Friday, September 10, 2004

2005 Budget Summary

PM announces measures to strengthen the economy BY WONG SULONG

DATUK SERI Abdullah Ahmad Badawi’s first budget is aimed at improving the efficiency of the economy, and that includes having a better tax collection system through the introduction of a goods and services tax (GST) from 2007.
The Prime Minister, who is also Finance Minister, announced relief to the poor and needy, gave a boost to agriculture, including promoting a halal processing hub, and liberalised the capital market with the entry of five foreign stockbroking and fund managers.
Among the winners:
(i) Civil servants. Those earning below RM1,000 a month will get a one-and-a-half-month's bonus and those earning above RM1,000 will get a month’s bonus subject to a minimum of RM1,500. Cost of living allowances will also be increased;
(ii) Teachers. They will get better pay and promotion prospects without having to be administrators;
(iii) The police. They will be receiving higher salaries and police commandos will get higher allowances; and
(iv) The accounting profession. It’s probably the biggest winner. The introduction of the GST will bring in a huge amount of business.
The big losers are smokers and drinkers – they are being slugged once again with taxes.
There are no changes in individual and corporate income taxes.

The Government also did not announce any increase in petroleum taxes despite the huge subsidies it is carrying due to the high oil prices, probably because of the widespread effect this would have on many economic sectors.

On the GST, Abdullah said it would be a more efficient tax collection system and government revenue was also expected to increase.

He gave an assurance that the GST would be accompanied by cuts in corporate and individual income taxes. Low-income groups would not be burdened, while small businesses would also be exempted from GST. Details would be worked out by a taxation system review panel comprising public- and private-sector representatives.
In tabling the budget in Parliament yesterday, Abdullah said the focus of Budget 2005 was to enhance the effectiveness of Government financial management, the delivery system and competitiveness, accelerate the shift towards a higher valued-added economy, develop human capital and improve the quality of life of the rakyat.
“The Government is committed to fulfil all promises made in the Barisan Nasional manifesto.
“I am determined to ensure that every rakyat will be able to live in peace and harmony, regardless of race, religion and status. This is my aspiration, my objective and my pledge to you,” he said.
Abdullah is putting money to his policy initiatives.
Take his view that Malaysia has first-world facilities but third-world maintenance. He has set aside a sum of RM500mil for Class F contractors to maintain government buildings, including schools and hospitals, in the districts.
There are financial incentives for public libraries, more money to train small-time bumiputra businessmen under the Prosper scheme, RM450 a month for imams in all mosques and incentives for manufacturing and the ICT sectors.
There are no big ticket spending items; this being the final year of the Eighth Malaysia Plan. The Government had already spent big in the earlier part of the Plan to prime pump the economy to offset the effects of the global slowdown, the Iraq War and SARS.
The Government is allocating RM117.4bil as expenditure of which RM89.1bil is for operating and RM28.3bil for development. Revenue is estimated at RM99.2bil, giving a budget deficit of RM18.2bil.
This deficit is equivalent to 3.8% of Gross National Product, compared with an estimated 4.5% for this year and 5.3% for last year. Therefore, the budget deficit continues to decline and is within manageable levels. This should please local and foreign investors alike.
Despite lower government spending, the economy is expected to remain buoyant – thanks to strong exports, manufacturing and private consumption.
The nation’s economic growth for this year is expected to be 7%, with a 6% growth projected for next year.
These are good and sustainable growth rates. Malaysians therefore have plenty to cheer. They are enjoying peace and prosperity in the midst of global and regional uncertainties.

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