On Republican Tax Bill


November 4, 2017

The Donald Trumps Stand to Gain Millions from the Republican Tax Bill

 

Watching Paul Ryan and his Republican colleagues struggling to finish writing their long-awaited tax bill over the past few weeks brought to mind an adage attributed to Al Smith, the street-schooled New York politician who served four terms as governor, during the nineteen-twenties: someone is going to be cheated; the question is who. The Republicans—having committed to huge tax cuts for corporations, unincorporated businesses, and very large estates, while also pledging to help out middle-class households—were in a bind. According to some reports, they were trying to fit five trillion dollars’ worth of tax cuts into the $1.5 trillion allotment they had pencilled into their budget for 2018.

You don’t need to have gone beyond eighth grade, which is where Smith completed his formal education, to know that this was a tricky task. The size of the math problem helps explain why the bill unveiled on Friday morning by Ryan, the House Speaker, and Kevin Brady, the chairman of the House Ways and Means Committee, was so long (three hundred and thirty-six pages), complicated, and filled with the kind of accounting that would have fit in at Enron. But, despite its complexity, the basic thrust of the bill is straightforward: the Donald Trumps of the world get caviar; the ordinary person gets peanuts; and future taxpayers, who will bear the burden of all the new debt issuance necessary to finance the package, get shafted.

In announcing their bill, both Ryan and Brady claimed that a typical middle-class family, with two kids and about fifty thousand dollars in earnings, stood to save close to twelve hundred dollars in taxes. (To be precise: $1,182.) “This plan is for middle-class families who are living paycheck to paycheck,” Ryan said. The owner of a small business that makes sixty-two thousand dollars a year would save more than three thousand dollars, Ryan added.

Image result for Donald Trump the Tax Reformer

Donald Trump–The Tax Reformer–Making America’s Rich richer while the ordinary person gets peanuts; and future taxpayers get shafted.

Figures like these demand close scrutiny. In reducing marginal tax rates, doubling the standard deduction, and expanding tax credits for children and other dependents, the bill would benefit many middle-class households. But abolishing personal exemptions could hurt middle-class families who have a lot of children. As could eliminating the deductions for state and local taxes, health-care expenditures, and student-loan interest.

The treatment of state and local taxes, and the new limits the bill would place on mortgage-interest deductions, appear to be targeted at households in blue states, such as New York and California, which have high taxes and expensive real estate. No surprise there: it’s partisan politics. Other aspects of the bill would affect households everywhere. Unlike the tax cuts for corporations and other businesses, the tax cuts for families are temporary: after five years, they expire.

Without taking factors such as these into account, it is hard to reach any firm conclusions about what the bill means for middle-class families. (In the coming days, various tax experts will make some assumptions and produce over-all distribution tables.) But, in gauging how the legislation would affect corporations and very wealthy people, we can be definitive: they will benefit hugely. Despite the fact that the bill keeps the top rate of income tax at 39.6 per cent, it represents a big giveaway to the rich, particularly the very rich.

How so? The measure shifts the burden of taxation in the U.S. from corporations, which are largely run and owned by rich people, to households. It cuts the top rate on “pass through” business income—the sort of money generated by sole proprietorships, investment partnerships, and S-corporations—from 39.6 per cent to twenty-five per cent. And it phases out the estate tax, which falls most heavily on the largest estates, starting in 2024. Indeed, according to an analysis by the Committee for a Responsible Federal Budget, fully three-quarters of the over-all tax cuts in the bill are directed at businesses and large estates.

But that’s not all. The bill also repeals the alternative minimum tax, which was designed to ensnare rich people with clever accountants and a lot of sheltered income. In doing so, the bill creates enormous incentives for engaging in tax-evasion schemes, particularly the conversion of highly paid employees into unincorporated businesses.

To understand how all this could work in practice, it might be helpful to consider the case of a single very rich taxpayer (or non-taxpayer): Donald Trump himself. As I noted back in September, when the central proposals of the G.O.P. plan were already public, Trump stood to benefit in three different ways; that analysis has now been confirmed.

First, consider the abolition of the A.M.T. According to Trump’s 2005 tax return, parts of which were leaked earlier this year, he paid $38.4 million in federal taxes on income of $152.7 million, which means that his effective tax rate was about twenty-five per cent. But $31.3 million of his payment went to cover his A.M.T. liability. If there hadn’t been an A.M.T., he would have paid just $7.1 million, or about five per cent of his taxable income. To look at it another way, if this tax bill had already been in effect, Trump would have seen his tax bill reduced by more than eighty per cent.

Because Trump owns hundreds of unincorporated businesses, he also stands to be a big beneficiary of the new flat rate on pass-through income. In his 2005 tax return, he declared $67.4 million in income from “rental real estate, royalties, partnerships, S corporations, trusts, etc.” Since pass-through income is currently taxed like salary income, income of this sort would theoretically be subject to the 39.6-per-cent top rate. In actual fact, Trump offset much of this income by itemizing a huge, unexplained loss that was probably carried over from the early nineteen-nineties. But when those carryovers eventually run out, as they probably have by now, Trump will have a great deal of pass-through income to pay tax on. Thanks to the Republican bill, he’d pay a rate of just twenty-five per cent.

Finally, there is the abolition of the estate tax. To be sure, Trump may have already taken precautions to avoid the estate tax, by, for example, setting up specialized family trusts. But if he lived another ten years and then left his heirs, say, two billion dollars of unsheltered assets, then, under the current system, they would face a federal tax bill of eight hundred million dollars. Under the Republican bill, that liability would disappear.

The tax affairs of very rich people are all differently arranged, of course. But in some ways Trump’s finances are fairly typical. He earns most of his income from businesses. He already exploits the tax system to the max. And he has benefitted enormously from the great asset-price boom of the past twenty years. On Thursday afternoon, he said the Republicans were giving the American people a “big, beautiful Christmas present.” For some reason, he didn’t explain that the biggest presents, by far, would be handed out to people like him.

Lim Kit Siang’s Take on Najib Razak’s So-Called Mother of All Budgets 2018


November 2, 2017

Lim Kit Siang’s Take on Najib Razak’s 2018 BudgetThe So-Called Mother of All Budgets

The Budget is a tool or instrument for presenting a statement about the state of the economy, its prospects, and policy announcements for improving governance. A well-crafted budget statement should be an objective and honest presentation meeting the goal of accountability.

Sadly, the budget he (Najib Razak) presented fails these basic tests. His speech of almost 12,000 words was more akin to a laundry list of giveaways, expenditure allocations both real and imagined, and vague statements about the economic consequences that would result.–Lim Kit Siang

http://www.malaysiakini.com

MP SPEAKS | Prime Minister Najib Razak described Budget 2018 being about “gifts, rewards and incentives.” It is a most mistaken view.

The Budget is a tool or instrument for presenting a statement about the state of the economy, its prospects, and policy announcements for improving governance. A well-crafted budget statement should be an objective and honest presentation meeting the goal of accountability.

Sadly, the budget he presented fails these basic tests. His speech of almost 12,000 words was more akin to a laundry list of giveaways, expenditure allocations both real and imagined, and vague statements about the economic consequences that would result.

The speech omitted any reference to urgently needed policy changes to restore the competitiveness of the economy that would enable the nation to escape the middle-income trap it finds itself in. The speech was silent about measures to correct the stagnation in real income, and address the looming danger associated with the mountain of debt – public, corporate and household.

The budget has been turned into an unabashed and irresponsible first salvo in the campaign for the 14th General Election. Page after page of the speech detailed expenditures and proposed allocations; no group was ignored in the largesse being extended.

Najib’s laundry list of giveaways, expenditure allocations both real and imagined, and vague statements.-2018 BUDGET

Little was said about how the proposed expenditures were designed to advance the overarching economic goals; no reference was made to how the addiction to deficit spending was to be overcome.

The projected deficit was itself a meaningless figure as the profligate spending in some measure would be financed outside of the budget, and nor did the PM in his speech or in the economic report provide details about the level of contingent liabilities or the new liabilities being assumed.

Electioneering

The PM chose to describe the budget as the “mother of all budgets”. Ironically, he was on target as this budget was an exercise in deception and was an unvarnished sales pitch seeking votes in the upcoming election.

Najib’s claim about “good news” needs to be taken with a large pinch of salt. The reality is that the news as reported in the budget statement is more in the nature of “fake news”. The budget framework is built upon dubious interpretation of statistical data in a highly selective manner.

The PM gloated over the growth numbers but was being selective. He failed to make any reference to issues of a structural nature raised by the World Bank and the International Monetary Fund (IMF) in particular in the latter’s Annual Article IV Consultations and reported on its website.

Economic growth rates

Najib also made much about the revised growth rates issued by the International Financial Institutions and attempted to claim credit. He omitted to indicate that the revisions pertained to almost all countries – Malaysia being one in the group.

The revised growth rates should not therefore be interpreted as an approval of the competence of the government in managing the economy. Growth rates are revised to be higher because of global economic developments, primarily resulting from changes in monetary policies by the US Federal Reserve Bank and its counterpart the European Central Bank, and the partial recovery in prices for oil and gas.

The PM has been selective in the use of data. This is best illustrated by his use of the year 2009 as the base for measuring change. There is no rational reason for this choice other than an attempt to glorify his own tenure of office. It is also pertinent to note that 2009 marked a global recession. The choice of this low base amplifies the recovery in the years since.

Najib, however, chooses to remain silent about the negative developments, for instance, in the losses in the country’s external reserves (from a peak of US$ 140.0 billion in 2012 to US$101.2 billion in Sept 2017; total reserves as a percentage of external debt fell from a high of 121.1 percent in 2007 to 47.2 percent in 2016 or the decline in the value of the ringgit from US$1 = RM 3.34 in 2007 to US$1= RM4.20 in September 2017. These are not indicative of “efficient governance and prudent discipline” as he claimed.

Putrajaya’s fiscal situation

For two decades the government has operated with a deficit; the reported federal government debt now approximates 55 percent. Additionally, the Putrajaya has concealed its borrowings and the true size of its debt by making government-linked companies and other quasi-government entities undertake borrowings to finance public sector projects under the guise of so-called public-private projects.

The government has, at the same time, accumulated large hidden contingent liabilities by extending guarantees for borrowings by GLCs and other entities.

The fiscal situation has been worsened by corruption, mismanagement and other abuses including non-competitive acquisition of goods and services. The absence of competitive bidding results in price distorted costs. Tax revenues have been eroded by way of so-called “incentives” extended to government cronies without resulting in any discernable rise in private investment.

NEM goals

The reference in the speech to the New Economic Model (NEM) is more in the nature of a throwaway remark.

Certain clear-cut goals and policies adopted at the launch of the NEM have fallen by the way side. It should be recalled that there was a commitment to pursue further privatisation of the government’s non-financial public enterprises and reduce the government’s holdings in the GLCs which in reality function as state-owned enterprises.

It is significant that the speech contained no reference to the pursuit of these stated goals.

The findings from a recent highly professional study led by Terence Gomez has highlighted the dominant role played by GLCs in almost all sectors of the Malaysian economy, from aviation, banking, manufacturing, plantations to various modes of transportation.

In 2013, a total of 455 companies (including subsidiaries) were classified as government-linked investment companies (GLICs). There were 35 publicly listed companies which were among the top 100 companies listed on the Bursa Malaysia. The latter account for an overwhelming percentage of the capitalisation of the exchange.

Without a doubt, the government’s footprint is large in the business and commercial sectors. The entities in question act as monopolies or privileged entities, thus stifling private enterprise. This has led to flagging private investment despite tax and other incentives.

Of late several entities (e.g., Mara, Felda, Tabung Haji) have become mired in financial scandals. There is little or no accountability by such entities.

Furthermore, it is strange indeed that while Malaysia as a upper middle income country seeks to attract FDI flows, yet government linked agencies are currently exporting capital. These endeavors taken represent contradictions. But, more troubling is the fact that they give rise to abuses and corrupt practices.

The claims of successes in employment creation merit comment. While indeed some 2.3 million jobs have been created in the past eight years, most of these have been low paying jobs with many filled by migrant workers.

Serious shortages of skilled workers exist; paradoxically the brain drain continues unabated. These labor market developments along with the stagnation in wages are indicative of a failed set of policies that are contributing to the loss of competitiveness and entrapment as a middle-income country.

The self-congratulatory remarks about export growth are yet another example of delusion. While the current level of exports are expressed in ringgit terms, the PM has chosen to ignore the fact that he is comparing values based on different exchange rates.

The comparison of international reserve levels is rather devious – this is the only comparison linked to 1997!

The reporting of an increase in income per capita from RM27,819 in 2010 to RM49,713 in 2017. This trend is contradicted by the World Bank as the following numbers show:

The significance of these numbers points the extent to which Malaysia is lagging in terms of achieving “high income” status which in 2016 was set as income levels in excess of US$12,235.

Indeed, taking account of the current level of GNI per capita, projected exchange and growth rates, it is patently clear that the much-touted goal of achieving “high income” status by 2020 is a fading dream.

Budget allocations

The budget allocations for 2018 are projected at RM280.25 billion, an increase of RM20 billion, with RM234.25 billion for operating expenditure and some RM46 billion for development.

While further details are highlighted, Najib chose to be silent about a large item, namely debt service which amounts to 11 percent of the operating expenditure. The increased allocations are largely to restore cuts that were imposed earlier in the year.

Revenue collection in 2018 is projected at RM240 billion, an increase of approximately nine percent from RM220 billion in 2017.

No details are given either about the sources of revenue, or the amounts reduced by way of tax cuts and exemptions. The projected growth lacks credibility given GDP growth rate, reductions in revenue attributable to the exemptions from GST granted for big ticket items alongside the reductions in income tax rates.

In brief, the rosy estimates of modest growth in expenditure coupled with unrealistic levels of revenue receipts follow a pattern. Revenue projections are pitched high whilst expenditures are restrained in the budget.

Thus, there are inevitable supplementary expenditure requests later in the year. These approaches in budgeting enable the government to put out massaged numbers for the deficit. These practices appear to be sharpened in the preparation of the 2018 Budget.

Lip service was paid about fiscal consolidation without mention of how the PM proposes to reduce debt levels. While he was upbeat about all manner of “progress”, no mention was made about the record concerning deficits. It is noteworthy that it is now more than 20 years since Malaysia enjoyed a budget in surplus.

Once again total debt along with contingent liabilities will rise in the year ahead. These will represent burdens passed on to future generations. With an ageing population, the burden will be all the greater. The nation’s long-term interests are being sacrificed for short term political gains.

The claim that this budget will chart the course for building the nation for the next 30 years is a farfetched assertion. This is all the more questionable considering the fact that the Budget hardly lays out any long- term policies and goals but is only concerned with the “here and now” issues assumed to be of interest to a highly jaded electorate.

Rewriting history

Most remarkable, however, is the PM’s assertion: “Since we declared Independence, we have been fortunate as our forefathers have governed and administered this country embedded with shariah requirements”. Najib appears to be rewriting history by ignoring the fact that the country adopted a secular constitution and up until recently shariah played no major role in administration.

To claim that for six decades a shariah framework has operated with the federal constitution playing a secondary role is an outright distortion of the facts. The formulation used by the PM ought to raise a red flag about his coalition’s intentions regarding the status of the Constitution.

While acknowledging that “the framework has not been written in any government documents, but its practices are reflected in all inter-related national philosophies and policies” Najib appears to be outlining a position that the government will adopt in the event it is returned to power. It is thus a signal of how the secular federal constitution will be further sidelined.

Trends in investment

The PM set out several targets dealing with investment and trade. The statistics about trends in investment were selective.

Once again by choosing a low bench mark year (2009), a year that recorded a global recession, and inflated targets for 2018, he attempted to project progress.

These statistics appear impressive in attributing performance of private investment. A closer review, however, paints a different picture.

Given that the GLCs dominate the private sector, and that they largely operate as SOEs, much of the “improvement” can be attributed to government initiatives handled by these entities.

The process permits the government to by-pass concerns about the debt ceiling and at the same time permit nefarious projects as evidenced by the 1MDB saga.

The trends in private investment are erratic as inappropriate policies and political uncertainties have impacted on private investment, both domestic and foreign. The failure to announce corrective policy measures will result in sluggish investment patterns along with continuing outward capital flows

Passing reference is made in the 2018 Budget to accelerating exports. However, no indication is given as to what policies will be introduced to develop capacities in new products and promoting industries involving new technologies for instance the use of artificial intelligence.

No mention is made about how the government proposes to deal with the withdrawal of the US government from the TPPA; the PM was silent about what posture it intends to take viz. other trading arrangements within ASEAN or with the EU and the China-led proposals for a regional trade arrangement.

The claim that “…for the first time in the history of the nation’s budget…” a large allocation “is provided to assist farmers, fishermen smallholders and rubber tappers” appears to be a most strange claim. Every Five-Year Plan, every budget over the past six decades has contained allocations for these groups; it is disingenuous indeed to make claims that are short on a factual base.

 

The mega rail transportation projects that have been announced raise multiple concerns. For a start, cost benefit and feasibility studies have not been disclosed, assuming these have been done.

It is worthy of note that the projects will be financed by loans from China; the terms of these loans have yet to be announced. Reports in the media appear to suggest that major parts of these projects will be assigned to China’s enterprises who will invite some Malaysian entities to collaborate.

Najib evaded the entire issue of port expansion using loan funds in the face of overcapacity in the nation’s major port, Port Klang, following the departure of a major user. Many of the other transportation projects highlighted in the speech will not be financed from the Federal budget.

The following quote from his speech is most remarkable – it projects self-glorification and is somewhat insulting of past holders of the office of Finance Minister:

“This Budget that has never been crafted so well, even during the last 22 years or the past 60 years of our own nation, and marked in history, making this Budget the Mother of All Budgets.”

Ironically, this Budget may indeed qualify as the “mother of all budgets” for reasons other than those offered by the PM. The speech represents an open attempt to create fake news in pursuit of gaining credibility with an electorate that is largely disenchanted by the workings of a government tarred by endless scandals, led by someone viewed as a kleptomaniac.

The current budget also qualifies as such for its extensive giveaways, without a realistic vision or any demand for sacrifices. It provides no coherent strategies to permit the nation to escape the middle-income trap.

Malaysia urgently needs a course correction if it is to regain dynamism to enable it to move forward on the road to greater prosperity.


LIM KIT SIANG is DAP Parliamentary Leader and MP for Gelang Patah.

 

Malaysia: The Huff and Puff of Budget 2018


October 29, 2017

Malaysia: The Huff and Puff of Budget 2018

Image result for Najib and Zahid at Budget 2018Two Jokers in a Unity Pact to safeguard a kleptocratic and corrupt Malay-centric regime with 2018 Budget Proposals

 

COMMENT | Prime Minister Najib Abdul Razak and his team should learn how to manage public perception, than recycling year after year the same huffs and puffs that will just fade away after the general election.

Right after the election, we will again see the likes of minions Jamal Md Yunos (UMNO Sungai Besar division leader) and Gerakan Merak leader Mohd Ali Baharom (known also as Ali Tinju), veteran Abdul Rani Kulup, lecturer and Muslim convert Redzuan Tee Abdullah, Perkasa’s Ibrahim Ali, Isma’s Abdullah Zaik and extremists like Zakir Naik, becoming the heroes.

There will be others like the self-styled “Raja Bomoh” Ibrahim Mat Zin who hog the headlines. So far, Ibrahim has never been prosecuted despite appearing on the grounds of the Kuala Lumpur International Airport and making a nuisance of himself.

Image result for Hussain Najadi murder

To date, the investigation into the protest over a cross erected by a church in Taman Medan has not proceeded any further. What about the probe into people missing in action, such as Pastor Raymond Koh and several others? What about the death of Teoh Beng Hock and former customs officer Ahmad Sarbani Mohamed and the murder of banker Hussein Najadi?

What was the motive behind the killing of former Mongolian model Altantuya Shariibuu? Who was behind the Scorpene submarines scandal and after Abdul Razak Baginda was charged in France, why have investigations on the Malaysian side stalled? Who was behind the death of deputy public prosecutor Anthony Kevin Morais?

Instead of prosecuting people for their wrongdoings, we see the MP of Batu, Tian Chua agreeing to go to jail over a small matter which could have been solved at a personal level and coming out more as a hero of the people.

There will then be the same old issues again – the banning of use of the term “Allah” by non-Muslims; stateless Indian children; Chinese schools being threatened to be closed down; the likes of Abdullah Hussain’s book “Interlok” where Indians were called by names; and yes, a thousand and one issues that UMNO and its proponents would try to harp on.

Ordinary Malaysians like me are already fed up with all the polemics by now because the leaders have lost their credibility. A decision would have been made a long time ago.

We can only wait for the coming general election, when we will come out once again in droves like in the previous general election.

Outstanding problems

Image result for 1mdb

That is why despite all the huffs and puffs of the budget, we know it will not bring the country forward. While we will take what is rightfully ours, most of us look at the 1MDB scandal as the bigger problem that Najib has failed to solve.

For a long time, the Chinese community have been harping on the need for more Chinese schools. However, the Ministry of Education has been moving snail-slow on approval of the Chinese schools.

Applications for a new school have gone into a “black hole”. When I showed the news about 10 new Chinese schools being greenlit by Putrajaya to the chairperson of the board of governors of the affected school, he merely said, “Year after year, election after election, it is nothing but empty promises”.

Image result for tan sri ramon navaratnam

Economist Ramon Navaratnam@ASLI Public Policy Studies

Chairperson of ASLI’s Centre for Public Policy Studies, Ramon Navaratnam, pointed out to me that Sekinchan has had the most productive paddy growers in the country.

“Yet, they are not given the incentives to become even more productive,” he said. “The government should focus on the strengths of each community and boost their productivity even further.”

Licenses for fishing are given to cronies when the fisherpeople themselves are unable to get more licenses. With these cronies and Ali Baba licence holders, the prices of goods rise. The real beneficiaries are not the fisherpeople themselves, but some cronies.

Likewise, I pointed out the plight of taxi drivers in this country. Although mostly Bumiputera, they too have been earning pittances. Now with Uber and Grab, who is most badly hit? Taxi licenses should not be given to a consortium, but to individual taxi drivers to motivate them to work even harder.

According to Ramon, budget proposals must address the “structural problems of low productivity, rising unemployment, inflation, the weak ringgit, the brain drain, sustainability and the fight against extremism and bigotry.”

As fellow columnist R Nadeswaran rightly put it, “The prime minister, his ministers and the government must stop treating Malaysians as fools by making all kinds of statements which more than not, appear like a page from Grimm’s Fairy Tales”.


STEPHEN NG is an ordinary citizen with an avid interest in following political developments in the country since 2008.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

Minister of Finance Inc–Are all GLICs and GLCs financially solid?


October 24, 2017

Malaysia’s Minister of Finance Inc.–Can Malaysians be assured that all GLCs and GLICs are financially intact?

Image result for Malaysia's Financial Scandals

By The Sarawak Report

Can Malaysians reassure themselves that, although their over-powerful Prime Minister set up a giant slush-fund to finance vote buying and a hoard of diamonds for his wife (1MDB), the rest of their public institutions remain financially intact?

This week opposition MP Rafizi Ramli exposed the latest in a string of troubling irregularities to beset a second government-managed fund, FELDA, set up to support the rural farming communities.

The Kensington Grand Plaza Hotel in London is already part of a major investigation into FELDA given that it was bought way over market price in 2014 (RM330 million allegedly three times its actual value) and fits a pattern of other spectacularly over-priced foreign property purchases by FELDA – deals which always seemed to benefit Najib’s cronies.

Now Rafizi has revealed that the fund was shockingly misleading in its financial reporting of these deals. Public financial statements are supposed to be audited ‘bibles’ of truth and rectitude and yet FELDA published untrue information.

According to the MP, FELDA’s latest financial statement asserts that the hotel is managed by Grand Plaza Kensington Ltd, but owned by FIC London Hotel (Pte) Ltd. Crucially, says the MP, the statement goes on to say that both of these companies are based in the UK and are owned by the Felda subsidiary, Felda Investment Corporation Sdn Bhd.

This is not true, the MP has discovered. FIC London Hotel (Pte) Ltd is not based in the UK, since there is no mention of it on the UK Company Register. In fact, the company was incorporated in the British Virgin Islands, which is an opaque off-shore dominion that is regularly used by entities who do not want ownership details to be revealed.

So, first the FELDA management lied and then they hid the ownership of the over-priced hotels. Worse, the accountants who presumably signed off these statements clearly failed to check even these most basic and public factual errors.

The MP made this announcement at the start of the week and says he has so far received no response from FELDA. He has therefore come up with further information, this time from the BVI Company Register, which provides (at great expense and considerable inconvenience) three pieces of information about companies incorporated on the island: namely, when they were set up, who the agent is and if and when they cease to be active.

Rafizi has found out that FIC London Hotel (Pte) Ltd ceased to be active in BVI in May last year. The reason being that it was struck off for failing to pay its company fees. So what, he rightly asks, has become of the ownership of this multi-million ringgit ‘public’ asset?

Image result for Malaysia's Financial Scandals

 

The former Chairman of FELDA, Isa Samad, was picked up, questioned and then let go by the MACC (Malaysian Anti Corruption Commission) over matters to do with this and a number of other similar ‘investments’ last month.  These were all related to the fund’s notable foreign property spree that began in 2012 (after billions had been made from a stock market floatation promoted by Finance Minister Najib). These include the Merdeka Palace Hotel in Kuching, which was previously owned by some of Chief Minister Johari’s closest associates and one of his sons and also the Grand Borneo Hotel in Sabah.

Najib’s own personal involvement in such dealings has been most evident in the forcing through of a massive purchase by FELDA of a controversial oil palm plantation in Indonesia, Eagle High Planations, at way above market price from a known business crony of his, Peter Sondakh.

After subsidiary Felda Global Ventures had pulled out of an original $700 million investment into the loss-making concern, following a wave of negative publicity, the new Chairman of FELDA, Najib’s political crony and cousin Shahrir Abdul Samad, went ahead with a half billion dollar purchase of 39% of the company earlier this year.

The result of this astonishing profligacy and mis-management is spelt out through the plummeting value of FELDA’s shares, which have dived to one fifth since the stock market launch in 2012, which released the enormous sum of money that has thus been squandered and apparently lost. This was how Shahrir Abdul Samad himself summed up the situation when he first took over the fund in May:

“Felda received RM6 billion from the listing of FGVH which is Felda’s business asset. From that amount, we have spent RM1.7 billion as windfall,” Shahrir was quoted saying…Shahrir said Felda awarded settlers and their families RM15,000 for each household, leaving behind a balance of RM4.3 billion.

So where did this RM4.3 billion go? I think this has frustrated settlers who are very close to Felda … who admire the role of Felda … I think they have been disappointed,” Shahrir said.

The point being that the value of the shares which FELDA settlers received in return for handing over their lands to the government controlled fund has adjusted from RM5.4  each at the time of the sale to a present RM1.5.  Meanwhile, the RM4.3 billion raised from the world’s second biggest ever share sale has, according to the Chairman, disappeared.

Tip of The Iceberg?

FELDA’s own Chairman has said it all. The settlers were lured by that original ‘windfall’ of RM15,000 ringgit, in the same way a poor villager sells his vote for RM50.  In return for shares, which are now relatively worthless, they handed over something far more valuable: control over their plantation land and the market capitalisation, now spent goodness knows where.

All this corruption in high places has unravelled since the original scandal broke over 1MDB at the start of 2015. A further enormous scandal has been associated with another publicly managed fund, namely Tabung Haji.  The pilgramage fund was discovered to have bought out properties given to 1MDB for ludicrously over-valued amounts, apparently to help 1MDB’s managers cover up the loses caused by thefts from that fund.

At the time, when the scam was exposed, the Prime Minister/Finance Minister Najib, assured the pilgrims, who had devoutly saved money with Tabung Haji to afford their trips to Mecca, that Tabung Haji would be able to sell on the properties within a month for a large profit – they were not to worry, as there were three major buyers vying for the opportunity.

It is no surprise, surely, that the sale never took place and that now Tabung Haji has announced it will instead ‘develop’ the land it cannot sell.

Likewise, when the Governor , Bank Negara Malaysia alerted this pilgrimage fund that it was investing in yet another dangerously loss-making crony project and advised that a financially aware person was needed on the Board (as opposed to the political cronies that Najib had so far appointed e.g. the bogus-degree holding Chairman Abdul Azeez of ‘Preston’ University) Najib instead placed none other than his pet Attorney General and former judge Apandi Ali – with no business brain at all.

What it all this tells Malaysians is that, unsurprisingly, the Prime Minister who presided over 1MDB has also presided over the extraordinary looting of both FELDA and Tabung Haji.

What Lies Beneath The Water?

Image result for Terence Gomez-Minister of Finance Incorporated

So, what else in the way of public money could likewise have been looted and raided?  The terrifying answer for Malaysians lies in a book published by a Malaysian academic just last month called ‘Minister of Finance Incorporated‘.

This factual examination of the extent of the powers of the one man, who holds the two key offices of state, through the Ministry of Finance and Prime Ministership, shows just how much of the country’s economy has fallen under the control of a single decision-maker, who if so-minded, could therefore drive the welfare of all Malaysians and their descendants into disaster virtually unchecked.

The problem (although it is carefully not described as such by author and researcher, Dr. Terence Gomez of the University of Malaya) is that Malaysia’s largely resource-based economy is predominantly under government ownership. Furthermore, the funds that manage the pensions and savings of the population, not just government workers, are also unusually managed by the government rather than independent businesses or trusts. Furthermore, these funds now control most of the private sector businesses on top.

It gets worse. Thanks to the growing centralisation of political power that has taken place in Malaysia, as a result of 60 years of one party rule, the control over these government managed companies and funds and private businesses has accumulated into the hands of just two major office-holders. The Prime Minister and the Finance Minister.

In Malaysia the final step towards total centralisation of economic and political power came with the astonishing merger of these two offices into the hands of a single politician, who is also the President of UMNO which is the party that has inserted its senior members into all the leading decision-making posts in government and coporate posts throughout Malaysia.

So it is that Malaysia is a ‘democracy’ which is run like a old fashioned Soviet party-based economy.

Since the checks and balances have been eroded, thanks to 60 years of uncontested single party rule (a world record), it leaves the economy open to a frightening situation.  If the man in charge is not to be trusted when it comes to money; if he has criminal tendencies, for example or feels he needs a lot of money to keep control through bribery of those party placemen, through whom he runs the country, or if he has a particularly greedy and wasteful family, then Malaysians have good reason to be very scared indeed.

The Extraordinary Power of MO1

Najib, through his inherited offices of state, controls the management of the key Government Investment Companies (GLICs) namely MoF Inc, Khazanah, PNB, EPF, KWAP, LTH, LTAT, FELDA, which in turn have invested in a substantial number of Malaysia’s most important private enterprises, giving him immense power over decision-making in the private sector as well.

Thirty five of these so-called GLCs (Government Linked Companies) feature in Malaysia’s top 100 companies on the Malaysian stock exchange, according to Professor Gomez. They account for nearly half of Malaysia’s entire market capitalisation of listed companies.

Huge and supposedly independent investment funds, such as the Employee Provident Fund, PNB and Khazanah are also ultimately subject to the Minister of Finance, owing to the legislation under which they have been structured – legislation brought in or altered by a self-interested political party, which has never given up its political power.  For example, the Minister of Finance controls MoF Inc, which wholly owns Kazanah and holds a ‘Golden Share’ over the vast investment fund PNB.

The Employee Provident Fund (EPF) asserts its independence and yet the entire Board and its CEO are appointed by the Minister of Finance himself. So, little surprise that Najib felt able to promise Donald Trump last month that he would make sure the fund invested in the United States to ‘help make America great again’.

Likewise the pension fund KWAP and likewise Tabung Haji and likewise FELDA.  Other major agencies also dominated by the Government, such as MARA, which reports to the Minister of Rural and Regional Development, are also ultimately controlled by Najib, in that he can hire or fire the minister concerned.

Malaysians have become used over the years to seeing these institutions relatively well run by reasonably diligent professionals. However, the increasingly centralised structure of Malaysia’s ruling UMNO party has created a dangerous weakness that many are only just beginning to wake up to. What if the man in charge goes ‘rogue’?

It happens, ask the world’s greatest democracy, America, which is now reining in their President, thanks to Congress, the Senate and independent Departments of State. You need institutional checks and balances to make sure that what the ‘man in charge’ says he will do is what he actually does.

Najib, back in 2011, announced he was going to open up Malaysia’s economy and divest the Government’s excessive involvement and control over even the private sector.  At the same time he promised the liberalisation of civil society. It did not happen.

According to Professor Gomez, in terms of the economy the reverse has happened: the Government’s share of the KL Composite Index has increased from 43.7% to 47.1% – an extraordinary figure.

All Audited And In Safe Hands?

Malaysians have learnt about what Najib was willing to sanction with 1MDB, where money ended up in his own accounts. They have learned how he has also sanctioned devastating losses at FELDA to mysterious destinations and plain cronies. They have also seen exposed a shocking raid on the pilgamage fund of Tabung Haji.

In all these cases, top firms of accountants were supposedly monitoring events. ‘Independent’ boards, the Auditor General and Bank Negara Malaysia were also supposedly making sure that nothing was untoward (all are appointed by Najib).

In 2015 and 2016 Najib declared that nothing could have possibly gone wrong at 1MDB because its accounts were passed by ‘top international auditors’. Yet in 2016 the fund’s then current auditor, Deloittes, resigned in the face of the finding of international investigators and declared its earlier accounts “unsafe”.

So, how safe is the rest of that edifice of Government-managed funds and companies, controlled ultimately by Najib – a man on the hunt for money, with thousands of party hangers-on to pay in order to keep his dominant position?

Do the public or even the hired accountants and placed board members know the truth about what Najib’s personally appointed administrators are up to? And how reliable are all those Financial Statements after all?  The evidence so far is troubling.

Given this situation we think it is fair to ask, is 1MDB just the tip of the iceberg, with the FELDA and Tabung Haji scandals now also floating to the top – if so, what horrors lurk below?

Maybe there are still some Malaysians, who think that Najib’s malign and greedy influence has not strayed beyond these existing scandals. If so, we shall soon find out if they are right, because if the money has indeed disappeared from other funds in the manner of 1MDB then the dire consequences will be shortly felt by each and every citizen (apart from the handful who made off with it all).

Malaysia’s Finance Minister’s free spending ways and the national debt


October 24, 2017

Malaysia’s Finance Minister’s free spending ways and the national debt

by Jomo Kwame Sundaram and Raisa Muhtar

http://www.malaysiakini.com

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COMMENT | Malaysia has a problem with debt. Government debt is about 53 percent of GDP, just below the already increased 55 percent debt-to-GDP ratio threshold. The big jump in such government debt from 41 percent in 2008 to 53 percent in 2009 followed the last change of Prime Ministers.

Recently, the government has been borrowing from abroad at an unprecedented pace. The latest level has been attributed to the increased domestic debt of RM15.8 billion and additional foreign debt of RM2.2 billion last year.

Also, by encouraging Malaysian investors, both private and public, to invest abroad, and by sharply increasing borrowings and portfolio investments from abroad, the country has unnecessarily become much more vulnerable to international financial volatility and instability.

Contingent liabilities

Contingent liabilities refer to debt commitments related to government guaranteed loans. With contingent liabilities growing rapidly, the overall consolidated public sector debt-to-GDP ratio has risen to 68 percent of GDP.

These have risen sharply, with government-guaranteed liabilities rising to RM195.7 billion, or 15.2 percent of GDP in 2016, from 12.8 percent in 2011, an increase by almost a fifth. Observers are concerned that pre-election ‘projects’ are causing a new debt spike in 2017.

An unexpected shock to growth, an increased interest rate in the West (e.g., with the end of ‘quantitative easing’ [QE]) or the sudden exit of foreign portfolio investments would all threaten the Malaysian economy due to its greater self-induced vulnerability.

Most current contingent liabilities abroad have been accrued after the last prime minister’s tenure. Abdullah’s reduction of the budget deficit bolstered the country’s debt ratings, making it cheaper for the federal government and government-linked companies (GLCs) to borrow overseas at a time of QE-induced low-interest rates in the OECD economies.

Such debt has more than doubled since Prime Minister Najib Abdul Razak took office in 2009, as government-related entities borrow abroad to fund infrastructure projects and ventures such as 1MDB. This is quite unprecedented as most new foreign borrowings have not been invested in ways likely to generate foreign exchange earnings.

Such government spending is needed to sustain growth, but all too often, has been abused to fund large-scale projects for crony companies (‘jobs for the boys’) with ‘kickbacks’ for key decision makers. The growing burden of such debt is inevitably borne by taxpayers.

PPPs: Public risk, private gain

Malaysia’s relatively high contingent liabilities include those due to public-private partnerships (PPP) where the government or GLCs bear the bulk of the risk, while the lion’s share of profits typically goes to the crony private partner.

DanaInfra Nasional Bhd (MRT), the company created to fund infrastructure projects, recently recorded a 43 percent spike in such liabilities!

Meanwhile, contingent liabilities associated with 1MDB’s default in August have been estimated at 2.5 percent of gross domestic product (GDP). According to Moody’s Ratings Services Vice-President Christian de Guzman, 1MDB, which defaulted after missing a bond repayment deadline, raised the risk for contingent liabilities the government is exposed to, increasing the cost of government debt from abroad.

Recently, Malaysian authorities established the Fiscal Risk and Contingent Liability Technical Committee to evaluate the government’s fiscal risks and to propose appropriate measures to address them. After failing to meet previous targets, the authorities have promised, yet again, to achieve ‘near-balance’ for the federal budget by 2020.

But such promises may not have renewed confidence, especially as the deployment of borrowed funds by 1MDB and some other GLCs has not convinced the market that public finance management in Malaysia is improving irreversibly.

JOMO KS and RAISA MUHTAR are Malaysian economic researchers.

Najib Razak’s Gua Tolong Lu, Lu Tolong Gua Survival Economics


October 22, 2017

Malaysia’s Economic Policy--Najib Razak’s Gua Tolong Lu, Lu Tolong Gua Survival Economics

by MP Liew Chin Tong@www.malaysiakini.com

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MP SPEAKS | The suffix “-nomics” is a popular media term to denote a certain type of economic idea or just a form of ridicule against political rhetoric.

“Najibnomics” is an attempt to show off Najib’s set of clearly articulated economic ideas to drive the nation forward. But is it even real?

On October 27, 2017, Prime Minister Najib Abdul Razak in his role as finance minister will present his ninth Budget to the Parliament.

Najib took over from Abdullah Ahmad Badawi as Finance Minister following a tense negotiation on September 17, 2008.

The 2009 Budget was presented by Abdullah on August 29, 2008. Najib then succeeded Abdullah as prime minister on April 3, 2009.

The only time Najib was close to articulating a framework was during the launch of the now defunct (and discredited) “New Economic Model” on March 31, 2010, a year into his premiership.

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In a recent interview with Malaysiakini, Professor KS Jomo (photo) had this to say about the New Economic Model:

“Let us be clear about this. The New Economic Model, or NEM, is really a wishlist of economic reforms desired from an essentially neo-liberal perspective. That does not mean it is all good or all bad. It contains some desirable reforms, long overdue due to the accumulation of excessive, sometimes contradictory regulations and policies.

“Although the NEM made many promises and raised expectations, most observers would now agree that it has rung quite hollow in terms of implementation despite its promising rhetoric. As we all know, the NEM was dropped soon after it was announced for political reasons, and has never been the new policy framework it was expected to be.”

I share Jomo’s sentiment that NEM was more or less a wishlist from the neo-liberal perspective. But at least there was a plan.

New Economic Model, RIP

Three key takeaways from NEM are worth noting.

First, Malaysia could no longer depend on just capital investments, be it foreign or local, or having more foreign unskilled labour. What is required is productivity through innovation.

Second, social inclusiveness was one of the three key pillars in the NEM. The other two being “high income” and “sustainability”.

“Inclusiveness” is World Bank’s shorthand for “inequality”. Even in 2010, it has been identified that inequality is one of the major concerns that the Malaysian economy has to confront.

Third, NEM argues that more economic decision-making powers should be devolved to state and local governments, and not concentrated in the hands of the central government.

Worse still, economic decisions are increasingly concentrated in the hands of Najib himself, bypassing the cabinet entirely.

The key recommendations of NEM are listed as follow:

Not that I agree with NEM entirely, but, again, there was a framework and a plan.

Less than three months after the launch of NEM, Najib presented the 10th Malaysia Plan, prepared by the Economic Planning Unit of the Prime Minister’s Department, in June 2010.

NEM was prepared by a group of senior economists with relatively broad-based consultations with the wider society.

The Malaysia Plan has become a bureaucratic routine. The two documents – NEM and the 10th Malaysia Plan – did not seem to “talk” to each other.Najib has no conviction. He has no clear idea of which ideas to adopt. As soon as NEM was launched, it was shuttered prematurely – after protests by some right-wing Malay groups.

Minimum wage and BR1M

While NEM was ostensibly killed by right-wing groups, the actual killer was Idris Jala’s Performance Management and Delivery Unit (Pemandu).

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Idris Jala–Malaysia’s Super Bullshitter

Najib’s then supposed economic troubleshooter Idris Jala packaged some of NEM ideas into the “Economic Transformation Programme” (ETP) which focused on the so-called high-impact “Entry Point Projects” (EPP).

Between 2009 and 2011, Najib was telling the investor community that he intended to “liberalise” the Malaysian market, with rules for some 27 sectors relaxed.

Beyond that, he neither articulated any coherent economic ideas nor pushed for significant reforms apart from proposing a minimum wage and the cash handout programme 1Malaysia People’s Aid (BR1M).

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Only Raja Petra Kamaruddin wants him to stay because he is a beneficiary of Najib’s Gua Tolong Lu, Lu Tolong Gua Policy

The opposition and the trade unions had long called for the implementation of the minimum wage. Najib agreed to implement minimum wage in the hope to take the sails out of the opposition’s wind.

BR1M was even more interesting. The then Pakatan Rakyat policy committee, of which I was a member, announced in July 2011 that it planned to focus the “bottom 60 percent” with a comprehensive set of economic reforms.

Najib’s government answered Pakatan Rakyat’s plan with BR1M to pacify the bottom 60 percent.

Making rating agencies happy

Post-May 2013 general election, the Prime minister’s focus was on pacifying the rating agencies.

The emerging markets suffered sudden currency slides in May and June 2013 in what was termed a “taper tantrum” as the US Federal Reserve indicated its intention to scale back monetary easing.

Rating agencies panicked and started to look at the weaknesses of Asian economies.

Najib’s knee-jerk reaction was to form a “fiscal policy committee” which has a membership almost identical with the weekly “Majlis Ekonomi” (Economic Council) meeting that bypasses the proper full cabinet deliberation on economic matters.

The fiscal policy committee committed to keeping the deficit at three percent and eventually achieving a balanced budget in 2020.

To this end, subsidies were cut, government services were slashed and the Goods and Services Tax (GST) was recommended in the 2014 budget speech (presented in 2013, the first Budget after the last general election).

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From then on, Najib’s economic policies were reduced to ensuring that the rating agencies were happy and the government has sufficient revenue to pay for its excesses. Nothing about refashioning the economy or any long-term vision.

It’s all about Najib’s survival

The year 2015 was probably Najib’s annus horribilis. Oil prices dropped dramatically since October 2014, and as a consequence, the ringgit plunged too.

From March 2015 onwards, details of the 1MDB scandal emerged and subsequently, in July 2015, details about the “donation” into Najib’s personal account surfaced.

Najib sacked then Deputy Prime Minister Muhyiddin Yassin, then Attorney-general Abdul Gani Patail and then Rural and Regional Development minister Shafie Apdal (now in Jail) on July 28, 2015.

In September 2015, in order to deal with the trust deficit, a special economic committee (JKE), which included Nazir Razak (right in photo), Najib’s respected banker brother, was formed to advise the government on economic policies.

There is reason to believe that the JKE no longer meets. Even if it has met, Najib has no time for any views. By now, it is about his survival and nothing else.

Since late 2015, the government has decided on the propaganda line that the Malaysian economy is doing very well under Najib, and whoever claims otherwise is bordering on economic treason or sabotage.

Minister in the Prime Minister’s Department in charge of the Economic Planning Unit (EPU) Abdul Rahman Dahlan, who also doubles as BN strategic communications director, typified this approach.

The government is no longer prepared to listen to the grouses of ordinary Malaysians who suffered the triple blows of GST implementation, the stiff depreciation of ringgit and government austerity (cuts to subsidies, health, welfare and education funding).

“There is no crisis!” So Najib and his associates believe. There are even court jesters who sing praises of the wonders of “Najibnomics”.

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But just like the emperor with no clothes, at some point, probably at the ballot box, the voters will call his bluff. By then, perhaps many of us will realise that Najib has had no serious economic policy for the past nine years as finance minister and more than eight years as Prime Minister.In the end, it’s all about “Nothing-nomics”.

LIEW CHIN TONG is the MP for Kluang and DAP national political education director.