Friday, October 25, 2013

Live Blogging Budget 2014 [UPDATED]

As usual, I’m going to try live-blogging the budget announcement, commenting on things as and when they are announced. The PM is scheduled to start his speech at 4.00pm, so I’ll begin around then.

[Refresh the page for updates]

  1. PM is in the House, and we’re off in a few minutes
  2. Wasting time til markets close, as usual
  3. I don’t think the KLCI hitting an all time high really proves anything
  4. Forecast 2014 GNI per capita RM34k
  5. Forecast 2020 GNI per capita to beat USD15k target (told ya so)
  6. RM217.6 billion for opex, RM44.5 billion for development – pretty flat over 2013
  7. Budget deficit forecast for next year at 3.5%, right on track
  8. GDP forecast for 2014 is 5%-5.5% – not ambitious
  9. Talking about rail and oil & gas investment – looks like no postponement of RAPID
  10. Logistics masterplan – given our trade openness, this probably should have been done much earlier. Still we’re 29th in the world
  11. Tourist development fund offering subsidised interest rates
  12. RM1.8b for high speed broadband
  13. 10% matching government contribution for voluntary EPF contributions – good move
  14. Private retirement scheme – RM500 one-off incentive for those between 20-30
  15. 12 minutes to market close, and the bigger news items
  16. RM2.4 billion in subsidy and incentive for padi beras and fisheries
  17. Further incentives for agriculture R&D through Biotech Corp
  18. New plan for entrepreneur development to be developed by new dept under MoF
  19. Malaysian Global and Innovation Centre (MAGIC) to boost R&D and innovation (one-step centre) with seed capital of RM50 million
  20. Dunno about that – why would this be more effective than what we’ve done before?
  21. RM120 million for SME development
  22. Here it comes
  23. Committee to investigate government waste identified in the A-G report
  24. Government to switch to outcome based budgeting (I think this has been part of the GTP targets)
  25. MoF, MITI and Health Ministries to be pioneers
  26. No need to file tax return if salary deductions are enough to cover tax liability
  27. Subsidies to be restructured and better targeted
  28. Comprehensive database covering welfare
  29. SST to be abolished (haha)
  30. GST is here!!!!!
  31. Low inflation is the best time for implementation (that makes sense)
  32. GST to be effective April 1 2015
  33. GST rate at 6%
  34. Public goods and services exempted
  35. So is property
  36. One-off RM300 for BR1M recipeints
  37. 1%-3% income tax cut; RM4k households will no longer pay income tax
  38. Income tax bands to be adjusted. Maximum tax rate only applies for incomes over RM400k, instead of RM100k  as now (effective 2015)
  39. For companies; 1% cut in corporate tax (effective 2016)
  40. Income tax for cooperatives also cut
  41. ICT accelerated allowance from 2015
  42. GST related investment, GST related training and others to be given tax relief
  43. Enforcement of profiteering act to be raised
  44. Markets are going to be REALLY happy
  45. After all that, everything else is going to be a bit of an anticlimax
  46. Details of GST will be available eventually through Customs – bookmark this link
  47. Flexible work arrangement to be introduced for women
  48. RM100 school assistance program to be continued
  49. Book vouchers also to continue (RM250)
  50. Lots of investment to ensure LRT, MRT, and Komuter are easier to use
  51. RM4.1b for rural development
  52. Nothing much on housing so far
  53. Lots of smaller allocations now – health, crime, flood mitigation etc
  54. 2.6 million Malaysians above age of 30 have diabetes – sugar subsidy to be cut. Yes!!!
  55. I still think we should tax sugar…and petrol.
  56. RM2.2 billion for women’s development
  57. This is the last time I try following TV, Twitter, and Whatsapp while blogging!
  58. RM441 million for the assisting the disabled
  59. Indian community to be assisted with RM100 million for education, mainly for pre-school; RM50 million for Indian entrepreneurs (Not nearly enough I think)
  60. Now for housing
  61. RPGT to be reviewed. RPGT raised to 30% for 1-3 years, 20% for 4 years, 15% for 5 years
  62. Floor for foreigners raised from RM500k to RM1 million
  63. DIBS is banned!!
  64. 200k new affordable houses to be built in 2014
  65. Incentives for private sector developers to build affordable houses (RM30k per house)
  66. Standards being given for low cost and medium cost houses
  67. Lots of other smaller measures for housing
  68. For middle income taxpayers – tax savings up to RM480
  69. Wrapping up now…finally
  70. One thing more…for the civil service, salary scales to be adjusted?
  71. And one more thing…BR1M goes to 3.0, increased from RM500 to RM650
  72. For single person households, RM250 to RM300
  73. BR1M insurance scheme to be extended to all households members who qualify (worth RM50-100)
  74. RM3000-4000, BR1M will be given RM450, plus RM50 insurance coverage
  75. Allocation of RM4.4 billion for BR1M 3.0 all told
  76. Pensioners to receive RM250
  77. Civil servants to receive half month bonus, with minimum of RM500
  78. All over bar the shouting now

And that’s a wrap. I’ll be looking more closely at the aggregate figures later tonight, hopefully with something coherent to say about it.

47 comments:

  1. MGS Bond Market Rallying pre budget !!!!

    ReplyDelete
    Replies
    1. @anon 3.59,

      Just saw the numbers...wow!

      Delete
  2. MORE THAN 10 MINUTES OF PREAMBLE! AARRGHH!

    ReplyDelete
  3. 6% GST. Many predicted 4%.

    ReplyDelete
  4. You are one happy person now with GST to be implemented and sugar subsidy removed. Say your blogging better than other newsreel, thanks and indeed Monday market will rally ...

    Zuo De

    ReplyDelete
    Replies
    1. Zuo De,

      Yep, two more items off the checklist...

      Delete
    2. Hmmm .... how long is your checklist? All subsidy perhaps. BTW, would you know of any research that show that sin taxes do decrease the consumption of alcohol / cigarettes, i.e. sugar to go the same way so that there will be a drop in diabetic. Of course the argument is the tax to shore up the health service to treat the ailments caused by consumption of these, you know.

      Zuo De

      Delete
    3. Zuo De,

      Still fairly long unfortunately!

      Generally speaking, consumption of alcohol and cigarettes is inelastic to tax, i.e. the marginal impact on consumption from a tax increase is...well...marginal. So the main benefit is more or less raising tax revenues.

      Delete
  5. hope for the same live blogging effort next year's Budget too... :)

    ReplyDelete
  6. Thanks for this. Indeed, better than the online news reports. Looking forward to your analysis.

    ReplyDelete
  7. Reason to decrease subsidy on sugar because of diabetes. Like you said better to put tax instead of subsidy there. What a joke.

    BTW thanks for the summary on the budget. Nice works

    ReplyDelete
    Replies
    1. Indeed should tax just like cigarettes and alcohol as it is put stress on the country health service.

      Zuo De

      Delete
  8. Keep up the good work. And thanks.

    ReplyDelete
  9. really appreciate the coverage. waiting to see the analysis. thank you.

    ReplyDelete
  10. Why weren't there bigger reductions in corporate tax and personal income tax rates?

    I would have thought that the government has the ammo to reduce the corporate tax to, say, 17 per cent and the top personal income tax rate to between 18 to 20 per cent.

    How to pay for it? By a more swingeing reduction in subsidies, for starters.

    I have always said that only education and public health care should be subsidised. Not food items, electricity, water, fuel and public transport.

    As it is, Malaysians are being spoiled rotten by being "cushioned" against the "real costs" of goods and services.

    This makes no economic sense whatsoever, as the lazy and inefficient benefit as much as the hardworking and efficient.

    So, no cheers for Budget 2014. The PM should have gone for a Maggie Thatcher "big bang" instead of timidly testing the waters.

    ReplyDelete
    Replies
    1. @anon 12.04

      I'm opposed to any cut in corporate tax rates, and I'm not overly happy over the cut in personal income tax rates either. The drawbacks of such moves outweigh the benefits.

      Delete
    2. Cutting easily avoided and evaded personal income taxes and corporate tax rates and replacing them with GST which is far harder to avoid is more efficient IMO. Presently, honest taxpayers are subsidising tax evaders/avoiders. A lowered personal and corporate tax rate will also reduce the incentive of taxpayers to expend resources and energy to avoid/evade tax. With lowered corporate tax rates, we may see a reduction in say, transfer pricing, allowing the reallocation of revenue from low tax regimes like Singapore to Malaysia.

      Other benefits include the fact that the Maximum personal income tax bracket has been too low for way too long (RM 100,000? Really?), undulying penalising the middle class who are already squeezed by inflation and rising home prices, and the fact that it makes the introduction of GST so much more palatable to the public.

      Delete
    3. @anon 11.52

      Rather amazingly, less than 50,000 taxpayers (less than 1/2 percent of the labour force) will be affected by the change in the max tax band from RM100k to RM400k. Unless there's wholesale evasion of income taxes, I don't think we can call them middle class.

      Delete
    4. Hisham

      I am a tad confused.

      Why are you "opposed to any cut in corporate taxes" and why are you "not overly happy with the cut in personal income tax rates"?

      I see that Thailand and Taiwan, among others, are planning to reduce their corporate tax rates.

      Singapore, as is widely known, has a corporate tax rate of 17 per cent and a top personal income tax rate of 20 per cent.

      Has this done any harm to the Singapore economy, fiscal surpluses and credit ratings?

      Businesses don't like taxes. Period. The lesser the tax burden, and the simpler the tax laws and rules, the better for them.

      One might argue that profitable businesses reinvest in the economy, upgrade their technologies and work forces and create more and better-paid jobs for Malaysians.

      A lesser tax burden, among other factors, would incentivise them to do this.

      And are you claiming that it is false that investors are attracted to locations where taxes are low (and where there is political stability and certainty in government policies)?

      Delete
    5. This is a race to the bottom. Not good. A targeted tax reduction for re-investment would perhaps be better, similarly, tax rebate to individual that save more would make more sense.

      Zuo De

      Delete
    6. @anon 12.21

      This is a global, not local problem.

      1. Essentially, corporate income taxes are now so low that further reductions do not provide additional incentive for investment i.e. the elasticity of investment to tax rates is non-linear. Instead, corporate surpluses are saved, not invested. Note: 90% of annual national savings in Malaysia is corporate. The household savings rate is less than 2%.

      2. The incentive also appears to work in a perverse way - lower corporate and personal tax rates (higher returns) prompt shareholders/agents to prioritise cost savings over riskier new investment i.e. wages are suppressed.

      Delete
    7. I'm anon 11.52, and thanks for your reply.

      That is precisely my point. Based on the number and size of housing loans being taken to fuel our recent housing prices, I find it very hard to believe that <50,000 earn less than RM 100,000 taxable income per annum. Even discounting for dual income households, this would certainly be surprising news to our property developer lobby that seems to think the market is full of young high earners ready and able to snap up tens of thousands of new units priced above RM 500,000.

      Ergo, we either have massive tax evasion, or a massive property bubble where middle income earners are overleveraging on their homes.

      Delete
    8. @anon

      The rate of increase in housing stock across the whole country is currently running at between 20k to 25k per quarter, about half the rate a decade ago. The bulk of it is in terrace housing. Between 1/2 to 2/3rds of transactions are for housing below RM250k.

      1. I agree, developers are going after higher end property development, but they've restricted supply at the same time.

      2. House price increases have been highly concentrated geographically, and I'm speaking here of both new launches and the secondary market.

      3. Actual home ownership level in Malaysia is only about 70%, which drops even lower in the Klang Valley. There's a significant rental market out there.

      4. Higher income earners and property speculators buy multiple properties. The aggregate numbers say nothing about the number of players involved.

      In short, I don't see this as evidence of wholesale tax evasion.

      Delete
  11. Dear Hisham

    Few questions relating to SST and GST

    1) Where can I find the full list of goods currenly exempted under SST?
    2) I find a link here
    http://www.nbc.com.my/sales-tax-in-malaysia.html

    Thats the best i got

    2) willl the exempted goods be carried over to GST? In form of zero rated or exempted supplies?

    3) for businesses with turnover less than 500k, they are exempted from registering for GST.

    However, to get input tax credit, they need to register.

    My question after registering, do they need to charge GST?

    Or do they finction like zero tax suppliers where they gey input text credit and exempted from charging GST.

    In the my view the second is favourable as it helps small businesses price lower towards consumders. And since they are small businesses, their customers are more likely those with small wallets. Would love to hear your views on this.

    ReplyDelete
    Replies
    1. @anon 6.10

      For 1. and 2. the list of zero-rated and exempted goods and services are appended to the budget speech.

      3. Yes, they need to charge GST if they claim input tax credit (unless they are selling zero-rated goods). So they will be at a competitive disadvantage to larger retailers. Having said that, that's pretty much the same case as now under SST.

      Delete
    2. Dear Hisham

      1) Thank you for the list.

      2) The list of exempted items under sales tax is almost 300 pages whereas GST's zero-rated and exempted list is only 20 pages long. Furthermore, some people told me necessities like rice, bread and tissues are already exempted under sales tax. but now under GST items like bread and tissue paper will be charged GST. tho this will not affect inflation, but the one-time increase in price will burden the low income group

      2) I worked an admittedly simplistic SST vs GST calculation

      http://i.imgur.com/wnkg6oh.jpg

      from my calc, govt can at most get 40% more tax from a switch to GST on a currently taxable item under SST

      so, do you think it is viable to switch to GST with more exempted items in 2015. then set a timetable to remove those exemptions in 2020 giving us times to address issues like income inequality.

      Delete
    3. @anon 2.10

      I attended a briefing by the GST implementation unit. Based on their model generated numbers, both GST and SST are fairly progressive i.e. the poor pay less in both absolute and percentage terms. It's not a small difference either. The tax burden rises faster than the income level.

      I'm ok with the approach as it stands, especially as BR1M more than compensates lower income households for any tax burden they incur.

      Delete
    4. Dear Hisham

      1) What does "The tax burden rises faster than the income level." mean ya?

      2) BTW is the calculation in the diagram i linked accurate?

      Delete
    5. @anon

      1. It goes more or less like this:

      Income level RM1k, tax burden RMx
      Income level RM2k, tax burden Rm4x
      Income level RM4k, tax burden Rm16x

      ...and so on
      2. Looks good to me

      Delete
    6. Hishamh,
      The basis of GST is to broaden the tax coverage. Well, if you have heard of the piramid, the number of rich people is smaller than the rest. So where does the rest of the money comes from? I am still against GST implementation. I strongly suggest to tax people like Warrior 231. Let say 80%

      Delete
  12. Hishamh,

    Would you know a non-partisan web-site(s) that do justices to implementation of GST for skeptics.

    Thank you.

    Zuo De

    ReplyDelete
    Replies
    1. Zuo De,

      Unless you want to read research literature, not really. I'll look though.

      Delete
    2. Zuo De,

      You might want to try this one. It's in BM though.

      Delete
    3. Zuo De,
      UK Poll tax is also EXTREMELY FAIR tax. The one proposed by Maggie Thatcher. Come to think of it, why an old widow pensioner staying in a so called upmarket property pay more tax than 8 fellas staying in another property simply because it's a council flat..........But then the 8 fellas got enough money to pay or not

      Warrior seems to be fucking rich, tax him

      Delete
    4. looes74,

      The poll tax was highly regressive - the 1% with 50% of the wealth paying 1% of local taxes. I flummoxed how you can see this as "extremely fair".

      And first and last warning - I do not allow foul language in the comments on this blog. Any further such comments will be deleted.

      Delete
  13. I am pretty sure those anons proposing tax cuts will find scant sympathy from the blogger. The dude is a dogged tax and spend bleeding Keynesian with a penchant for big government and any would be Hayekian be better beware of his wrath...hahahahaha, wink wink

    Seriously speaking though, there are innumerable papers and views about direct taxation both of the PIT and CIT variety. Suffice to say, readers may want to try both links (a) and (b)below that provide two contrasting snapshot perspectives on the issue, coming from two different schools of thoughts on tax cuts, of course.

    a. http://taxfoundation.org/article/what-evidence-taxes-and-growth

    b. http://people.stern.nyu.edu/nroubini/SUPPLY.HTM

    Me? I take the view that any PIT/ CIT cuts must be accompanied by budget cuts if they are to be effective. In fact, the failure of supply side in the 80s was primarily due to minuscule deficit reduction while Clinton's worked in the 90s precisely cos he cut deficits too (perhaps overlooked in the Roubini paper).

    2. As for PIT and CIT reductions as per GST introduction, I reckon the derivable quantum from CIT/PIT would not be much affected. In fact, though PIT and CIT were reduced in Singapork when GST appeared, derivable revenue from PIT and CIT were largely unaffected and in fact increased. Despite the fact that given its ethnic composition Singapork is not a laudable example anyway, we will nevertheless peruse the impact of GST on revenues there.

    From, 1994 - when a GST of 3% was levied- to 2009 (GST pegged at 7%), total revenue accrued from its imposition has consistently amounted to approximately 10-20% of total operating revenue. For instance Fiscal 2003, the fiscal year after GST was re-pegged at 5%, yielded a revenue collection of 11.7% of GDP while in 2004, it amounted to 13.3%. Approximately 4 years later in 2008, it amounted 17.9% of total operating revenue on the back of a higher 7% rate.

    Data for the preceding approximations were gleaned from:

    1. 2003 & 2004 page 3 at:
    http://www.mof.gov.sg/budget_2005/budget_speech/downloads/FY2005_Budget_Highlights.pdf

    2. 2008 at:
    http://www.mof.gov.sg/budget_2009/revenue_expenditure/attachment/Revenue_Estimates.pdf

    It is only when juxtaposed against Corporate Income Tax(CIT) and Personal Income Tax (PIT), that there is a discernible growth (see page 5 of link no.1) in terms of percentage though it should be cautioned that this was after the GST rate was tweaked an extra 2% (as of 2002) upwards whilst PIT and CIT were scaled downwards. In other words, as a revenue stream, GST has minimal impact even in a high income economy like Spore. In fact, analysts opine of future increases: page 9 here:

    http://www.bdo.com.sg/Publication/internal/Budget Commentary 2009.pdf

    A final point in passing, it is evident that CIT and PIT together account for roughly 45-50% of operating revenue (with CIT taking the lion’s share):

    http://www.mof.gov.sg/budget_2009/revenue_expenditure/attachment/Revenue_Estimates.pdf

    In fact 3 years on since I first penned the simple analysis, things haven’t changed by much:

    http://www.mof.gov.sg/budget_2012/revenue_expenditure/attachment/04Government Revenue 2012.pdf

    It is apparent then that GST’s value lies elsewhere namely in expanding the tax catchment area and in serving as the central plank for tax reform especially in relation to CIT and PIT as well as facilitating subsidy restructuring. Furthermore, the intangible value of GST probably lies in its capacity to “encourage” transparent PIT declaration and compliance as well as providing the consumer a cautionary signal over his discretionary spending ( a consumer may not want to spend on a luxury/non-essential item loaded with GST, a dampener on consumption).

    Warrior 231

    ReplyDelete
    Replies
    1. @Warrior 231,

      And to that I would add: Some of Clinton's success should also be attributed to a windfall increase in capital gains tax yield, from the Dot-Com bubble of the late-1990s.

      Note also - the biggest tax cuts under this GST proposal are for those below the RM100k income threshold. Those earning above that threshold (including, unfortunately, me) still pay the bulk of income taxes.

      Delete
    2. We should start taxing you, Warrior for being a rentier. Kapish!

      Delete
  14. Part 2

    3. Switching to another topic, namely, income inequality, I feel a wealth tax, levied on non-indigenous (pendatang) wealth, is long overdue in order to alleviate economic disparities. The author of link (a) below is talking of a wholly different context

    a. http://www.theaustralian.com.au/business/opinion/a-modest-wealth-tax-will-help-cut-income-tax-and-boost-economic-growth/story-fnc2jivw-1226681629970

    b. http://www.opendemocracy.net/ourkingdom/howard-reed/time-is-now-for-wealth-taxes-in-britain

    but ah' reckon a similar flat 10% on the MYR 800 billon (my conservative estimates) wealth hoards sequestered by non-indigenes in Malaysia would yield MYR80 billion that can be emplaced in a trust fund to finance pro- indigene affirmative action policies which do not extensively impinge on broader economic activity. And a wealth tax will cancel out the income inequality effects of lower PIT or CIT as both (b) above and the link below suggests:

    http://www.huffingtonpost.com/2013/05/28/income-inequality-study_n_3346073.html

    And if the non-indigene pigs make a run for it, slap them with a Nazi style exit/expatriation tax:

    http://en.wikipedia.org/wiki/Expatriation_tax

    Even the Yanks and the Canucks have it, albeit non-ethnic targeted, so why feel queasy over the whole thing.

    I have consistently called for the wealth/exit combination here but the blogger, while admittedly being demonstrably concerned about income inequality, is a chick-hawk when it comes to such measures........hahahaha (just joking dude).

    Anyway, I trust you lot would not mind stomaching the ethnic bashing as I am an unabashed racist, going by yellow livered liberal lingo.

    Warrior 231

    ReplyDelete
    Replies
    1. @Warrior 231

      No need to convince me of the superiority of a wealth tax in theory - it's the implementation that concerns me. And yes, I'd be ethnic-agnostic on this score. Who says inequality is just ethnic-based?

      Delete
    2. Aw man you sound mighty miffed. Take it easy dude that chick hawk thingy was just a joke, nothing more. Relax man, you economists seem to be too highly strung....hahahaha

      But you did sound a tad too skittish about the wealth tax thingy during our previous fencing bouts whenever ah suggested it. In fact you did intimate that the inheritance/estate tax option was a more palatable option more than once, most recently here:

      http://econsmalaysia.blogspot.com/2013/09/the-bumi-agenda-importance-of-evidence.html

      And of course the exit/expatriation tax was game off on your cards. Dude, I understand your misgivings/circumspection about implementation so that is why I highlighted the specific targets from the outset. Come on man, our id papers are pretty clear about our race and there are means to nab the frauds and impostors, so ah reckon implementation would be smooth sailing.

      And of course I would leave me, an indigene, out of it for I sure worked hard for every penny of the hoard I have accumulated and to have some taxman Johnny levying a wealth tax on that stash of moolah and assets would pretty galling and unfair to a honest sweat off the brow guy don't you think? Yes siree, it sure would. And that probably applies to the 90% of all self made bumis in my reckoning.

      But not so for the nons, they leveraged legacy wealth gained via nefarious means to be where they are today with only 10% or less being real rags to riches tales or brains to wealth yarns. As I said a flat rate wealth tax and bingo we swipe Miss Gini off the deck provided we astutely invest the returns on solid pro affirmative policies targeted at our less fortunate brethren.

      And an expatriation tax,to give it its proper moniker, to nab every vermin and scumbag who dare run away with his ill-gotten gains.

      Warrior 231

      Delete
    3. Warrior,

      You're always reading to much into what I write. Maybe I ought to use more smileys next time. :D :D

      Delete
    4. That's more like it, dude. ; D : D ; O

      OK back to work......


      Warrior 231

      Delete
    5. Hishamh,
      Remember this guy is a Malaysian KKK or Nazi. Try not to get yourself associated with him. What next come up from this fucker? The final solution?

      Delete
    6. looes74,

      I listen to him because despite the colourful personality and very colourful language, most of his arguments are backed up by solid research. Plus he keeps me on my toes.

      Delete