My take on the RM60mil stimulus package

The Finance Minister’s RM60bil stimulus package gives us an opportunity to gauge the capability of the Prime Minister in waiting and his team of advisors.

I like the tax relief on interest on housing loans and provision of incentives to students to take up post-graduate courses instead of joining the job market at the moment. Good for our students. However, we must ensure there is a proper delivery system is in place. People must know where and how to apply, is there any red-tape, fairness or restriction?

However, I am not sure about the creation of 163,000 jobs. Are they jobs with government departments? Is this going to result in more red tapes and bureaucracy? We moan about the time taken to get things down in government departments and imagine having more people to get through before you get your license, permit approved and what not. When you need to stimulate economic activities, red tapes and the likes must be reduced, not increased.

By adding another 163,000 workers together with the necessary to equip them, government expenditure involved can reach up to astronomical proportion.

When I look at previous budgets, the biggest component is “government operating expenditure”. I always wonder why the federal government never mentioned about the word “cost cutting” in their budget. Cost saved can be channeled into welfare, infrastructure development, healthcare and education instead. How to initiate cost saving measures? The annual Auditors’ General Reports, which are always a heartache to read can point to so many opportunities to review and cut costs.

There are several tax benefits like accelerated capital allowances, increase in tax exemption threshold on retrenchment compensation and utilizing current year tax losses to off-set previous year tax losses. However, the fundamental disadvantage of these approaches is 1) the taxman is only taking less from you but you are not receiving any assistance, unless you can accept taking less from you equals to giving something to you and 2) there is a time delay effect.

Stimulus by definition should be quick, direct and tangible. Of course, we can console ourselves that as Malaysians, we should be grateful for every bit of crumbs coming our way.

The Star on 11th March reported the allocations of millions of ringgit to subsidize food and keep toll rates down went well with “most” Malaysians and the brief report on page 3 mentioned less than 10 names. Although I fail to understand how the Star can conclude that the feedback from 10 or less Malaysians can reliably reflect most of the other 26 million, the main point is the people’s money is still being used to bail ourselves out alone. I would like to know if there is any Petronas funds been used to subsidized foods and toll.

I wrote previously about the supply chain in Malaysia and I believe structural reform is much more effective in managing prices. Why do we need the agreement with IPPs? Why do we need toll concessionaire agreements which guarantee profits that could erode the need to control cost amongst the operators?

Stimulus means to stimulate or promote economic activities (duh!) and sometimes, this can be achieved with minimum costs. The Pakatan Rakyat’s initiative to grant freehold titles to long time dwellers actually possesses enormous multiplier effect. By having secured land titles, owners can develop their land and banks can have collateral to disburse funds. Also, by cutting down administrative bureaucracy, free up capital restriction, speeding up the various paper work processes in federal, state and local authority level, business can move faster.

If you have a national car that is more than 10 years old, you can get RM5,000 discount to get a new national car. This sounds great but what about people who can’t afford a car? Really, is this a stimulus action or is really a government assisted “Great Proton Stock Clearance Sale”?

Classic Mahathirism at work when government spending is allocated to several companies carrying out development work such as the new LCCT at KLIA and Penang Airport but does this benefits the small business owners, wage earners in general? The above project should be classified as necessary development work and not stimulus package under exceptional economic circumstances. Recession or no recession, improving our capacity is a must. Again, there is a time lag effect in terms of benefit following through. Besides, there is always the issue of leakage involves.

Stimulus means helping people to be able to spend more and earn more. Lim Guan Eng mention about putting money into people’s pocket directly and I agree it would work. Giving employers cash rebate in direct proportion to their contribution into workers’ EPF could aid business cashflow, preserve job and encourage compliance. The government should consider suspending for a year payment of tax deducted at source for workers and advance payment of corporate tax for small businesses to aid cash flow of the man in the street.

The doubling of foreign levy can mean higher cost of business although it meant for forcing local businesses to replace foreign workers with locals. I am not sure if this will work as most local employers deemed foreigners are better blue collar workers. It is a window of opportunity for the locals to reclaim their employment opportunity but how well we grasp it is another story……

1 comment:

  1. 1)On accelerated CAs for expenditure on renovation and refurb spent between 10 March 2009 and 31 December 2010- many companies will think 10 times before committing capex for renovation in times like these. Maybe perhaps, for a company with lots of cash towards the of 2010 this will work.

    2)Allocation for retraining- usefulness will only come in a few years after the recession, not during 2009 nor 2010. Companies already reducing fixed costs by offering vss already. Who wants to hire newly-trained (or retrained in this case) candidates. Tough.

    3)This mini-budget is expected to set us back to a 7.6% deficit. The Government is unclear where the funding is coming from. Najib is right in saying Federal debt is still at an ok level- but I have statistics to show this is quite doubtful.