2012 budget under the microscope at Penang Institute

A week after the 2012 Malaysian Budget, the Penang Institute (formerly known as SERI) held its annual flagship event – the Post Budget Dialogue – to provide critical commentary on the national budget as well as a space for public discussion.

Judging from the packed room, interest in the Budget 2012 was especially high as an announcement on the 13th General Election is expected to be made soon. The dialogue was chaired by Dr Chan Huan Chiang, chair of the Economics & Entrepreneur Programme, Penang Institute, and featured a diverse group of panellists and discussants.

Overall, Budget 2012 was given an overwhelmingly underwhelming response. Below are selected excerpts from the dialogue.

Prof Datuk Dr Norma Mansor

Professor, Department of Administrative Studies and Politics, Faculty of Economics and Administration, University of Malaya; secretary-general of the National Economic Advisory Council (NEAC)

In the 2012 budget the government proposed a flexible remuneration system – the New Civil Service Remuneration Scheme – in order to attract more talented personnel to join the civil service and to encourage existing civil servants to be more dynamic. According to Norma, the scheme will retain or terminate civil servants based on their performance, which is a radical change from current recruitment and career development practices.

She noted that although small and medium enterprises (SMEs) accounted for about 99% of the Malaysian business landscape, SMEs only contribute about 31% to the gross domestic product (GDP), therefore, it is crucial to mobilise and enhance the contribution of SMEs. In the 2012 budget, the government will provide RM100mil for the SME Revitalisation Fund, which off ers soft loans up to a maximum of RM1mil for entrepreneurs to revive their businesses.

The 2012 budget also focused on easing inflation and supporting the wellbeing of the rakyat, including a one-off RM500 payment to poor households and book vouchers for all Malaysian students. The speaker also supported the idea of “1 futsal court in 1 mukim” to encourage young Malaysians to adopt a healthy lifestyle.


Dr Muhammad Abdul Khalid

Economist and senior analyst of Institute of Strategic and International Studies (ISIS)

According to Muhammad, the 2012 budget was not an economic budget but a political one. He stressed that subsidies alone are not enough and that it was crucial to increase disposable income, especially as food prices have increased by 28% and rental has increased by 44% since 2007.

He observed that the budget response to increasing house prices was insufficient. In Singapore, foreigners are not allowed to buy landed properties (except on Sentosa Island), but in Malaysia, foreigners can do so, and end up competing with middle income Malaysians for property. Although the government proposed to increase the limit of house prices from a maximum of RM220,000 to RM400,000 via the My First Home Scheme in the budget, he felt that the issue was not a question of obtaining a mortgage, but rather how buyers could afford to service loan repayments every month.

The Budget 2012 did not address the transportation costs of the majority; even though senior citizens will be entitled to a 50% discount on light rail transit (LRT) and Monorail fares, this is of little benefit to the majority of the population outside the Kuala Lumpur area. In short, he felt that the cost of living issue was not properly addressed by the 2012 budget.


YB Liew Chin Tong

Executive director, Penang Institute and Member of Parliament for Bukit Bendera

Liew said that the New Economic Model (NEM) recognised that 60% of the population are living with a monthly household income of less than RM3,000 and 40% of the population live on an average monthly household income of RM1,500; of the latter, 73% are Bumiputera. He noted that when infl ation kicks in, low income earners would not be able to make ends meet. He shared that the Pakatan Rakyat (Pakatan) 2012 budget proposed:

• A minimum wage of RM1,100 (total compensation) for workers, to ensure that all workers at the lowest level receive a humane subsistence wage;

• To increase the participation of women in the workforce as currently only 46% of Malaysian women are part of the workforce, which is among the lowest in the region;

• To introduce long term policies to reduce reliance on the use of low wage foreign labour, which has contributed to suppressed wages at the low end of the labour market; and

• Improving public transport as a matter of urgency; to use subsidies to “pay” people to take public transport rather than to subsidise petrol for private vehicles.

While both the Barisan Nasional and Pakatan agreed that the only way to cushion Malaysia from the global economic fallout was to create and increase domestic demand, Liew believed that the government’s Special Stimulus Package which focused on construction and new projects would not necessarily trickle down to the man on the street (especially as most contractors engage foreign workers).

In contrast he explained that Pakatan would take a more sustainable approach that focused on increasing the disposable income of more Malaysians.


Datuk OK Lee

Chairman, Federation of Malaysian Manufacturers (FMM) Penang Branch

Lee was of the opinion that the 2012 budget seemed to place greater emphasis on the financial sector rather than the manufacturing industry. In addition, he believed that the 5-95 home loan scheme (where house buyers only place a five per cent downpayment) would encourage even more speculation as buyers could sell their properties and enjoy possible capital appreciation upon completion of their homes.

He also raised his concern over the increased burden for low income earners if the Goods and Services Tax (GST) is to be implemented after the 13th General Election.


K. Veeriah

Secretary, Malayan Trades Union Congress (MTUC) Penang branch

As far as the Malaysian working class is concerned, Veeriah felt that the Budget 2012 had very little to offer workers. Although the Budget 2012 proposed that employers’ EPF contributions be increased from 12% to 13% (for those in the private sector earning RM5,000 and below), Veeriah did not feel that one per cent would be of much help to the working class.

The delay in the implementation of minimum wage was another great concern for lower income earners, according to Veeriah who felt that overall the Budget 2012 did not give enough attention to the working class whom he described as “the biggest contributors to the Malaysian economy.”


Anil Netto

Honorary Treasurer, Aliran

If we look at income inequality and society today, the gap is widening. Despite all the GDP growth (averaging four to five per cent) over the years, the bott om 40% has seen very little improvement. The idea of keeping labour costs low by not increasing the wages will not stimulate domestic consumption. With rising inflation workers will have difficulties fulfilling their basic needs such as housing, education, medical, car, etc.

Netto felt that there was also a deliberate policy of suppressing wages by hiring foreign workers. He noted that on one hand, the government wants to move towards a higher income economy, but on the other hand, short-sighted low wages labour policies are implemented, such as institutionalising subcontracting for labour and delaying the minimum wage.

He also believed that the budget failed to address the leakages in the economy, and the delayed tabling of the Auditor- General’s report was a major concern.


Lim Wei Seong is the head of the Economics and Entrepreneurship Programme at the Penang Institute.

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