Budget 2011

1. The first and foremost thing about the 2011 budget is that though there are some interesting points mentioned that touches on an individual, it didn't really addresses more on people-centric despite it being billed "people's budget" by Najib. For instance, the minimum wage matter that trade unions have be clamoring for countless of times, only for the government to say "at a later date", which means that the government has no solutions at this time to address the problem by middle and lower class workers. Secondly, it is not compatible with the NEM, giving that the NEM that Najib himself taked about is mere lip service and talk only.

2. It seems that there are signs of the Big Mama's demand inside the budget, which includes RM 111 million for PERMATA, and the abolishment of the import duty for selected goods. The latter, a lot of people know of Rosmah's tendencies to go shopping for expensive items when on overseas tour. At one time, we remembered her buying a lot of expensive watches for a huge astronomical sum of people's money. We too loved the sarcasm that the MPs belted out when Najib mentioned that. "Aha, Rosmah!" that's what the PR MPs would exclaim about.

I recalled that in the past no wife of a Finance Minister would come in and interfere with the shape of the Budget. Not even Mahathir, Anwar, Ku Li (the previous Finance Ministers) and others. The Treasury people too, (as reported last year) admitted that they are uncomfortable of Rosmah running things around, acting as if she is a government official, whereas her capacity is only being the wife of the PM.

3. I have viewed through some highlights of the budget. Not much on dealing individually. Among some notable points of interest:

a) Highway tolls - Rates on hold for the next 5 years. Expect an increment more than 10 percent by 2015 as to compensate the compensation paid to PLUS and other toll concessionaires . It seems that Khazanah is not willing to let its competitors (Mahathir's business partners, e.g Syed Mokthar or Halim Saad) MMC or Asas Serba win the buyout of UEM although their offer is great and the sweetener to the deal - no increase of toll rates until the end of the concession period in 2038. 

Skepticism would be on how they are willing to finance their money for the buy out. Now that Khazanah and EPF wants to buy out UEM at $23 billion, is it possible for the other two to stop that and increase their bid higher than 23 billion? Or another way to win that bid that Najib cannot refuse? One good reason that people can figure it out is that Nazir Razak (CIMB CEO) is not likely to get the pot of gold - projects if Mahathir's partners gets most.

b) First time house buying - Buying house in Klang Valley is a bit difficult. Due to the fluctuation of property prices from speculation, most house prices would be at the median of RM 400K which means that still young and middle-income people will have the difficulty of buying houses there. The maximum estimate price of RM350 K mentioned would fit properties within suburban areas - outside Klang Valley / Penang island for example. Yet it still lacks the solutions to handle this dilemma. In the economic turbulence of 2008, the rental rates in Klang Valley dropped by at least 20% only to rebound back recently. Unless, (by some stupid idea) - they sell to young people at half price.

c) Exemption of sales tax for handphones - Does that mean that all prices now will be 10 percent less? Maybe we need to tell the merchants that you will be paying 10 percent less because of the exclusion of sales tax. 

d) Removal of import duty for goods - The budget did not mention the complete list of what goods that fall under that action. It is hoped that there would be a complete list of items that fall under that case. And what about consumer technological items? It would be a good idea to have those fall under that removal of duty because this would increase the rate of affordability for people to get an item at a good price as well as catching up with the technology. Singapore and Australia, among our Aisan neighbours are technologically far advanced ahead of us. 

e) Service tax increment to 6% - This is obvious to compensate the GST that is put on hold. It is also another way to increase revenue to the government coffers. But to have 6% in this current times of low income and hardly any increment means that it could create more trouble for people to pay in places where service tax is applicable, unless Customs Department (which Sales Tax 1975 is under their purview) increases the income cap to RM 750K or RM 1 mil per month. 

4. The budget is built on assumptions that the GDP for 2011 will be at 7%. However, Malaysia still has a huge amount of deficit since the 1997 Asian Financial Crisis. When calculating total cumulative debts with reserves available, Malaysia has no more reserves already. Yet, to go ahead with the such budget with tons of mega projects is like staking a country in the house of cards. And a house of cards is not stable. It can collapse with a sneeze from elsewhere. Where can Malaysia get money if income tax revenue, FDI investment drying up and corruption still rampant? The one possible solution is like the US to print money. In turn, printing money means of borrowing money from other countries, increasing the national debt. The U.S's national debt stands at $1.6 trillion US as of now. The more money being printed, the higher the debt the nation would be plunged into. 

5. Let's look at the slew of mega projects proposed under the budget:

• Mass Rapid Transit System: RM 43 billion transportation system for Kuala Lumpur and surrounding. Question: How is this project being funded and will the federal govt guarantee the funding?

• Kuala Lumpur International Financial District: This is a RM26 billion 34 hectares development in the Jalan Davis bordering the Imbi area which was earlier mistaken for the old Sungei Besi airbase project. A 1Malaysia Development Berhad joint venture with the Abu Dhabi Mubadala group.

• Warisan Merdeka: Another iconic landmark mega-development of RM 5 billion to be completed by 2015. Another project to be undertaken by Permodalan Nasional Berhad (PNB). This project covering an area of 15 hectares in the old Stadium Merdeka and Stadium Negara surrounding will include the 100 storey tallest building in Malaysia.

• Sungei Buloh development: Land privatization development owned by the Rubber Research Institute (RRI) of an area of 1350 hectares to be develop by EPF Employees Provident Fund with a value of RM10 billion.

• Nexus Karambunai, Sabah: An integrated eco-nature resort development at a cost of RM 3 billion. Question: RM3 billion to build a resort is a huge sum, is the federal govt providing the funds?

Now we also look at the slew of budget allocations:

Education: For Restructuring and Strengthening RM 29.3 billion to the Education Ministry. RM 10.2 billion for the Higher Education Ministry and RM 627 million for the Human Resource Ministry.

·        Education: Another RM 6.4 billion to build and upgrade schools and etc.

·        Health: RM 15.2 billion for new hospitals and etc.

·        Defence: Allocated a total budget of RM 9.1 billion which is a reduction from RM 10.5 billion.

·        Corridor: RM 850 million for infrastructure support to the corridor and regional development.

·        1Malaysia Training Program: Allocation of RM 500 million. What’s this?

·        RM 1 billion allocated for the launching of the Bumiputra Property Trust Foundation. (No details provided).

  

Don't forget the slew of projects started but in incubation or in hangover:

• 160 hectares old Sungei Besi air base with an estimated value of RM 20 billion which has generated much stories of Jho Low, the bright young man seen as companion to Paris Hilton having had a hand in this much coveted mega multi billion project.

• Another mega-project of the 150 hectares of Kampung Baru land within the city centre of Kuala Lumpur, and PNB is again undertaking the redevelopment of over RM 20 billion in value.

• Riverside Garden City a 25 hectares redevelopment of the former Pekeliling Flats with the proposed futuristic revolving 60 storey skyscraper with a value of RM 12 billion.

• 9 hectares of government land in the Cochrane and
  Peel Road
  area with an estimated value of RM 10 billion to be develop again by 1MDB and EPF.

More multi billion projects that have been approved and about to be started or in progress like:

• MATRADE centre with 25 hectares of land in the Jalan Duta area to be undertaken by the Naza Group estimated at RM 15 billion value.

• Platinum Park in KLCC also by Naza Group that will incorporate the new iconic Felda Towers and a new Naza Towers. This is a development of RM 5 billion now under construction.

• Old Pudu Prison of 8.5 hectares with a value of RM 5 billion scheduled to start work by early 2011 to be developed by UDA Holdings Berhad.

• Eco City with 10 hectares of DBKL land next to Mid Valley City with a value of RM 6 billion to be jointly developed by another GLC of SP Setia Bhd and DBKL.

• On going KL Sentral of 30 hectares land with a value of RM 12 billion being developed by Malaysian Resources Corporation Berhad.

With the number of hangover projects in hand, the Najib administration is going a bridge too far. Past projects was never taken into account, probably because of kickbacks, red tapes and etc. When you count together the amount of allocations and project costs coupled the amount from the hangover project, the cost is more. And yet the Najib administration is still going for it, making whatever they are doing a very huge gamble. Like in a high stakes poker game, the risk of losing is very high, meaning if there is another global economic bubble bang happening soon, the house of cards would collapse and Najib's mega projects would go under the drain.

5. Brazil Finance Minister Guido Mantega declared on 27 September that a world currency war has broken out already. America is facing the trouble of a weakening US dollar and on the worst case scenario, expect dollar devaluation. In fact the problem could start as early as December. The US dollar could drop as low to $45. In addition to that, expect higher inflation and collapse worse than the 1929 Great Depression in the scope will hit worldwide. Malaysia has no reserves to cushion the impact of such scenario but is still pushing for those projects. It is high time for Malaysia to start reducing its dependence on Western investment as to cushion the possible hit. All those measures like preferential programs and the protectionist fees in buying cars will likely have to go if government does not want people to get economically injured more when the time comes. 

6. The 100-story Warisan Merdeka project is a very foolish idea to do it. It also takes billions of ringgit, which in turn can be used to help the people. These remarks below:

“We take pride in our national icon, the Petronas Twin Towers. It signifies the spirit of Malaysia Boleh. Another landmark to be developed by PNB is Warisan Merdeka, expected to be ready by 2020″ -  Najib

“…everybody wants a tallest tower. Shanghai and Taiwan want more, so why should we hold back?…The most important thing is that we can do it. Why should we hold back?…The building serves to balance Malaysia’s traditional cultures and pursuit for modernity. This will put Malaysia on the tourist map” – Tourism Minister Dr Ng Yen Yen

“The nation must have a dream. We had the Twin Towers and KLCC. Now, the 100-story building will be the new ‘Malaysia boleh’. This is good because we all need to dream. All these projects that are coming under the Great Kuala Lumpur plan and other mega-projects will bring in foreign investors that will spur the economy,” – Deputy Minister in the Prime Minister’s Department SK Devamany

Don't these people have better idea to handle that 5 billion rather than building another landmark that we already have in place like KLCC and KL Tower? I find that whoever says yes to that thing is like ala zombies, follow the leader only, yes man..as what these two are indirectly showing. 

7. Summary and conclusion - Malaysia's ambition of going for more mega projects at the time of turbulence is a very unwise move. As what John Perkins said in his book, only an economic hitmen would advise them to go for more mega projects. Subsidy reduction is another measure that they would suggest. But people do not know that this measure means cheating people of their hard-earned money. And in the end, if the country falls economically, the people will lose big and the economic hitmen wins with the swindled money. Najib is gambling high stakes poker here.