are many fields in the creative industry. The creative industry has great potential and if the government wants to develop the service industry to achieve 65% of the GDP by 2020, then the creative industry is one field that holds great promise. We need to overcome:

1) Internet access problem;

2) Content development problem

Often, you notice the film industry and advertisements in the electronic media have to buy content from overseas. There is little support from the local community and the government for the development of local content in the creative industry.

As for performing arts, there should be room for people who are creative and space for the freedom of expression. If a minority of people likes to impose their own values on local and foreign artists, then we can forget about developing performing arts in Malaysia.

A grant of RM50million for branding is grossly inadequate. Right now, SME can apply for grant when they do promotion overseas as part of their branding exercise. If they do not have a strong local brand name, then no way can they compete overseas. Hence, there is a need to identify the top 30 local brands and establish a strong local brand with government assistance, then only they are ready to go overseas.

There is a lot of red tape in applying for these grants. Hence, the procedure to apply for the grant should be simplified.

Security

Security is a big issue in this country. This is one reason why we have suffered a drop in our competitiveness. We welcome the RM1billion funding to beef up security. However, having extra patrol car and better equipment will not ensure better security. It is the security personnel’s professionalism, dedication, right attitude, less corruption and abuse of power that will improve the security in this country.

Minimum Wage

It is disappointing that the minimum wage issue was not mentioned in the 2010 budget.

I have mentioned in the blog before that Malaysia needs a minimum wage policy for certain sectors that have potential for growth. It will increase productivity and efficiency as producers or employers will have to make these adjustments. Workers will have to change their attitudes towards work and increase productivity to be employed. Malaysia will not be dependent on cheap and low skilled foreign labour to drive its economy.

More than 90 % of countries have legislation regarding minimum wage but Malaysia is not one of them.

There are about 3.5 million foreign workers in Malaysia. Last year, foreign workers remitted RM18 billion to their own countries. If minimum wage is implemented, this amount of money will not flow out of the country. It will definitely boost up local consumption.