Enabling Malaysia to make the quantum leap to become a more advanced and high-income economy was the main thrust of Budget 2010 tabled in Parliament by Prime Minister and First Finance Minister Datuk Seri Najib Razak last Friday.

At the same time, the new budget takes into consideration the effects of the economic crisis on the rakyat, and contains personal income tax cuts, higher tax relief allowances and other social safety nets to put more money in the people’s pockets.
“We are now at a critical juncture, either to remain trapped in a middle-income group or advance to a high-income economy.

As such, we must be the agent of change and seek solutions in addressing global economic challenges,” Najib said in his maiden budget speech.

To facilitate the transition and transformation of the Malaysian economy, Najib said the Budget 2010 will be the foundation for the development of the new economic model and the formulation of the 10th Malaysia Plan (10MP). This is the last budget for the Ninth Malaysia Plan (9MP), a five-year development blueprint that will end in 2010. 

Indeed, Budget 2010 contains a slew of measures and incentives to facilitate Malaysia’s transformation into a developed economy. “In advancing towards a high-income economy, the government will take a new approach based on innovation, creativity and high value-added activities. These measures will more than double the per capita income of the rakyat in the next 10 years,” Najib stressed.

With the theme “1Malaysia, Together We Prosper”, Budget 2010 stresses the participation of the private sector in driving economic growth, and focuses on three key strategies to bring about the change and reforms that are necessary to ensure that Malaysia remains relevant in a competitive global economy.

These are:
•    Driving the nation towards a high-income economy;
•    Ensuring holistic and sustainable development; and
•    Focusing on the well-being of the rakyat.

To implement the three strategies, the government has allocated RM191.5 billion under Budget 2010, which is 11.2% lower than 2009’s allocation. Of the total, RM138.3 billion is for operating expenditure and RM53.2 billion for development expenditure.

Under operating expenditure, RM42.2 billion is for emoluments, RM20.8 billion for supplies and services and RM73.9 billion for fixed charges and grants.

Under development expenditure, RM25.4 billion is allocated for the economic sector to support the needs for infrastructure, industry and agriculture and rural development. Another RM20.3 billion is for the social sector encompassing education and training, healthcare, welfare, housing and community development.

Given that the federal government is expected to see an 8.4% reduction in revenue to RM148.4 billion, the budget deficit will improve to 5.6% of gross domestic product (GDP) in 2010, compared to 7.4% in 2009 and in line with the government’s fiscal consolidation aspirations.

Boosting private-sector participation
To spur private-sector involvement in helping drive through Malaysia’s economic transformation, Najib said the government will prioritise domestic investment and encourage local companies abroad to remit their profits and reinvest in the country.
The government will also address the structural issues to provide a more conducive business environment and be a market-oriented economy. Towards this end, Najib said the local authorities will take immediate steps to facilitate the registration of businesses and expedite issuance of development orders.

Other measures include RM5 billion in spending by Tenaga Nasional to implement electricity generation, transmission and distribution projects in 2010 to provide uninterrupted electricity supply to ensure smooth business operations.

The government will also gradually reduce its involvement in economic activities, particularly in areas where it competes with the private sector.  For this, Najib said, the government will privatise companies under the Ministry of Finance (MoF) Inc, and other viable government agencies. “The second wave of privatisation aims to enable the companies and agencies to operate more efficiently and expand their activities,” he said.

Najib also stressed greater public-private sector collaboration to enable the private sector to spearhead economic growth. “High-impact projects by the private sector will be undertaken jointly with the government … among the projects to be implemented in 2010 include the construction of an integrated immigration, customs and quarantine complex in Bukit Kayu Hitam, construction of six UiTM campuses and the development of MATRADE Centre,” according to Najib.

To enable the shift to a high-income economy, emphasis will also be on R&D. Towards this end, all research funds and grants will be rationalised to be more effective to achieve targets, a National Innovation Centre will be set up and small and medium enterprises will be given tax deductions on expenses incurred in the registration of patents and trademarks in the country.
Budget 2010 also stresses niche areas in which Malaysia has competitive advantage, including the tourism, Islamic finance, ICT and halal industries.

In ICT, for example, the government will expedite the implementation of high-speed broadband at a cost of RM11.3 billion, of which RM2.4 billion is from the government and RM8.9 billion from Telekom Malaysia. Initially, broadband services at a speed of 10 Mbps will be provided in selected areas in Kuala Lumpur and Selangor by end-March 2010, and extended nationwide between 2010 and 2012.

As an incentive to enhance broadband penetration, individual taxpayers will be given a RM500 relief on broadband subscription fees.

Climate change and green technology
Green technology has been identified as an area with potential to become an important sector for the economy, in line with the focus on climate change the world over. To promote the development of green technologies, the government will restructure the Malaysia Energy Centre into the National Green Technology Centre, which will be tasked with formulating a green technology development plan with an allocation of RM20 million.

The government will also develop Putrajaya and Cyberjaya as pioneer townships in green technology.

Building owners obtaining Green Building Index (GBI) certificates and buyers of properties with GBIs will be given tax perks. A fund to provide soft loans to companies that supply and utilise green technology will be set up.

Holistic and sustainable development
Towards this end, the emphasis is on developing high quality human capital, where the government will allocate RM30 billion for primary and secondary education, which will benefit 5.5 million students nationwide.
To enhance the quality of the workforce through education and training, the government will, among others, provide RM1.3 billion for management and upgrading polytechnics and community colleges and setting up an education loan fund and allocate RM504 million to build and upgrade equipment at industrial training institutions.

More liberalisation measures
To further deepen and broaden the financial services sector, the stock market will be further liberalised. This includes liberalising the commission sharing arrangements between stockbrokers and remisiers in two stages and allowing 100% foreign equity in corporate finance and financial planning companies.

Other highlights of Budget 2010 are:
•    More incentives to boost Islamic finance;
•    Formulation of a Whistle Blower Act and establishing 14 special corruption sessions courts to combat corruption;
•    A 5% tax imposed on gains from the disposal of real property effective Jan 1, 2010;
•    A service tax of RM50 on each principal credit and charge card and a service tax of RM25 on each supplementary card to encourage prudent spending;
•    A more open automotive policy where there will be an imposition of RM10,000 on each approved permit for holders effective January 2010;
•    Maximum individual income tax reduced to 26% from 27%:
•    Personal relief from income tax raised to RM9,000 from RM8,000;
•    Special tax incentives on employment income for people residing and working in  Iskandar Malaysia;
•    Issuance of RM3 billion 1Malaysia sukuk in 2010; and last but not least
•    A special financial contribution of RM500 (first announced for support staff in civil services) for all civil servants from Grade 41 to 54. Payment will be made in December 2009, and will cost the government RM400 million.



This article appeared in The Edge Malaysia, Issue 778, Oct 26-Nov 1, 2009.