Prime Minister Najib Razak’s 2011 National Budget

October 16, 2010

www.malaysiakini.com (October 15, 2010)

The following are the salient points in Prime Minister Najib Razak’s 2011 Budget speech. The 2011 Budget is Najib’s second since taking over as Prime Minister in 2009.

Total Budget, 2011 – RM212 billion, 2.8% higher than the 2010 Budget

Operating Expenditure – RM162.8 billion

Development expenditure – RM49.2 billion

• 2010 growth is revised to seven percent from the previous six percent, fueled by private investment growth (15.2%), private consumption (6.7%) and exports (11.6%).

• 2011 growth is expected to hover between five to six percent supported by private investment (10.2%), private consumption (6.3%) and exports (6.7%)

• 2011 per capita income is expected to go up 6.1% to RM28,000, while income in terms of purchasing power parity will hit US$16,000, tempered by moderate inflation (2-3%) and low unemployment (3.5%).

• Budget deficit is expected to go down to 5.4% of GDP, compared to 2010 figure of 5.6%.

• Federal Government revenue is estimated to increase by 2.3 percent to RM165.8 billion in 2011, compared to RM161.1 billion in 2010.

• Private investment is expected to expand 12.5% to RM86 billion.

Emphasis on Public-Private Partnership (PPP) projects

• RM12.5 billion worth of public private partnerships (PPP) will be implemented under budget 2011, with a RM1 billion facilitation fund from the government.

• The Mass Rapid Transit project is to be implemented beginning 2011 with a private investment of RM40 billion and is targetted to complete by 2020.

• The Academic Medical Centre, a joint-venture between Academic Medical Centre Sdn Bhd and John Hopkins Medical International as well as Royal College of Surgeons, Ireland, that will involve private investment of RM2 billion

• Development of an International Islamic University Teaching Hospital in Kuantan and a Women and Children’s Hospital

• The construction of a 300MW combined-cycle gas power plant in Kimanis, Sabah.

• The construction of highways such as the Ampang-Cheras-Pandan Elevated Highway.

RM5 Billion New Tower in KL

• A new landmark, the Warisan Merdeka, to be developed by Permodalan Nasional Berhad (PNB), is expected to be completed in 2020 and will include a 100-storey tower, the tallest in Malaysia, which is to be completed by 2015.

• It will stand on land adjacent to Stadium Merdeka and Stadium Negara. Both stadiums are to be retained as national heritage sites.

EPF to fund Sungai Buloh Development

• Development of the Malaysian Rubber Board land in Sungai Buloh covering an area of 2,680 acres will be funded by EPF with RM10 billion over 15 years.

• EPF overseas investments will be increased from seven percent to 20 percent of total assets managed.

Investments

• GLICs (government-linked investment companies) will divest shares in major companies listed on Bursa Malaysia to increase liquidity and trading velocity.

• An International Board will be added onto Bursa Malaysia to increase foreign investment, especially to promote syariah-compliant products.

• The Bumiputera Property Trust Foundation will be launched to enhance bumiputera ownership of prime commercial properties in urban areas.

Corridor projects not forgotten

• Corridor and regional development will be accelerated with an injection of RM850 million.

• RM93 million will be allocated for Sarawak Corridor of Renewable Energy.

• RM133 million for Northern Corridor Economic Region.

• RM178 million for projects in East Coast Economic Region.

• RM339 million for Iskandar Malaysia in Johor.

New Private Pension Fund

• To revitalise capital market activities, the government will launch a Private Pension Fund in 2011.

• The existing income tax relief of up to RM6,000 for employees’ contributions to EPF will extend to Private Pension Fund contributions.

Funds to help businesses

• A RM146 million fund will be set up to support the oil, gas and energy industry.

• RM857 million will be allocated for local E&E (electrical and electronic) companies to compete at the international level.

• To help entrepreneurs that face financial problems, the Insolvency Act will be consolidated with the Bankruptcy Act 1967 and Part 10 of the Companies Act 1965, including the introduction of a provision relating to a relief mechanism for companies and individuals with financial problems. A review will also look to amend the current minimum bankruptcy limit of RM30,000.

Tourism

• RM100 million will be allocated to support the tourism industry.

• RM50 million to construct several shaded walkways in the Bukit Bintang-KLCC vicinity.

• A RM3 billion eco-nature resort Nexus Karambunai in Sabah will commence in 2011.

• RM85 million will facilitate construction of hotels and resorts in remote areas.

IT Development

• The Multimedia Development Corridor programme will be allocated RM119 million. Focus will be on creating an innovative digital economy.

• Import duty and sales tax exemption on broadband equipment will be extended for two years until 2012.

Minimum Wage

• A National Wage Consultation Council will be set up to determine the rate and mechanism of minimum wage for various sectors.

• The basic minimum wage for security guards is to go up to between RM500 and RM700 depending on location, compared to RM300 to RM400 previously.

• Fully-paid maternity leave for civil servants is to increase to 90 days compared to the previous 60 day.

• Levy on foreign workers is to increase in stages according to sector. Health insurance for foreign workers is now mandatory.

Training

• The Talent Corporation is to be set up under the Prime Minister Office in early 2011, that will formulate the National Talent Blueprint.

• A target to increase PhD-qualified academic staff to 75% in research units and 60% in other public institutions of higher learning.

• The 1Malaysia Training Programme will be launched in January 2011 with an allocation of RM500 million.

Sabah and Sarawak

• RM2.1 billion will be allocated to upgrade rural roads in Sabah and Sarawak, compared to RM696 million for Peninsula (Semenanjung) Malaysia.

• RM1.5 billion will be allocated to develop rural electricity and water supply in Sabah, with RM1.2 billion for Sarawak and RM556 million for Semenanjung Malaysia.

Allocation for Ministries

• RM15.86 billion will be allocated for the Prime Minister’s Department. The allocation was RM14 billion in 2009 and RM12 billion in 2010.

• RM29.3 billion for Education Ministry.

• RM10.2 billion for Higher Education Ministry.

• RM1.2 billion for Women, Family and Community Development Ministry.

• RM627 million for Human Resources Ministry.

• RM111 million for Permata (Pusat Anak Permata Negara).

Other salient points

• The scheduled hike in toll charges for four highways owned by Plus Expressways Bhd will be frozen for the next five years.

• A RM500 Special Financial Assistance for Civil servants Grade 54 and below, including contract officers and retirees. Payment will be made in December 2010.

• Maximum housing loan eligibility for civil servants will increase to RM450,000 from RM360,000.

• First-time homeowners will enjoy a 50 percent discount on stamp duties for homes below RM350,000.

• Young adults of household incomes under RM3,000 will be assisted through a first-home owner scheme where the government will guarantee a 10% down payment for homes below RM220,000. This means that house buyers will obtain a 100% loan without having to pay the 10% down payment.

• Malaysian permanent estate workers will get a maximum RM60,000 housing loan to buy low-cost houses at four percent interest rate, with a repayment period of 40 years extending into the second generation.

• Sales tax for mobile phones will be reduced by 10 percent.

• RM350 million will be allocated to boost efforts to cut down the crime index, and establish 25 special courts to expedite prosecution.

• Full import and excise duties exemption granted to franchise holders of hybrid cars will be extended to Dec 31, 2011. It extends also to electric cars and hybrid and electric motorcycles.

• Import duty on approximately 300 goods preferred by tourists and locals, currently at 5% to 30%, will be abolished.

• Service tax will be increased from 5% to 6%. The government proposes to impose service tax on paid television broadcast services.

• The excise duty exemption on national vehicles purchased by the disabled will go up to 100 percent from 50 percent previously.

• RM200 million will be allocated for the Distribution of Essential Goods programme, on top of the RM100 million allocation under budget 2010, to standardise prices nationwide for goods such as rice, cooking oil, sugar, flour, gas, petrol and diesel.

• 375 native English speakers is to be recruited from United Kingdom and Australia to improve the teaching of English.

• Monthly allowance of community leaders (JKKK, village heads, Tok Batin, etc.) is to be increased to RM800 from RM450. Meeting attendance allowance is also increased from RM30 to RM50.

• Imams’ allowance will be increased from RM450 to RM750, KAFA (religious school) teachers’ allowance also goes up to RM800 from RM500.

• RM1.9 billion will be allocated for environmental projects, including for the River of Life programme and the greening of Kuala Lumpur.

• A points system is to be introduced to facilitate permanent resident status applications, and applications can be made after five years of residence compared to 10 years previously.

Full text of 2011 Budget speech

Comment: The government rolled out a 2011 budget that skipped structural reforms demanded by investors and relied on infrastructure spending and raising incomes to fuel economic growth ahead of polls expected next year.

Prime Minister Najib Razak presented a budget plan that targets a 2.8 percent rise in spending and aims to shrink the deficit to 5.4 percent of gross domestic product next year from 5.6 percent this year thanks to sustained strong growth.

According to the plan, Southeast Asia’s third-largest economy is expected to grow 5-6 percent in 2011 after a 7 percent expansion this year and a 1.7 percent contraction in 2009.

“The trend of external trade is increasingly challenging, while there is heightened competition to attract foreign investment,” Najib told parliament.

“To rise to these challenges, the private sector must be dynamic, creative and innovative to drive economic growth.”

Malaysia need to reverse a sharp decline in foreign direct investment, which fell 81 percent to RM4.43 billion in 2009 from RM23.47 billion in 2008. Neighbouring Southeast Asian economies including Singapore, Thailand and Indonesia have outshone Malaysia with much higher inflows.

But analysts said the budget was more likely to please voters than investors.The plan raised the service tax to 6 percent from 5 percent, but sweetened it with a slew of measures targetting consumers, such as a five-year freeze on highway tolls, tax waivers on mobile phones and designer goods and stamp duty discounts for first-time home owners.

However, the RM212 billion spending plan was set to disappoint investors frustrated with lack of progress in reforms of Malaysia’s subsidies and its race-based policies, analysts said.

“A majority of the big foreign investors will be unhappy with the budget if he doesn’t give them anything in terms of real money,” said James Chin, a professor at Monash University in Kuala Lumpur.

Najib needs clear mandate

Najib needs strong economic growth to secure a clear mandate from voters to push through reforms considered crucial to win back foreign investors who increasingly skip Malaysia and head to other Southeast Asian economies.

Malaysia’s private investment grew only 2 percent on average between 2006-2010, and was expected to be 10.8 percent of GDP this year, rising to 11.3 percent of GDP next year.

The government set aside RM2.1 billion to develop rural roads and RM2.7 billion to supply water and electricity in Sabah and Sarawak, ahead of upcoming state elections in Sarawak.

A general election is not due until 2013 but some analysts expect Najib to call for snap polls as early as late 2011 to capitalise on recent strong economic performance and high approval ratings.

The government’s plan assumed a 5 percent cut in its subsidy bill next year, but was light on details on how it would achieve what analysts say is crucial to improve Malaysia’s economic competitiveness.

Malaysia subsidises items ranging from fuel to flour and sugar and subsidy costs would total RM23.7 billion or 4 percent of GDP next year, down from 4.6 percent of GDP this year.

“We are not dreamers. We are realists,” Najib told parliament. “We want to build a nation where every person will be able to enjoy the benefits of development.”

Anwar: Not a responsible budget

Opposition leader Anwar Ibrahim criticised the budget as a naked appeal for votes that failed to deal with the deficit, which will shrink only slightly.

“It is clearly not a responsible budget,” Anwar told AFP. “The focus on mega-projects will only benefit his cronies,” he said of the premier.

Malaysia recently announced ambitious plans to double private investment over the next 10 years, and to propel annual growth to an average of 6 percent to meet its goal of achieving developed-nation status by 2020.

Najib said that to attract foreign funds, government-linked companies – who have been blamed for suppressing competition – would divest their holdings in listed companies, increasing “liquidity and trading velocity in the market”.

There will be some major share offerings, including a sale of state energy firm Petronas’ chemicals arm, which is estimated to be worth RM12 billion.

Among the infrastructure projects, a government investment arm is to develop a 100-storey tower to be completed by 2015 at a cost of RM5 billion.It will be the tallest in Malaysia, exceeding the landmark Petronas Twin Towers. – Agencies