Does Budget 2015 affect Malaysia financial stability

Topic: Does Budget 2015 affect Malaysia financial stability
Introduction
Recently, Malaysian federal government has came up with its financial plan for 2015. With transformation 2020, government came up with latest framework for 2015. As stated by Dato’ Seri Najib Razak (Prime Minister of Malaysia) that this year will be challenging year as we faces many crisis in 2014. Among the crisis happened in 2014 are flood, MH 370, MH 17, QZ 8501 and weaker ringgit. This crisis has brought awareness to government in planning for budget 2015.
As spoken by Dato’ Seri Najib Razak in the parliament in clarifying the budget where in 2015, government will focus on the implementation of National Transformation Policy (NTP). The NTP comprises the Government Transformation Program (GTP), Economic Transformation Program (ETP), Political Transformation Program (PTP), Community Transformation Program (CTP), Social Transformation Program (STP) and Fiscal Transformation Program (FTP) in its efforts to achieve high income economy. The ETP has targets an increase in Malaysia’s gross national income (GNI) per capita of USD 15,000 (RM 54,282) and mobilize its investment of USD 444 billion (RM 160835553.95) by 2020.
The 2015 budget allocates a total of RM 273.9 billion which an increase of RM 9.8 billion compared with 2014 allocation. Of the amount, RM 223.4 billion is for operating expenditure while RM 50.5 billion for development expenditure. Under operating expenditure, RM 65.6 billion is for public sector emoluments and RM 38.1 billion is for Supplies and Services. The largest share of RM 116.4 billion is specifically for fixed charges and grants while RM 1.5 billion is for purchasing of assets. The remaining RM 1.8 billion is allocated for other expenditure that is related with operating expenses. Under development expenditure, the economic sector will receive the highest share at RM29.3 billion, followed by the social sector with RM12.6 billion for education and training, health, housing and the well-being of society. In addition, RM4.9 billion is allocated to the security sector. The balance of RM1.7 billion is for general administration and RM2 billion for contingencies.
In 2015, Government also estimates collection of revenue at the total of RM 235.2 billion with an increase of RM 10.2 billion from 2014. Also, with the implementation of Goods and Services Tax (GST) by the government estimates the collection of GST revenue is the total of RM 23.2 billion. However, government has exempted some goods from GST such as Ron 95 and others that are listed and accumulate at the total of RM 3.8 billion. With the implementation of GST, Sales and Services Tax (SST) will be abolished resulting in the revenue forgone of RM 13.8 billion. Of the total, RM4.9 billion is channeled back to its citizen through assistance program such as the increase in Bantuan Rakyat 1Malaysia (BR1M). Finally, net revenue collection from GST will only amount to RM690 million.
The 2015 budget is formulated with focus on the people’s economy and came up with seven main strategies. The first strategy is known as strengthening economic growth in which the government will continue to provide a conductive and comprehensive ecosystem to accelerate domestic and foreign investment. Under this strategy, government is planning in strengthening Islamic financial market. Currently, the Malaysian Islamic Financial accounts for 25% of the total asset in the banking system. As internationally, Malaysia remains at the largest sukuk (Islamic bonds) market accounting for 60% of the global sukuk market.
Second strategy is enhancing fiscal governance. In sustaining the well-being of its citizen, government took an initiative of imposing GST with rules and regulations. The third strategy is developing human capital and entrepreneurship. Currently, human resource is among the key factors contributing to prosperity of a nation. Wealth creation is no longer solely dependent on resources such as petroleum, oil palm or minerals but also includes ideas, creativity and innovation as well as people’s skills including invention of new products which are capable of driving economic growth and nurturing new entrepreneurs. Consistent with the people’s economy, it is the Government’s aspiration to increase the component of wages to GDP from 34% currently to 40% by 2020. Fourth strategy is increasing equity ownership of bumiputera. In the context of corporate equity ownership, the Bumiputera have yet to achieve the 30% target. Meanwhile, their effective control over corporations is currently only around 10%.
Hence, EKUINAS will be allocated RM600 million to increase bumiputera ownership in private companies and Government Link Companies. To date, EKUINAS has cumulative investments of RM2.3 billion in various sectors. The fifth strategy is upholding the role of women in Malaysia. Indeed women are special. Their uniqueness not only adds grace to the family but they also play a crucial role in addressing life’s challenges. The Government recognizes that women have a pivotal role in national development and in nurturing future generations. Furthermore, sixth strategy will be developing national youth transformation program. Youth are not only the hope of the nation, not just an asset or even a partner in national development, but more valuable than all of the above. Therefore, the Government recognizes the role of youth in becoming future leaders and upholding the responsibility of further developing and prospering our beloved nation.
Lastly, government implementing strategy is prioritizing well-being of citizen. The prosperity of the nation is contingent upon its ability to provide a better quality of life and improved well-being of the citizen. To ease the burden of school expenses incurred by the parents and guardians of students, particularly for low-income group, the Government will continue the schooling assistance program. Starting January 2015, a RM100 each will be given to all primary and secondary school students with an allocation of RM540 million which will benefit 5.4 million students. In addition, for the purpose of purchasing reference books and instruments the Government will continue to implement the 1Malaysia Book Voucher Program with the assistance of RM250 per student. A sum of RM325 million will be allocated for this program and is expected to benefit about 1.3 million students.
Budget is needed in planning systematically for a lead in better nation. Unfortunately, budget 2015 will be seen as a problem due to financial planning that exposes too many risks. As this seen as a problem, we are agree that budget 2015 will affect Malaysia financial stability. As we analyses annual budget from 1994 to 2015, we seen that 2015 budget has a lot of potential but faces a lot of risks and problems to nation and society.

Counter Argument
As this issue arises, government has stated that budget 2015 will take an acceleration focus on transformation policies programs. As this has been an off set for the government due to the unsettlement debt from the World Bank. Currently, Malaysian government has remaining balance of loan amounting RM 568.9 billion as estimated by Malaysian Economist Association (MEA). In the parliament, Prime Minister did not mention any debt by government, so that Malaysian citizen will not panic. As RM 568.9 billion has reached to 52.8 percent in a floor price indicator. Also, the current household debt carries at the rate of 85 percent of Gross Domestic Products (GDP). The Economic Report also discloses that Malaysia’s external debt totals of RM 729 billion equivalent to 67.6 percent of Gross Domestic Product (GDP). This compares with a debt level of RM 335.6 billion or 31.1 percent of GDP before it analyzes the performance of future GDP. As estimated revenue of RM 235.2 billion that is lower than the government expenses. As budget that stated in the parliament shown that the operating Expenditure at the total of RM 223.4 billion and development expenditure at the total of RM 50.5 billion which accumulated at the total of RM 273.9 billion. This evidence indicates that the government might fall into increment of debt as an expense is more than revenue.
Also stated in the budget 2015 that RM 600 million to EKUINAS to enable an increase Bumiputera corporate equity where the prime minister sees it yet to achieve 30% target. The Prime Minister appears to be playing to the right-wing gallery in his party by making these assertions which are not substantial. In this context, as 1 Malaysia is educating by every citizen, Prime Minister should not only focuses on bumiputera equity due to the ownership of bumiputera own at the highest stake. As this effected financial stability due to the corporate ownership of bumiputera reach the highest where else other races do not get the interests that been ffocusing by the government to bumiputera. ocusing by the government to bumiputera.
In the budget, Government shown an improve initiative in implementing GST while abolishing SST. As a concern government, some goods will be exempted from GST as listed in customs websites. Since one of the priority is exempting petrol price. Even though, this will be beneficial to the citizen but it bring terror to the government. Currently, market price of oil is USD 55 where government will not subsidize to the petrol company where as gain revenue from the petrol company. If there are no subsidized but depends on the market price, government will accumulate lower revenue from the petrol company and therefore, not afford in paying national debts. This will lead to unstable financial conditions such as inflation or recession where Malaysian ringgit getting weaker. The Prime Minister indicated that the GST will yield RM 23.2 billion in gross revenue. However, with the implementation of GST, the Sales and Services Tax (SST), will be abolished resulting in revenue foregone of RM13.8 billion. As government also going to abolished gap between rich and poor but in the budget stated that implementation on GST will reduce corporate taxes. In this context, government solely focuses on high level income whereas individual income taxes do not change.
In the economic side, there once exists a long held convention for the annual budget speech which serves as a mobile for reporting to the nation the recent economic performance along with candidates accounting to near team prospects. Such tradition has been replaced to a well-manner. During the budget presentation in the parliament, prime minister should mention the outlook performance of the inflation in the country and also stating an initiative of getting the economy to balance. Citizen needs the transparency of the financial performance in the country. The Economic Report, released simultaneously with the delivery of the Budget, in Table 2.5 shows GDP estimates and forecasts for the year ahead. A close examination of the Table reveals that Private Final Consumption is projected to grow at 5.6 percent in 2015; this rate is the slowest in relation to the growth rate recorded since 2011. What this implies is that households will feel the impact of the GST and subsidy reductions despite the increased transfers under BR1M other handouts.

Argument (What Factors Do Affects Malaysia Financial Stability)
Financial instability is most often caused by multiple factors and it can involve complex dynamics that vary considerably from case to case. There are few factors that can affect financial stability in our country. GST which is going to be implemented in April 2015 is expected to give positive impact to the economy as it reduces the cost of businesses. This is because the business can claim the input tax based on invoice produced. The GST also can lead to more competitive pricing between the vendors and it is estimated to cause an increase in Gross Domestic Product (GDP). This will be beneficial for the economy. Higher GDP will bring more revenue for the economy. By implementing GDP, the shadow activities in the economy can be reduced as through the reduction of shadow activities will bring more profit but GDP can reduce the consumption of people as they will be taxed for it. This is expected from the implementation from the article that was released by Ministry of Finance. They have researched through GST and it is said that it will bring positive outcome for the Malaysia economy. As GST being a positive assistant in supporting the economy, the side effects will occur to the gap between rich and poor. As stated above, government implement GST with the aid of reducing corporate taxes from company, this will lead to beneficial from high income group whereas lower income group could not enjoy similar benefits from GST since it opposed at an initial high rate of 6%. In our supporting opinion, government should also reduce individual income taxes for those earning RM 3000 and below. This is due to GST will burden the lower income groups in buying needy goods where they could not afford in achieving higher disposable income. Even though some goods were exempted totally but they still need to buy things that cannot be avoid from GST. In order to bring balance to the economy system, government need to revise GST implementation and make changes that bring benefits to both parties.
Reduction in petrol price will affect the economy stabilization of the economy. The crude oil price has been traded at $49 on 23rd Jan 2015 by International Brent crude. The oil price has forced Malaysia government which depends on oil based income to make adjustments in 2015 budget to meet the changing price of crude oil which Malaysian government traded US$55 per barrel from the earlier estimate of US$100 per barrel. Based on our opinion, the economy stability will be affected as the GDP will be lower due to the changes in oil price. The GDP growth projection has been revised lower which is 4.5%-5.5% from estimated 5%-6% while the fiscal-deficit-to-GDP target has been raised slightly higher to 3.2%, compared with 3% previously. Star Newspaper has covered the story on 24th Jan 2015 of how the changes in the price will bring down the GDP of the economy as Malaysia depend a huge amount of revenue from crude oil and petroleum related sources. In order to maintain national financial stability, government needs to inject subsidy at a minimal rate to the petroleum company. Even though, GST is exempted to oil prices, government should spend some amount to subsidize the petroleum where household can gain oil prices at a constant rate. As market oil price plays a vital role for the government in gaining higher or lower revenue. If there is subsidize in the market, government can attain higher revenue and can also settle the national debts in the country which leads to better economy.
The government has cut down it operating expenditure by 5.5 billion to deal with deficit budget in 2015. The government will maintain the development expenditure at RM48.5bil under the revised Budget 2015. This is good move to boost Malaysian economy as it will help the economy as the GDP is estimated to fall down in 2015. Our opinion is that government should have taken an even more aggressive stance to cut expenditure to maintain the original fiscal-deficit target at 3% of GDP for this year as part of the country’s economic reform plans. This opinion is also being supported by the article in the Star Newspaper on 24th Jan 2015.
BRIM (Bantuan Rakyat 1 Malaysia) is introduced in 2012 as a way to help the Malaysian citizens to deal with high cost of living that have been accelerating over the years. The amount paid to the household has been increased over the years from RM 500 in 2013 to RM 950 in 2015 and expected to reach RM 1200 in 2016. In our opinion, BRIM is not really necessary as the government is already burdened by the huge amount of debt which amounts of RM 568.9 billion. With the implementation of BRIM in 2013, the government spends RM 3.5 billion for the BRIM solely and by giving out RM 1200 for every household it is estimated the government has to spend RM 8.4 billion. The money from the BRIM can be used for the government expenditure or to pay back the debt which can improve our economy state. This point of view is also shared by our ex-prime minister Tun Dr Mahathir in his blog.

Conclusion
In conclusion, Malaysia budget 2015 will likely to cause financial instability as it majorly affected by huge amount of debt. Economy crisis in 2014 that lead to weaker ringgit has undertook close steps to inflation. Budget 2015 should be revising closely such as implementation of GST, market oil prices and BR1M (Bantuan Rakyat 1 Malaysia). As to achieve higher revenue, the steps that been took by the government should be rational in settling debt with World Bank. Currently, Malaysia has an unsettlement debt of RM 568.9 billion. Government should also analyzes other initiative in restructuring the policies that been focus throughout the year. “Better nation comes with good governance” as once said by Tun Dr. Mahathir (Malaysian ex-prime minister) means that government should know their main priority in which must consider first before others. Even though, budget 2015 lead to many risky situation, but still government took many initiative in aiding the citizen into better nation.

References
Bajet | Budget 2015 Malaysia: UPDATED! [Infographic]. (2015). Retrieved 2 February 2015, from https://www.imoney.my/articles/budget-2015-a-breakdown
Ferry, L., Zakaria, Z., & Eckersley, P. (2014). The role of budget speech: a Malaysian Government study. Intl Jnl Public Sec Management, 27(7), 564-580. doi:10.1108/ijpsm-01-2014-0010
Joon-Chien, D. (1981). Modernizing the budget system: The Malaysian experience. Public Admin. Dev., 1(4), 291-305. doi:10.1002/pad.4230010405
Mybajet.my,. (2015). My Bajet Info| Everything important you need to know on Malaysia 's Budget. Retrieved 2 February 2015, from http://mybajet.my/
Semasa, S. (2014). Ringkasan Budget 2015 Highlight : Dana RM273.9 Bilion Dibahagikan. Berapa Banyak Rakyat di Bawah Dapat? PRO VS Kontra? Berita Semasa. Berita Semasa. Retrieved 2 February 2015, from http://www.beritasemasa.com.my/ringkasan-budget-2015-highlight-malaysia
Themalaysianinsider.com,. (2015). Income tax and corporate tax reduced – Budget 2015 highlights - The Malaysian Insider. Retrieved 1 February 2015, from http://www.themalaysianinsider.com/malaysia/article/budget-2015-live-updates
Xavier, J. (1996). Budget reform-the Malaysian experience. Public Admin. Dev., 16(5), 485-501. doi:10.1002/(sici)1099-162x(199612)16:5<485::aid-pad913>3.0.co;2-c

References: Bajet | Budget 2015 Malaysia: UPDATED! [Infographic]. (2015). Retrieved 2 February 2015, from https://www.imoney.my/articles/budget-2015-a-breakdown Ferry, L., Zakaria, Z., & Eckersley, P. (2014). The role of budget speech: a Malaysian Government study. Intl Jnl Public Sec Management, 27(7), 564-580. doi:10.1108/ijpsm-01-2014-0010 Joon-Chien, D. (1981). Modernizing the budget system: The Malaysian experience. Public Admin. Dev., 1(4), 291-305. doi:10.1002/pad.4230010405 Mybajet.my,. (2015). My Bajet Info| Everything important you need to know on Malaysia 's Budget. Retrieved 2 February 2015, from http://mybajet.my/ Semasa, S. (2014). Ringkasan Budget 2015 Highlight : Dana RM273.9 Bilion Dibahagikan. Berapa Banyak Rakyat di Bawah Dapat? PRO VS Kontra? Berita Semasa. Berita Semasa. Retrieved 2 February 2015, from http://www.beritasemasa.com.my/ringkasan-budget-2015-highlight-malaysia Themalaysianinsider.com,. (2015). Income tax and corporate tax reduced – Budget 2015 highlights - The Malaysian Insider. Retrieved 1 February 2015, from http://www.themalaysianinsider.com/malaysia/article/budget-2015-live-updates Xavier, J. (1996). Budget reform-the Malaysian experience. Public Admin. Dev., 16(5), 485-501. doi:10.1002/(sici)1099-162x(199612)16:5<485::aid-pad913>3.0.co;2-c