Tuesday, March 10, 2009

Mini-Budget Stimulus?

Is the RM60 billion mini-budget sufficiently stimulating?

Unfortunately the budget only gets a C or C- rating from me. You'll read about all the positive points in tomorrow's headlines, so I won't repeat it here, unless it's really good. So I'll focus specifically on the shortcomings on this post.
  1. 1. The announced package is RM60 billion. However, the actual additional expenditure by the Government is only RM15 billion, and even then, it's actually split between 2009 and 2010.

  2. Longer term measures are aplenty in the mini-budget. There's RM25 billion "allocated" as "Guarantee Funds" for corporations to secure loans from financial institutions (no actual money is spent by the Government unless a borrower defaults). There's also some funds allocated for major infrastructure projects. But short-term stimulus measures which are absolutely critical in stimulating our economy under duress are shockingly missing. The loans packages, construction of infrastructure etc., will take months, if not years to take off (i.e., for the effect to be truly felt by the economy).

  3. RM10 billion is allocated to equity investments! Well, that can only refer to ValueCap, and that certainly doesn't add any value at all to the real economy! It keeps some shareholders (probably preferred companies) happy, but it does zilch for the underlying economy. No stimulus impact from this RM10b at all! (Might as well add the total transaction value of Bursa Malaysia to the total "stimulus package" value!)

  4. The RM3 billion tax incentives package looks contrived at best. While I applaud the innovative double taxation relief to companies who employ retrenched workers based on their pay package, there's hardly anything else worth mentioning. Retrenched workers, for example, gets the tax-exempt threshold lifted from RM6,000 to RM10,000 for each year's retrenchment compensation - certainly not worth shouting about.

  5. There's a slew of Private Finance Initiative projects, and so-called off-budget measures which amounts to RM7 billion. This is largely funded by private parties on large infrastructure projects and can't be dictated or driven by the Government. Hence they can hardly be included into the "mini-budget". It's a little like since my actual expenditure is going to be so small (RM10b for 2009), let's find ways to boost the figure so that it'll look good on tomorrow's headlines! (As an example, 2009 Budget was RM209 billion expenditure by Government, it does not include any PFI-type project values, so why should a mini-budget include it?). Just to add, despite obvious short and longer term benefits, there's also no specific allocations for public transport infrastructure projects.

  6. To expand on the short term stimulus measures mentioned in (2) above - we are in a crisis mode. Measures implemented must have immediate impact to relieve the burden of the rakyat, or stimulate immediate domestic demand or investment. These measures may include short-term unemployment benefits for retrenched workers, traditional food-stamps, direct grants to the poor and deserving (who are unlikely to "save" this amount). You need to put money into the pockets of the ordinary Malaysians so that they could spend! But there's none of it at all here.
Therefore, while there are some decent medium to longer term measures committed in this mini-budget, I fail to see the urgency factor within the budget which seeks to immediately stall the continued economic decline, stimulate demand and raise business activities. And that is the most critical component when judging a crisis-driven "stimulus budget", which based on what was announced the DPM, was clearly and disappointingly absent.

It's just not stimulating enough in the immediate term when we are being hit worst, and we are set to be in recession.
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