Budget 2012 - Learning How To Simply Overspend

How is this a transformative budget when the only thing it does is turn some poor fellow into a temporary loaded individual for several weeks. He/she will then remain poor for a sustained period of time. This is my 3rd time writing about the Malaysian Budget and see how we have gone through the years so far.

In 2003, we spend RM75 billion on operating expenditure vs RM40 billion on net development expenditure. A 50% ratio.
In 2008, we spend RM150 billion on operating expenditure vs RM42 billion on net development expenditure. A 28% ratio.
In 2012, we are going to spend RM181 billion on operating expenditure vs RM50 billion on net development expenditure. A 21.6% ratio.

The numbers are increasingly disproportionate. Why are we digging our own grave year after year??? We need to keep focus on creating disposable income which I meant is sustainable not just giving handouts. In order to transform the economy we need to build capacity, cultivate skills and other productive enhancing capabilities.The 2012 Budget is yet another big letdown. Our budget is now being used as a Santa goodies bag. We have so much desire to hand out cash to almost every imaginable person in the country except to those who pay taxes.

Is the government trying to create a caste system in this country? Heading towards government employees vs private sector employees. As the govt keeps pumping money and better allocations into the civil service which is already bloated with a staggering 1.3 million people (5% ratio of the population of Malaysia), the private sector won't be bothered to compete and instead hire foreigners. This is called a caste system. 1st class citizen = govt servants, 2nd class citizen = Indons & Banglas who get citizenship and 3rd class = minorities who were born in Malaysian soil.

Selected budget highlights:

* One off cash assistance of RM500 to all households with a monthly income of RM3,000 and below, costing RM1.8 billion to benefit 3.4 million households.

Creating a form of disposable income which is not sustainable even for the medium term.  

* One off RM100 aid for each school pupil aged 6 to 16.

* One off RM200 cash voucher for all Malaysian school pupils and higher learning institution students.

Not meaningful to me when education reforms are not happening. What's the purpose of giving cash out when the books they study lack content.

 * Ceiling for house prices under a government deposit guarantee scheme for first time house buyers to be raised to RM400,000 from RM200,000.

Piling more debts on young graduates. Our household debt to GDP is already at more than 75% and is now the highest in Asia losing only to Japan but hey the Japanese earn 4 times more than us. I will talk on housing bubble in my next blog post.

*A RM443 million fund to build 15,000 units of housing for lower to middle income earners.

What? 15,000 only? One knows why they raise the ceiling to RM400,000.

* To extend import and excise duty exemption on hybrid and electric cars until end-2013.

Not meaningful to me when our automobile industry is still not liberalize. 

* To allow 100 percent foreign ownership of 17 service subsectors including healthcare

and logistics.

This is one of the few I like but without meaningful structural reforms, there is not much to attract foreigners into investing in Malaysia. Just look at Bursa, we were the 3rd largest stock exchange in Asia Pacific at the end of 1993 ahead of Australia, Singapore and Korea. After 18 years we have dropped to 10th out of 17.

* Employers' EPF contribution will increase from 12% to 13% for staff earning RM5000 and below.

This is a terrible move. Because employers will now have to fork more they can either hire 4 instead of 5 people or reduce your pay rise.

Here is the full speech: http://www.nbc.com.my/blog/prime-ministers-tax-budget-2012-full-speech/

The budget also failed to address one of the most discerning issue in Malaysia: Inflation worries. While the official figures put it as 5% everyone knows and feels that it is higher than that. I have long been advocating it at double digit percentages. There is nothing in the budget that addresses the rising cost of living. Subsidies remain the same and with monopolistic companies around, it defeats the purpose e.g. Bernas. Disappointing.

This budget was drafted with one thing in mind, to keep BN as the ruling party in the next General Election. And to do so they will need to keep their fixed deposit in the government civil service. Many do not know that UMNO's leader are drawn from the higher ranks of the civil service while those who did not make it to the top but still remained loyal are imbued with directorships in GLC or some other crony ventures/businesses. This is exactly like the model used by Japan's Amakudari: http://en.wikipedia.org/wiki/Amakudari. This could possibly explain why our police force and top civil departments are behaving so partisan and a darn good example was seen during the Bersih 2.0 rally. Najib-ai laaa!!

Malaysian Political Mental Model