Ten ways to boost competitiveness (The Star)

# P. Gunasegaram is managing editor at The Star. This article is an abridged version of a talk he gave recently at Khazanah Nasional’s Megatrends Forum.



Education, trade issues among important factors

MALAYSIA needs to focus on the basics to increase overall competitiveness. Here are 10 ways in which the country can improve its overall competitiveness. Where possible the factors are linked to the global credit crisis.

1. Education. No country has managed to climb up the competitiveness ladder without producing a core group of highly educated and competent people in all areas of the economy. The main problem is the poor and deteriorating public school system caused by a lack of good, motivated teaching staff, not facilities. It calls for a total overhaul of how teachers are recruited, trained and motivated.

Throughout all my school years and after, I have noticed that when the headmaster was good, so was the school — no matter the lack of resources or the poor calibre of teaching staff. An immediate measure will be to retrain headmasters and formulate key performance indicators for them, and empowering them.

2. Opening up the Economy. We should encourage foreign direct investments, not only in manufacturing but also in services too, for example in tourism and education. But I am not a fan of attracting excessive foreign portfolio funds into the stock and money markets. Such short-term inflows can flow out just as easily and cause major instability when they do. Witness the steeper fall in Asian stock markets recently despite the main problem being in the US. We should put a lower cap on foreign portfolio investments.

3. Removing trade barriers. Trade barriers make us rather inefficient. For instance, we are without a doubt the most inefficient car producer in the world because of the low scale of manufacture. The motor industry survives simply because of high tariffs levied on imports and therefore there is no push to get the industry to either become more competitive or to merge with other large-scale manufacturers to get access to technology and scale.

Being able to source anything from anywhere in the world will make the country more competitive and will force industries and services to come up to international standards in terms of quality and price. Those days, we had Penang as a free port, now we have Pulau Langkawi, and I think Pulau Tioman. Why not make the whole of Malaysia free? It would help bring down prices.

4. Judicious removal of subsidies. Subsidies, especially of petroleum and related products, are not only a huge cost to the Government but represent a serious misallocation of resources which could have been used for other purposes. Evidence is that subsidising oil prices helps much more the higher income group which uses a lot more of the dwindling resource than the lower income group. Painful as it may initially, subsidies must be unwound.
The problem of a poor and deteriorating public school system requires an overhaul of how teachers are recruited, trained and motivated

5. Revising the tax structure and collection. Our personal income tax and corporate tax rates are still too high relative to many other countries. At the same time, we give away far too many tax incentives to foreign investors. In some cases, these tax benefits are not even effectual because the foreign companies pay taxes in their home countries — we end up letting other countries collect the taxes instead.

We can lower tax rates but at the same time remove excessive incentives to capture tax income. Inland Revenue has to pay more attention to getting more people into the tax net by looking at the assets they own and asking them to account for how they got it if they don’t pay taxes.

Also, to curb speculation on the stock market, capital gains on the stock market and on derivative products should be taxed, with the rate going down the longer the investments are held. In the light of the current crisis, this also provides an audit trail of transactions and may prevent abuse through financial engineering.

6. Tightening up contracting and procurement procedures. During times of crisis, we have this habit of rushing out to cut projects, some of which may actually be badly needed. It is much better to take this time of crisis to tighten up contract and procurement procedures. Instead of the fat margins some of the suppliers have been given in the past, squeeze the margins because there is real hunger for business and there is a lot of idle capacity. I dare say if we do that we will still have the money to undertake the projects without having to scrap any. The crisis is the perfect opportunity to tighten up contract and procurement procedures.

7. Cutting red tape. This is a perennial problem and more should be done to facilitate approvals for businesses and streamline licensing requirements. Local councils should be made to function more efficiently while easier approvals for knowledge workers should be given. It is ironic that foreign labourers find it much easier to get entry as workers when compared to highly qualified white-collar professionals.

8. Improving infrastructure. I really don’t think we have first world infrastructure all over the place. Case in point is the very poor Kuala Lumpur public transport system which had sporadic and spotty improvements that still could not keep pace with the requirements of commuters. What is needed is a good demographic study to ascertain future needs and a plan which fits in with that.

The overall effort should include a comprehensive programme in all key cities for working space, living and recreational areas and for a good transport system to link all of them. The current crisis is an opportunity to engage in some counter-cyclical spending to keep economic activity up. The right kind of investment in infrastructure spending will improve our competitiveness considerably in future years.

9. Refining New Economic Policy requirements and reviewing others. I recall after the 1985 recession the Government relaxed equity and other requirements under the NEP for a range of investments. That will make us more competitive in terms of attracting new investments. Extending those incentives to local companies will also help promote economic activity and make them more competitive as well.

Meantime, we must hold all contractors and service providers — whether bumiputra or not, whether politically linked or not — to high standards of work and completion. Too much money is squandered by improper monitoring.

10. Becoming less obsessed with racial quotas, both implicit and explicit. There are many quotas, some stated and others not. If you look at government service, one can’t help but note that there is a preponderance of bumiputras at all levels. Ditto for government universities, and many government companies. We really need to make better use of all the manpower available in the country. We must move towards a performance-driven culture using all resources available to us.

A look at financial developments and activity in some stock markets around the world Wednesday

MUNICH, Germany -- The German state of Bavaria's finance minister resigned, accepting his share of responsibility after BayernLB, a regional public-sector bank, said it would seek 5.4 billion euros ($7.2 billion) in federal government aid. Bavaria's state government owns half of BayernLB; the other half is held by municipally backed local banks. Germany's DAX closed down 213.34 points, or 4.5 percent, at 4,571.07.

PARIS -- France's prime minister says a newly created and state-backed refinancing company will start doling out urgent loans to French banks by the end of the week. The French refinancing firm known as SFRE was set up to support French banks short of liquidity amid the global financial crisis. The French government has pledged 40 billion euros ($54 billion) to provide banks with extra capital as part of an urgent plan to cope with the financial sector meltdown. The CAC-40 in France finished 177.22 points, or 5.1 percent, lower at 3,298.18.

MOSCOW -- Russian stocks shed the previous day's gains as shares in energy companies followed sliding oil prices down again. The U.S.-dollar denominated RTS index closed 7.2 percent lower at 665.8 points while the MICEX index dropped 3.7 percent to 628.1. Russian energy stocks fell sharply on the MICEX stock exchange with oil firms Tatneft and Transneft 7.5 and 5.1 percent lower, respectively. Gas giant Gazprom lost 6.3 percent.

SEOUL, South Korea -- South Korean stocks dropped sharply amid further heavy selling by foreign investors that has helped push share prices down 40 percent this year after years of strong gains. The Korea Composite Stock Price Index fell 61.51 points, or 5.1 percent, to 1,134.59. At one point, the Kospi fell as much as 8.4 percent before recovering some losses.

ISLAMABAD, Pakistan -- Pakistan sought help from the International Monetary Fund to avoid defaulting on billions of dollars in loans and skirt a financial crisis brought on by high fuel prices, dwindling foreign investment and soaring militant violence. Pakistani officials had previously said turning to the IMF would be a last resort.

TOKYO -- Japanese stocks tumbled as spreading pessimism over corporate earnings and a strengthening yen sent the benchmark index tumbling almost 7 percent. Stocks opened lower following an overnight retreat on Wall Street, but they widened losses in the afternoon on a flurry of bad news that aggravated fears about the global slowdown. Japan's Nikkei 225 stock average fell for the first time in three days, dropping 631.56 points, or 6.79 percent, to 8,674.69

BUENOS AIRES, Argentina -- Argentina's benchmark stock index plunged Wednesday as investors worried the president's plan to nationalize private pension funds would drain companies' access to private capital. The Merval index fell 10 percent, adding to 11 percent losses on Tuesday, when President Cristina Fernandez unveiled plans to take over $30.1 billion in private pension fund assets.

SHANGHAI, China -- Chinese shares sank on heavy selling of power producers and others reporting weaker-than-expected earnings. The benchmark Shanghai Composite Index fell 3.2 percent, or 62.71 points, to 1,895.82. The smaller Shenzhen Composite Index slipped 1.6 percent to 510.66. Declines were seen across the board, with energy and commodity-related shares falling sharply on expectations of weak demand. Chinese President Hu Jintao expressed concerns over the ailing U.S. financial system in a phone conversation with U.S. President George W. Bush, state media reported. China, which holds hundreds of billions of dollars in U.S. government bonds, has enacted a growing number of measures to stimulate economic growth as its crucial export sector suffers from downturns in the U.S. and Europe.

SAO PAULO, Brazil -- The Brazilian government announced it will allow two state-controlled banks to buy stakes in private financial institutions, hoping to limit damage from the global crisis. The Banco do Brasil and Caixa Economica Federal will be able to buy stakes in other banks, insurance companies and other private institutions needing aid, Finance Minister Guido Mantega said Wednesday. The institutions previously were not allowed to seek help from the state-controlled banks. Trading was automatically suspended for 30 minutes after the benchmark Ibovespa index dove 10 percent and fears mounted that a global recession could stall growth in Latin America's largest economy.

WASHINGTON -- World leaders will meet Nov. 15 in Washington to address the global financial crisis -- the first in a series of summits to mitigate what economists predict could be a long and deep downturn. In making the announcement, White House spokeswoman Dana Perino said the first meeting will focus on the underlying causes of the financial crisis, the global response and the principles that should guide any reforms. The summit will bring together leaders of the Japan, the United Kingdom, France, Germany, Italy, Canada and the United States, the European Union China, Brazil, India, Russia, South Korea and other major economies. She said the White House would seek input from the winner of the U.S. presidential election who will take office on Jan. 20.

MEXICO CITY -- Mexico's peso tumbled to 13.6 to the dollar and the stock market dropped 7 percent, despite the central bank's actions to stabilize the economy. The bank has been auctioning off reserves since the peso hit a record low of 14 to the dollar this month, after trading in early August at under 10 to the dollar. Mexico's central bank has vowed to auction $400 million every day at the previous day's closing price plus 2 percent, and has converted $12 billion to pesos since Oct. 8 in attempts to prop up the currency. The IPC index fell 7 percent to 1,415.93.

LONDON -- British Prime Minister Gordon Brown acknowledged for the first time Wednesday that the world economic downturn is likely to cause a recession in the United Kingdom, the U.S and other countries. Brown's comments during his weekly question-and-answer session at the House of Commons followed a warning Tuesday from Bank of England Governor Mervyn King that Britain is probably entering a recession as a result of a squeeze on pay, a lack of available credit and a likely prolonged slowdown in domestic demand. Later, Britain's FTSE 100 index of leading shares closed down 189.84 points, or 4.5 percent, at 4,040.89.

MCA PARTY ELECTION RESULT

President: Ong Tee Keat
Deputy president: Dr Chua Soi Lek
Vice-presidents are Kong Cho Ha, Liow Tiong Lai, Dr Ng Yen Yen and Tan Kok Hong

The 25 newly-elected central committee members are:

Lee Wei Kiat, Wong Foon Meng, Tan Chai Ho, Tan Cheng Liang, Dr Hou Kok Chung, Lee Chee Leong, Gan Ping Sieu, Yu Chok Tow, Wong Nai Chee, Lee Sing Chooi, Wee Jeck Seng, Gan Tian Loo, Dr Yeow Chai Thiam, Chong Itt Chew, Hoh Khai Mun, Ti Lian Ker, Liew Yuen Keong, Wong Mook Leong, Paul Kong Sing Chu, Edward Khoo Keong Hai, Teh Siew Kiong, Loh Seng Kok, Wong Siong Hwee, Dr Por Choo Chor and Loke Yuen Yow.

US Gov't eyes plan to take ownership stakes in banks

WASHINGTON (AP) -- Treasury Secretary Henry Paulson told international leaders on Sunday that isolationism and protectionism could worsen the spreading financial crisis. With a new trading week dawning, U.S. lawmakers urged quick action by the Bush administration on measures to make direct purchases of bank stock to help unlock lending.

Sen. Chuck Schumer, chairman of the Joint Economic Committee, said an administration proposal to inject federal money directly into certain banks, in effect partially nationalizing the banking system, "is gaining steam."
"I am hopeful that tomorrow, the Treasury will announce that they're doing it. And they have to do it quickly ... markets are waiting," Schumer, D-N.Y., said.
The administration has not indicated when it would announce its next steps.
Democrats also are lining up behind House Speaker Nancy Pelosi's plan to bring lawmakers back to Capitol Hill after the Nov. 4 election to work on a second economic relief plan. The idea is "give the middle class and the average citizen the same kind of relief that we try to give the financial sector," said Democratic Rep. Barney Frank of Massachusetts, chairman of the House Financial Services Committee.
Top Democrats are suggesting a $150 billion measure that would extend jobless benefits, provide more money for food stamps and finance some construction projects, such as rebuilding bridges and roads. It would also include either a tax rebate or tax cut.
Rep. Roy Blunt of Missouri, the second-ranking House Republican, said he would help on a plan "that makes sense" but is not laden with huge public works projects or bailouts for states that overspent on social programs.
In another step aimed at easing the financial crisis, the Federal Reserve on Sunday approved the $12.2 billion acquisition of troubled Wachovia Corp. by Wells Fargo & Co. Wachovia is the latest in a string of major banks and financial institutions that have been felled by the financial crisis. The Fed action was expected.
As the International Monetary Fund and World Bank held their annual meetings over the weekend, Paulson warned the bank's policy-setting committee of the dangers of "inward-looking policies."
"Although we in the United States are taking many extraordinary measures to ease the crisis, we are not pursuing policies that would limit the flow of goods, services or capital, as such measures would only intensify the risks of a prolonged crisis,"

Economic Calendar

Budget 2009 Highlights

Budget 2009 was presented on 29 Aug 08 by the Prime Minister and (then) Finance Minister YAB Dato’ Seri Abdullah Ahmad Badawi in Parliament. Themed “A Caring Government,” Budget 2009’s three specific strategies focus on enhancing the wellbeing of all Malaysians, developing quality human capital and further strengthening our nation’s economic resilience to mitigate the adverse impact of an increasing challenging external environment. A broad range of measures will be implemented in this Budget to reduce the impact of higher cost of living, particularly for the lower income group and the vulnerable.
Budget Allocation
The overall federal government revenue for year 2008 is RM 161.6bn and expenditure is RM196.9bn. The deficit for 2008 is estimated to increase to 4.8% due to an additional allocation of RM22.1bn this year for food and fuel subsidies. Committed to reducing the fiscal deficit to 3.6% in 2009, the government believes that the high fiscal deficit is a one-off necessity.
For Budget 2009, RM207.9bn will be allocated for government expenditure, which is 5.1% higher than the allocation for 2008. Of the total allocation, RM154.2bn will be used for operating expenditure and RM53.7bn for development expenditure.
The Malaysian economy in 2009 is projected to grow by 5.4%. The key driver for economic growth is the oil and gas industry, tourism, transportation, finance and banking, and ICT related industries. The key measures and steps that were outlined by the government in Budget 2009 are as below:
Social Safety Net
The government has raised the eligibility criteria for welfare assistance under the Welfare Department and allocated RM500mn. It is expected that eligible recipients will rise to 110,000 households and 40,000 senior citizens.
Government pensioners who have served at least 25 years upon retirement will receive no less than RM720 monthly, which will involve RM140mn allocation and benefiting 75,00 retirees.
On top of that, the government also set up an RM25mn special fund to channel financial assistance to victims of calamities, such as floods and fire. The government also encourages the private sector to set up more “Rumah Tunas Harapan” and will increase the allowance of caregivers up to RM1,000 monthly.
Eradicating Poverty
The housing assistance programme is one of the tools to eradicate poverty and will be allocated RM 50mn to build 1,400 new houses and repair 1,000 houses for hardcore poor, senior citizens, disabled and single parents. To reduce the burden of lower income groups, the government will bear the cost of electricity bills for households which incur monthly electricity bills of RM20 or less. 1.1mn households are expected to benefit from this measure. Additionally, Sabah and Sarawak will be allocated RM580mn and RM420mn respectively to improve basic amenities such as electricity, water and rural roads.
Increasing Disposable Income
The purchasing power of lower middle income groups was badly affected by the high inflation rate. Therefore, the government proposed the current tax rebate to be increased to RM400 for those taxable income of RM35,000 and below. It is expected that 100,000 tax payers will be out of the tax net.
Moreover, the government also proposed that the highest marginal tax rate for individuals be reduced to 27% and marginal tax rate of 13% will be reduced to 12% too. Civil servants will receive a one-month bonus, subject to a minimum of RM1,000 for 2008 as an appreciation of increasing productivity.
Improving Public Transportation
The government will continue to encourage greater utilization of public transportation and believes that a more efficient, reliable and integrated public transportation is needed to provide seamless travel and greater service frequencies. To further improve the efficiency of public transportation, RM35bn allocation will be expanded during 2009 to 2014 to enhance the capacity of existing rail services, build new rail services and tracks, increase the number of buses and provide better infrastructure facilities. RM3bn additional soft loans were also provided under the Public Transportation Fund and a Public Land Transportation Commission will be established to oversee overall public transportation services by mid 2009.
Therefore, the government agreed to provide 200 additional buses to RapidPenang to service 14 new routes in Penang. It is expected that usage will be increased to 120,000 passengers daily. Other key measures are toll charges for all buses will be reduced by 50% and road tax for all buses and taxi operators will be reduced to RM20 a year.
The existing LRT system in Klang Valley will be extended by 30km and 35 train carriages for the Kelana Jaya line worth RM1.3bn will be fully operational by 2010. A new LRT line will also be built along a 42km route from Kota Damansara to Cheras. The commuter rail services will be upgraded too. An additional 13 new units of commuters will be operational by 2011, with an expanded rail services network of 7.5km for the Sentul-Batu Caves line by 2010. Sam, pls insert Komuter train here
Food Security
RM5.6bn is provided under the national food security policy to implement several agriculture programmes to ensure adequate food supply. To increase fish landings, RM300 mn is allocated for cost of living allowance to fisherman and fish landing incentives.
To increase poultry output, the expansion of chicken and duck farms will be given a Reinvestment Allowance of 60% for a period of 15 years. RM1bn will be allocated for 220,000 padi farmers to increase padi production and 1,300 hectares of abandoned land have been identified for padi and other food production. The government also proposed that import duty on fertilizers and pesticides be abolished.
Health Services
RM 13.7 bn is allocated in 2009 to enhance health facilities and provide equipments, increase supply of medicines, develop human resources and build more hospitals. Other than that, the government also announced that the excise duty on cigarettes will be increased by 3sen to 18sen per stick.
Improving Public Amenities
RM1.8bn will be provided to increase basic amenities and infrastructure in rural areas. For Sabah and Sarawak, RM3bn and RM3.3bn allocations were given respectively for various infrastructure projects.
Enhancing Training and Skills Programmes
RM2.4bn is allocated to enhance facilities as well as undertake training and skills programmes. In addition, the government will increase the number of nurses in public hospitals by allocating RM70mn to train 7,600 nurses.
Improving Quality of Education
RM31mn will be allocated to the Education Ministry benefiting 5.8mn students. 110 primary schools and 181 secondary schools will be built in near term. In addition, RM14.1bn was allocated for the Higher Education Ministry to improve the quality of learning.
New Economic Sectors
New selected regional services such as Islamic finance, business process outsourcing, resource based industries such as petroleum, higher value added manufacturing such as biotechnology will be giving significant opportunities for growth in the Malaysian economy.
Economic Corridors
RM6bn is provided in the 2009 budget for development expenditure of the corridors. An additional allocation of RM30mn is provided under the Strategic Investment Fund in Iskandar Malaysia.
National Energy Plan
A comprehensive national energy plan will be outlined to support the long term energy needs. Renewable energies equipment will be exemption import duty and sales tax.
Ensuring Public Safety
RM5.4bn is allocated in the Budget 2009 to enhance the capacity of the Royal Malaysia Police (PDRM). The allocation will be used to build more police stations and train/hire more Polices.
As a conclusion, the government was seen as responsible to the concerns of the rakyat and has taken measures to lighten the burden of all Malaysians, particularly the lower income group. Support and assistance approach will improve the quality of life and enables all Malaysians to enhance their productivity.

马来西亚2009年财政预算案

首相兼财政部长拿督斯里阿都拉巴达威今年八月在国会提呈的2009年财政预算案内，主轴及重心被定位于确保全民和谐共处、建设人文发展环境以及强化国家抗御能力。2009年财政预算案被各界给予高度评价，更体现首相一贯的务实与亲民政策。今年的财政预算案主要就是围绕着增加低收入群的福利、改善交通网络及提升全民教育的素质。
在高油价及高通膨年代，政府为了照顾全民福利，便推动了提高低收入群的福利及妥善策划未来的交通规划，因此这一次的财政预算案被评为连续12年来的扩张式“爱心”预算案，但是却因此缺少了明确的商界税务削减或津贴。
联邦政府今年的总收入是1616亿令吉，相等于9.1% 的收入增长。首相并预测在2009年的总收入将会增加至1762亿令吉，或相等于9.1% 的增长率。政府也预测收入增长的主要贡献者是石油所得税及公司税。除此之外，政府也预计2009年的经济成长可达到5.4%，而通膨率将会保持在稳定的水平。图表1显示2008-2009的联邦政府收入。
图表1：联邦政府收入2008-2009
令吉（百万） 增长（%） 占有率（%）
2008 2009# 2008 2009# 2008 2009#
税收 107,737 124,379 13.2 15.4 66.7 70.6
*直接税 77,579 92,126 11.8 18.8 48.0 52.3
•公司 33,325 35,780 3.7 7.4 20.6 20.3
•石油所得税 24,511 35,826 19.8 46.2 15.2 20.3
•个人 14,593 15,399 25.1 5.5 9.0 8.7
*间接税 30,158 32,252 17.0 6.9 18.7 18.3
•消费税 10,369 11,038 15.3 6.5 6.4 6.3
•营业税 7,580 8,059 14.1 6.3 4.7 4.6
非税务收入 53,821 51,841 20.4 3.7 33.3 29.4
*执照/准证 11,779 13,059 24.9 10.9 7.3 7.4
*投资收入 38,874 35,442 20.0 -8.8 24.1 20.1
收入总额 161,558 176,220 15.5 9.1 100 100
2008/2009 经济报告书。(# 预算估计，不包括2009年税收)


2009年财政预算案也详细的探讨了联邦政府在近年的财务状况。我国在2008年的赤字扩张至国内生产总值的4.8%，并且超出了政府在一年前所定下缩减至3.1%的目标。由于政府估计到世界原油价格飙升所导致的后遗症，所以适度的调低在2009年的财政赤估计到3.6%，并希望能够让经济平衡增长。

由于国际原油及基本粮食的价格都已经大幅度飚高，钢铁、洋灰及其他的建筑材料也都涨价了，所以这都致使政府的营运开销和发展开销急速的增加了。应此，政府使用了适度的财政赤字及增加发展拨款来确保食物保证措施与燃油津贴。政府的举动是希望能够继续协助人民渡过经济难关。图表2显示了联邦政府财务状况。

图表2：联邦政府财务状况2008-2009
令吉（百万） 增长（%）
2008 2009# 2008 2009#
税收 161,558 176,220 15.5 9.1
营业费用 150,953 154,170 22.6 2.1
目前盈余 10,605 22,050 -36.9 107.9
发展费用总额 46,258 51,729 14.0 11.8
扣：贷款收回 1,191 1,229 -61.6 3.2
发展费用净余 45,067 50,500 20.3 12.1
全面余额 -34,462 -28,450
占国内生产总值巴仙率 -4.8 -3.6
2008/2009 经济报告书。(# 预算估计，不包括2009年税收)

Critical Questions on Government Efficiencies

1. Regarding to Temporary Occupancy Licenses (TOL) land issues,
a. Is there any progress on converting the idle land to agricultural land?
b. What is the biggest hurdle in the TOL land issues and what are PEMUDAH strategies?
c. Is PEMUDAH going to unify the state land regulations among states in Malaysia?
2. Efficiency in the government policies :
a. What is the progress on liberalization of FIC Guidelines, Guidelines on Foreign Participation in the Distributive Trade Services and the 30% Bumiputera equity restriction?
3. Business licensing issues:
a. Does the government intend to simplify the business licensing application and approval process to less than 5 licenses and in less than 1 week time? Ex. The grocery shop need to get 11 licenses to operate and hotel need at least 30 licenses to operate are not efficient and may cause corruption practises.
4. Halal Industry Issues:
a. The industry players are finding it tough as there are no clear indications on the Halal enforcement and clear guidelines or regulations on Halal issues. What is the role of PEMUDAH on facilitating the development of the industry?

Petrol Hike Response

July 5, 2008, Malaysian witnessed the real impact of the rapid increase in world crude oil price. After detailed study and serious consideration, the federal government decided to raise the price of petrol and diesel at the pump. The new price will be a 40% increase for petrol to RM2.70 a litre and 60% increase for diesel to RM2.58 a litre. Although the action was seen as a political suicidal act, but the truth is that since the second half of 2007, the world crude oil price has been rose up to 150%. The realities were the government are unable to allocate more subsidies which were ballooned from RM30bil previously to as high as RM50bil now.
Although the Government action on reducing the petrol subsidy will be giving a direct impact to the daily lives of the Malaysian, but the government did not forget their duties to help the citizens. A number of actions have been taken to ease the burden of Malaysian and these temporary measures were RM625 cash rebate for car owners, RM150 cash rebate for motorcyclist, RM200 road tax reduction for vehicle more than 2000cc. The government also initiated a few rules to cut the government officer’s entertainment allowance in order to reduce the federal government expenditure. After the reform of fuel subsidies, it is expected that the government will save about RM13.7bil. The following chart 1 shows the new allocation for people centric projects from the savings.
Chart 1
Projects New Allocation
National food security policy RM 4.0 bil
cooking oil subsidy RM 1.5 bil
imported rice subsidy for Sabah and Sarawak RM 0.4 bil
flour subsidy RM 0.2 bil
bread subsidy RM 0.1 bil
petrol, diesel and gas subsidy and rebate RM 7.5 bil
Total RM13.7bil
(Source: Prime Minister Office, Malaysia)

Nevertheless, list of action taken above was just a temporary measure before a more comprehensive relief packages which will be released on the Budget 2009 in mid August. Therefore, we suggest the government to kindly provide more efficient relief packages to help Malaysian in riding out of the high crude oil price era. In the mean time, we also must not forget and ignore the poor family and the hardcore poor families which were facing the most difficulties in daily living among Malaysian.
According to Department of Statistics survey in 2007, the country currently have 5.8 million households, and it is expected that 8.6% of household are having total income less than RM1,000. We hope that the Government will give more attention to these 500,000 poor households. We also recommended the Government through the Department of Social welfare, set up an efficient mechanism to select these poor and hardcore poor families and allocate them a sum of cash assistance. In the same time, the government must also provide technical and vocational training to these poor and hardcore poor family members. The opportunities in gaining skills will allow them to increase their family income and to an extent, they will be able to gain an opportunity in conducting small-scale business activities.
We have to admit that there are structural inefficiencies in the federal government administration. The public service delivery system was deeming to be inefficient. Therefore, we urge for a closer working relationship between the Chief Secretary of the government and the Special Task Force to facilitate business (PEMUDAH). With a joint cooperation from government and private sectors, we hope that they will be able to remove the barricades in government services and ultimately removing obstacles that affect the inefficiencies in the public delivery system and services.
Government must make a clear stand on removing the outdated government procedures, reducing bureaucracy and red tape. We believe that the simplification of administrative process is the best way to reduce corruption practices and eventually will help the citizens and government in savings costs. The best solution here is to let the accountants and auditors to re-assess the federal government operating costs and development costs to reduce or cut unnecessary spending. We believe that by ensuring a lower expenditure and a higher taxation income will lead to a better government’s financial and economy position.
In order for the citizens to adapt to the changes and switch to use public transportation, we urge the government to set up a drastic plan and solution to revamp the public transportation system. Syarikat Prasarana Negara Berhad (SPNB) did a survey after the oil prices hike and the survey shows that public bus user rose by 7.5 %, while PUTRA Light Railway Transit (LRT) users increase 3.9% in a week time. We believe more citizens will choose the public transportation in the long run. Therefore, government must seriously look into setting up a more integrated and user friendly transportation system to ease the burden of citizens on inflation and price hike.
Due to bureaucracy, the public transportation system is currently under jurisdiction of more than 10 government departments. We agreed the government’s move in setting up the Cabinet Committee on public transport to enable a standardize policy management unit and also to establishment a one-stop service centre to focus on all public transport activities. In the long run, the Government should increase the number of public transport and the frequency of the transportation services.
We also urge the government to ensure that all residential areas must be public transportation accessible. The government must make sure that convergence point for all public transportation must be user friendly and easy accessible. Once the public transportation system was improved and upgraded, the LRT and public bus system will be the first choice for citizens. As a result, Malaysian will be able to reduce their daily spending by using less cars and petrol.
Due to the uncertainties in the world economy, we also urge the government to relook into the annual budget and economy plan and find ways to address the impact on rising prices of raw materials and a possible food crisis. Maybank Aseambankers in a report recently estimated the government’s budget deficit will be ballooned to 5.9% of Gross Domestic Product (RM 41bil) from an earlier estimated deficit of 3.1% of GDP (20 billion). Chart 2 below shows that the federal income, expenditure and deficit.



Chart 2
(RM Billion) 2005 2006 2007

Federal government’s income 106.3 123.5 139.9
Oil related 31.0 45.5 51.1
Non oil related 75.3 78.0 88.8

Federal government’s expenditure 128.2 143.5 163.7
Total subsidy 12.5 12.1 15.0
National administrative spending 85.2 95.6 108.1
Development expenditure 30.5 35.8 40.6

Budget Deficit (21.9) (20.0) (23.8)
(Source: Ministry of Finance, Malaysia)
In order to avoid excessive borrowing from overseas to finance the budget deficit, we propose to the government to increase other non-oil related income and be more proactive in taxation enforcement. Therefore, we propose that the government continue to impose oil palm windfall tax, independent power producers windfall tax and also increasing the threshold of gambling tax. On the other hand, we also urge the Government to review the large-scale development projects. We suggest that the large-scale development projects to be scrapped or put under the initiative of Government Linked Companies (GLCs). The government's main target now will be fighting the inflation and setting up the national food security mechanism.
We also suggest that all subsidies must be phased out in a given time line. We found that the petrol, diesel and other subsidized products are often smuggled and sold at neighbouring countries to obtain windfall profits. Recently, there are a few news reports mentioned about 3,500 litres of fuel being smuggled to neighbouring countries and there are a few people arrested in the Malaysia-Thailand border for sugar and flour smuggling.
In order to put an end to these illegal activities, we suggest that the Domestic Trade and Consumer Affairs Ministry and border enforcement units to cooperate in executing their tasks. Marine Police should be enhanced to patrol the border frequently to tackle the smuggling activities too. Therefore, government department’s effort to increase efficiency will help to reduce wastage and losses caused by the smuggling activities.
The current worldwide economic downturn will be a major challenge to the government. The government will not turn a blind eye on helping the citizens to overcome the burden. We believe that the Government will have a strong political will to help the people. With the initiatives of the government, a series of anti-inflation mechanism has been launched and fine tuned in the coming budget 2009. With a strong support from the citizens, the government will work on their very best effort to overcome every difficulty.