"1Malaysia, Together We Prosper"
Prime Minister Najib Razak promised to curb a burgeoning budget deficit while still supporting economic growth with a personal income-tax cut.
Najib told Parliament in his 2010 budget speech that the government will cut the individual income tax rate by 1 percentage point to 26%. But in addition to the surprise cut, he announced a 5% tax will be imposed from Jan. 1 on property gains. Najib also delivered an annual report that forecasts the trade-driven economy will contract 3.0% this year -- better than an earlier forecast of a 4.0% to 5.0% decline -- before rebounding next year to growth of between 2.0% and 3.0%, thanks to previous spending measures and low interest rates.
The report forecasts a budget deficit this year of 7.4% of gross domestic product, less than what most economists had anticipated and down from an earlier forecast of 7.6%, with the shortfall narrowing to 5.6% in 2010.
“Private sector activity is anticipated to pick up following signs of recovery, enabling the government to consolidate its fiscal position for greater policy flexibility in times of crisis,” the Ministry of Finance said in its 2009/2010 economic report today. “Emphasis will be on creating a conducive environment for businesses and entrepreneurship to thrive in a more liberalized environment.”
Najib, 56, has rolled back decades-old protectionist policies to spur investment since taking over as prime minister in April, opening up services industry to foreign investors and easing rules on ethnic-Malay ownership in companies. Najib told parliament today that he wants to transform Malaysia into a “high-income economy.”
“The budget signals the government’s intention to reduce its direct involvement in the economy and encourage a greater role for the private sector,” said Robert Prior-Wandesforde, a Singapore-based senior economist at HSBC Holdings Plc. “The new prime minister is at least trying to take the economy in a different direction.”
But Citigroup economist Kit Wei-Zheng called the budget "a mixed bag of goodies" as tax cuts and higher personal relief are offset by a rise in pension fund contribution by employees and a small service tax on credit cards. The government showed its intent to keep a lid on the deficit but offered scant detail on how it would do so, he said.
The prime minister said the government will privatize companies under the Finance Ministry while allocating six billion ringgit ($1.8 billion) for the agriculture sector and 9 billion ringgit for infrastructure development.
The government is in the final stages of studying a goods and services tax, Najib said, but offered no timetable.
These are the main highlights of the speech as per delivery.
* Time for country to move to an economy of innovations to face the challenges of the future
* GDP for 2009 expected to be -3%, better than previous projections of -4% to -5%
* Focus of Budget 2010 will be on well-being of the people
* Three strategies:
- driving the country towards a high-income economy,
- ensuring holistic and sustainable development,
- focusing on the well-being of the rakyat.
* Government to make it easier for skilled/qualified people to get permanent residence status. Visa to be granted for family within 14 days.
* CSR Fund of RM100mil to be set up to carry out social programmes.
* Tax breaks for registration of patents and copyrights.
* Big scale factory outlets to be set up to boost tourism besides having major events like KL Grand Prix Fest, National Water Festival, Malaysia International Golf Exhibition and Rain Forest Eco-Challenges
* Taxpayers will get tax relief on broadband subscription fee of up to RM500 from 2010 to 2012. Civil servants can apply for computer loans up to a maximum of RM5,000 from the govt once in every 5 years.
* RM6bil for agriculture sector for irrigation of paddy fields, fish production, fruit farming, livestock farming infrastructure, training
* RM2bil subsidy for farmers and fishermen including subsidies for fertilisers, incentives for padi yields and allowances for fishermen
* RM9bil to finance infrastructure projects including road and bridges projects and rail, sea ports and airports facilities
* RM1.5bil fund to promote green technology by providing soft loans to companies that supply and use green technology
* RM200mil Creative Industry Fund to finance film, drama, music productions, animation, advertisements through Bank Simpanan Nasional
* RM30bil to be allocated to enhance primary and secondary school education nationwide
* Rewards for students who excel in studies:
- 30 National Scholarships for the creme de la creme of students, stictly based on merit
- Conversion of PTPTN loans to scholarships for students who graduate with 1st class honours degree, beginning from 2010,
- Offer of netbook package, including free broadband service, to university students for RM50 per month for 2 years.
* The Permata programme, which emphasises on early childcare and education, including the gifted child programme, to get RM100mil
* Insurance industry to be improved to meet market demand.
* Govt to clamp down on the abuses committed by Ah Longs by enforcing Anti-Money Laundering and Anti Terrorism Financing Act 2001. Moneylenders Act 1951 to be also reviewed.
* Allow 100% foreign equity participation in corporate finance and financial planning companies compared with the present requirement of at least 30% local shareholding.
* To ensure rapid development of financial services, the existing tax incentives to be extended to 2015.
* Among steps to combat corruption is to set up 14 Special Corruption Sessions Courts and 4 Special Corruption Appeal High Courts.
* Tax of 5% to be imposed on gains from the disposal of real property from Jan 1, 2010. Existing tax exemption will be retained for gifts between parent-child, husband-wife, grandparent-grandchild.
* To promote prudent spending, a service charge of RM50 a year to be imposed on each principal credit card and charge card; and RM25 a year on each supplementary card, effective from Jan 1, 2010.
* To ensure that fuel subsidies only benefit targeted groups, Govt will implement a fuel subsidy management system in early 2010, which will utilise the MyKad.
* All ministries and govt departments are required to provide day care and education centres for children of civil servants.
* The maximum income tax rate for individuals to be reduced to 26% from assessment year 2010. Personal relief increased to RM9,000.
* Police force to get RM1bil to improve its services in govt's efforts to reduce crime. Major measures include to increase police presence, including mobile police stations in 50 crime hotspots.
* To promote house ownership, Govt will launch a scheme that enables EPF contributors to utilise current and future savings in Account 2.
* Employees' EPF contribution to be increased to 11% again, on a voluntary basis, effective immediately. However, from Jan 1, 2011 employees' EPF contribution will revert to 11%.
* Personal relief for EPF and life insurance schemes to be increased to RM7,000.
- The Star