CIMB Investment Bank Bhd chief economist Lee Heng Guie:
The Malaysian 2011 Budget lives up to its transformational theme. It provides the roadmap to catalyse and transform the economy so as to ensure the gains in 2010-11 are sustained over the medium-term amid still-unsettled external unwinds.
It maps out strategies and measures that are targeted specifically at economic restructuring, revitalising private investment, and enhancing productivity as well as intensifying human capital development. Attracting and retaining talent is a prerequisite for an innovation cum knowledge-driven economy.
Malaysia needs to embrace foreign talent rather than keep them out. The pivotal need is a radical revamp of the education system, ranging from primary to tertiary levels.
Private sector will be harnessed back in the driver's seat as there are fiscal limits to pushing growth through higher public expenditure. What matters most is the timely and effective implementation of the NKEA initiatives so as to produce a significant tangible growth dividend in the medium term. These projects will not take off successfully if structural and systemic barriers to create an optimal investment environment as well as impede growth are still in place. The private sector needs certainty and clarity in policy actions to build confidence and strong commitment on long-term investment and growth strategies.
Faced with rising headwinds in major mature economies, a gradual rollback of fiscal support is appropriate in order to avoid choking off the recovery. Thus, the projected overall deficit of RM45.5 billion or 5.4% of GDP for 2011 (-5.6% of GDP in 2010) and a 2.8% rise in total expenditure to RM212 billion represents a modest stimulus for 2011.
It is a good risk management to keep in place some targeted fiscal measures and expenditure to support growth. That said, it remains important for policymakers to look beyond the short term, putting in place credible fiscal reforms towards a sound fiscal management over the medium term. This is to safeguard fiscal space to deal with unexpected shocks and to enhance policy credibility and effectiveness.
''
RAM Rating Services Bhd: A foundation-setting budget
Budget 2011 ' themed Transformation Towards a Developed and High-Income Nation ' aims to promote a more facilitative investment environment to spur the country's transformation into a high-income economy, as envisioned under the 10th Malaysia Plan and the Economic Transformation Programme.
The Government has estimated that the domestic economy will grow at a pre-crisis rate of 5%-6% in 2011, following the 7% expansion this year. Much of next year's growth is expected to be driven by the private sector, particularly private investments that are projected to increase at an accelerated rate of 10.2% in 2011, after having advanced 15.2% this year; this roughly corresponds to our growth projections of 7.4% for GDP and 11.5% for private investments in 2010.
Addressing the fiscal burden ' sustaining growth momentum and rationalising spending activities
Malaysia's fiscal deficit, which reached a 12-year high of 7.0% of GDP (which also represents a regional high) in 2009, is expected to be reduced to 5.6% this year, followed by a marginally smaller 5.4% in 2011. This rather unflattering comparison is, however, mitigated by our current-account surplus which, at 16% of GDP, dwarfs those of many other countries.
The anticipated slight reduction in the country's fiscal-deficit ratio in 2011 is seen to be achieveable via a moderately strong growth next year and revenue from firm oil and gas prices. Furthermore, efforts through the Government Transformation Programme ' which is likewise allocated a certain proportion of the Budget ' will ensure greater spending efficiency and budgetary control.
Meanwhile, petroleum tax receipts are expected to remain healthy and continue being a significant contributor to overall tax revenue, although there are still risks in terms of price movements next year. In line with the more upbeat economic sentiments, the collection of sales and services taxes is envisaged to be boosted by more enthusiastic consumer spending.
Despite no full-scale announcement of the implementation of the GST, the increase in services tax - from 5% to 6% - is also seen to boost revenue collection. We opine that the public will be able to absorb this slight increase on the back of rising incomes and the ongoing economic recovery. At the same time, the proposed divestment of government-linked investment companies ('GLICs') and the increase in public-private partnerships will somewhat alleviate the public sector's operational expenditure and also stimulate liquidity in the capital markets.
Budget to revitalise private investment
A significant proportion of the development expenditure is committed to facilitating a favourable environment for private investment. Notably, the allocation for 'trade and industry' and 'transport' development - which accounts for 19.6% each of next year's total development expenditure and sums up to RM19.3 billion - shows a hefty annual increase of 53% from the current RM12.6 billion.
Prominent among the list of expenditure items are projects revolve around the Greater Kuala Lumpur National Key Economic Activity. These developments are anticipated to generate a significant multiplier effect to domestic production through better connectivity (urban infrastructure projects such as the Mass Rapid Transport system) and increased financial flows (incentives to accelerate the development of Kuala Lumpur International Financial District).
Accelerating the evolution of the domestic capital market
In tandem with reinvigorating the private sector's interest, Budget 2011 has lent more 'bite' to promoting a more vibrant capital market. The planned divestment of GLICs, together with additional foreign stockbroking licences, will stimulate liquidity and trading on the local bourse.
Moreover, the establishment of a private pension fund can also increase liquidity in the domestic capital markets while providing another avenue of investment for employees and the self-employed.
No less important is the Government's continued initiatives to strengthen Malaysia's position as a global Islamic capital market, specifically through the development of a trading platform that enables foreign securities, including Shariah-compliant investment products, to be listed.
Taken as a whole, the domestic capital markets are expected to experience considerable improvement in liquidity and overall trading activity in 2011, more so after the further liberalisation of capital controls.
High-income structural initiatives
Budget 2011 has made special mention of initiatives to accelerate Malaysia's growth momentum in the coming decade. In particular, the abolishment of a broad range of import tariffs will provide more competitive pressure for domestic industries, thus driving them to improve while offering consumers a greater array of products.
Elsewhere, important measures have been taken to enhance human capital and the efficiency of the domestic labour market, over and above the annual allocation for education.
The Budget has unveiled many initiatives to encourage the increased participation of women in the workforce, the lack of which has been revealed as a significant weakness in the domestic economy compared to many advanced countries. Last but not least, the Government has announced the establishment of a National Wage Consultation Council as a means of promoting more efficient wage determination in the future.
Sundra Rajoo, Director of Kuala Lumpur Regional Centre for Arbitration (KLRCA):
Creating A Business-friendly Environment - Protecting commercial interests
With the government's announcement of the Economic Transformation Programme (ETP), the private sector will be in the driving seat in moving the national economy forward and transforming Malaysia into a high-income economy by 2020. As private investment both locally and from foreign investors is expected to increase to RM 86 billion in 2011, commercial disputes will inevitably arise. Bearing in mind the phenomenal increase in economic and commercial transactions in which Malaysian commodities and services are being widely exported and industrial products imported, disputes between companies are already on an uptrend.
While the Government has established 2 Commercial Division Courts to expedite the hearing of commercial cases and resolve them within 9 months, compared with a longer time frame previously, we feel that the Government can do more to protect commercial interests of both local and foreign companies.
As the country seeks to attract more Foreign Direct Investment and also stimulate domestic spending, the importance of arbitration as an alternative to the courts system should be highlighted to investors and the legal profession as a whole. Arbitration plays a vital role in:
1)'' providing an option that is speedier, flexible, more cost effective and ensures the confidentiality of the parties in dispute. With arbitration, the disputes can be resolved within 6 to 12 months.
2)'' reducing the backlog of cases in the commercial courts.
The Malaysian courts have in fact acknowledged the importance of arbitration and also highlighted its vital role in reducing the number of business disputes in the commercial courts.
We are proposing that all investment contracts should include an arbitration clause, as it would benefit all parties involved if there is a dispute. This provides a greater sense of confidence and assurance to investors as arbitration awards are legally binding and are enforceable in 145 countries (subject to certain conditions). We are committed to supporting the Government's efforts to create a business-friendly environment by protecting the commercial interests of all investors.
Datuk Badlisham Ghazali,'' Chief Executive Officer of Multimedia Development Corporation Berhad (MDeC)
This budget is a clear signal of the governments' seriousness about transforming the country's economic framework to meet the challenges of an Innovative Digital Economy. It is a very good budget for the ICT sector because of the focused and strategic nature of the proposed measures which are aimed at strengthening the eco-system, nurturing talent and creating a culture of innovation and entrepreneurship.'' This dovetails with Phase 3 of MSC Malaysia's development plans.
The four key strategies on which the Budget is built are critical components that address Malaysia's journey towards developed nation status.'' The key initiatives under the Budget will bring Malaysia closer to an innovation-led high-income economy that is competitive globally.
The country needs to leverage on the transformative use of ICT and embrace the opportunities that lie in an Innovative Digital Economy, where knowledge, TECHNOLOGY [], entrepreneurship and innovation are central to economic growth and smart public-private partnerships are essential to spur higher productivity and greater innovation.
With the focus on human capital development in this budget, it is clear that the government understands that much of this transformation sits squarely on our ability to deliver the right quality and quantity of talent.
There is an urgent need to increase efforts to attract, motivate, enhance and retain talented human capital from within the country and abroad.'' Specifically for the ICT sector, where technology is fast-changing, the measures offered will help address the shortage and quality issues on a short-, medium- and long-term basis.
The RM50 million allocated to MDeC to train graduates in ICT to enhance their employability under the 'Finishing School' initiative will support efforts to upskill an additional 25,000 graduates to meet demand in the ICT industry.
The measures announced under the MY Creative Content Programme are significant for the multimedia creative content industry. The RM119 million allocated will further spur the creation and hosting of local multimedia content.
Today, the creative industry is still a relatively untapped but potentially lucrative trillion dollar industry and development of this sector must be further accelerated as a source of national growth and income.
We also laud the initiatives around technopreneur development. The venture capital industry is a cornerstone for innovation, development and growth particularly in high technology sectors such as ICT and the creative industry.
The proposed funding and other incentives will help to create an eco-system which is conducive for entrepreneurs to flourish and thrive. The proposed changes in insolvency laws will also go a long way in encouraging businesses to take risks and stretch their horizons. We also see a lot of opportunities for ICT under the electrical & electronics industry offerings.
The RM857 million allocated will help drive the local ICT sector further, particularly in the MSC Malaysia Cybercity and Cybercentre locations in Penang and Kulim Hi-Tech Park.
The governments' allocation for business outsourcing services is another area that bodes well for ICT. Services like these offer a unique opportunity from both a domestic and foreign investment perspective as well as act as a driver for knowledge and skills development. ICT also gets a great leg-up via the incentives around 'green technology'. Most if not all of the new technologies are ICT-intensive and this will prove to be a great boost to the sector.
In summary, this has been a 'bumper' budget for ICT, from the perspective of ICT as an industry as well as an enabler. It is a clarion call for industry players and reiterates the government's clear drive towards an Innovative Digital Economy.
MDeC is very pleased with the measures provided by the government in this budget as it will help us transform the landscape of business via ICT and push Malaysia closer to becoming an innovation-led high-income economy.
Chartered Tax Institute of Malaysia (CTIM)
Chartered Tax Institute of Malaysia (CTIM) welcomes the Prime Minister's Budget Speech. This is the first budget under the 10th Malaysia Plan, and the strategies are well formulated towards achieving a high income economy by the year 2020.
In line with the Economic Transformation Programme and the New Economic Model, the Budget focuses on boosting private investment, developing the human capital, improving the quality of life of the Rakyat and improving the public service delivery.
There is special emphasis on projects identified under the National Key Economic Areas. The budget deficit for 2011, targeted to be reduced to 5.4% of the GDP from 5.6% in 2010, is a move in the right direction. To achieve this, various tax measures have been introduced in the Budget such as increasing the rate of service tax by 1% to 6% This is expected to compensate for the projected revenue from the implementation of GST.
The scope of service tax has been extended to include subscribers of paid broadcasting services (such as Astro). The Government also hopes to boost revenue from tourism by exempting import duty on approximately 300 items aimed at turning Malaysia into a 'shopping haven'.
To encourage home ownership and ease the burden of first-time purchasers of residential property, there is a 50% exemption of stamp duty for PROPERTIES [] costing not more than RM350,000, with a corresponding 50% exemption of stamp duty on the related loan agreements.
The scope for tax relief of RM5,000 in relation to medical expenses for parents has been widened to include among other things treatment and care at home, day care centres or home care centres. These measures are welcome and reflect the Government's initiative to counter the rising cost of living.
The extension of the Green Technology incentive period should encourage more investments in environment=friendly projects and this move is lauded. Generally, Budget 2011 does not have major changes in direct taxes, and appears to reflect the Government's objective of consolidating the economic recovery and future growth by introducing various fiscal measures to create wealth and employment, with a minor tweaking from the indirect tax perspective.
The Malaysian 2011 Budget lives up to its transformational theme. It provides the roadmap to catalyse and transform the economy so as to ensure the gains in 2010-11 are sustained over the medium-term amid still-unsettled external unwinds.
It maps out strategies and measures that are targeted specifically at economic restructuring, revitalising private investment, and enhancing productivity as well as intensifying human capital development. Attracting and retaining talent is a prerequisite for an innovation cum knowledge-driven economy.
Malaysia needs to embrace foreign talent rather than keep them out. The pivotal need is a radical revamp of the education system, ranging from primary to tertiary levels.
Private sector will be harnessed back in the driver's seat as there are fiscal limits to pushing growth through higher public expenditure. What matters most is the timely and effective implementation of the NKEA initiatives so as to produce a significant tangible growth dividend in the medium term. These projects will not take off successfully if structural and systemic barriers to create an optimal investment environment as well as impede growth are still in place. The private sector needs certainty and clarity in policy actions to build confidence and strong commitment on long-term investment and growth strategies.
Faced with rising headwinds in major mature economies, a gradual rollback of fiscal support is appropriate in order to avoid choking off the recovery. Thus, the projected overall deficit of RM45.5 billion or 5.4% of GDP for 2011 (-5.6% of GDP in 2010) and a 2.8% rise in total expenditure to RM212 billion represents a modest stimulus for 2011.
It is a good risk management to keep in place some targeted fiscal measures and expenditure to support growth. That said, it remains important for policymakers to look beyond the short term, putting in place credible fiscal reforms towards a sound fiscal management over the medium term. This is to safeguard fiscal space to deal with unexpected shocks and to enhance policy credibility and effectiveness.
''
RAM Rating Services Bhd: A foundation-setting budget
Budget 2011 ' themed Transformation Towards a Developed and High-Income Nation ' aims to promote a more facilitative investment environment to spur the country's transformation into a high-income economy, as envisioned under the 10th Malaysia Plan and the Economic Transformation Programme.
The Government has estimated that the domestic economy will grow at a pre-crisis rate of 5%-6% in 2011, following the 7% expansion this year. Much of next year's growth is expected to be driven by the private sector, particularly private investments that are projected to increase at an accelerated rate of 10.2% in 2011, after having advanced 15.2% this year; this roughly corresponds to our growth projections of 7.4% for GDP and 11.5% for private investments in 2010.
Addressing the fiscal burden ' sustaining growth momentum and rationalising spending activities
Malaysia's fiscal deficit, which reached a 12-year high of 7.0% of GDP (which also represents a regional high) in 2009, is expected to be reduced to 5.6% this year, followed by a marginally smaller 5.4% in 2011. This rather unflattering comparison is, however, mitigated by our current-account surplus which, at 16% of GDP, dwarfs those of many other countries.
The anticipated slight reduction in the country's fiscal-deficit ratio in 2011 is seen to be achieveable via a moderately strong growth next year and revenue from firm oil and gas prices. Furthermore, efforts through the Government Transformation Programme ' which is likewise allocated a certain proportion of the Budget ' will ensure greater spending efficiency and budgetary control.
Meanwhile, petroleum tax receipts are expected to remain healthy and continue being a significant contributor to overall tax revenue, although there are still risks in terms of price movements next year. In line with the more upbeat economic sentiments, the collection of sales and services taxes is envisaged to be boosted by more enthusiastic consumer spending.
Despite no full-scale announcement of the implementation of the GST, the increase in services tax - from 5% to 6% - is also seen to boost revenue collection. We opine that the public will be able to absorb this slight increase on the back of rising incomes and the ongoing economic recovery. At the same time, the proposed divestment of government-linked investment companies ('GLICs') and the increase in public-private partnerships will somewhat alleviate the public sector's operational expenditure and also stimulate liquidity in the capital markets.
Budget to revitalise private investment
A significant proportion of the development expenditure is committed to facilitating a favourable environment for private investment. Notably, the allocation for 'trade and industry' and 'transport' development - which accounts for 19.6% each of next year's total development expenditure and sums up to RM19.3 billion - shows a hefty annual increase of 53% from the current RM12.6 billion.
Prominent among the list of expenditure items are projects revolve around the Greater Kuala Lumpur National Key Economic Activity. These developments are anticipated to generate a significant multiplier effect to domestic production through better connectivity (urban infrastructure projects such as the Mass Rapid Transport system) and increased financial flows (incentives to accelerate the development of Kuala Lumpur International Financial District).
Accelerating the evolution of the domestic capital market
In tandem with reinvigorating the private sector's interest, Budget 2011 has lent more 'bite' to promoting a more vibrant capital market. The planned divestment of GLICs, together with additional foreign stockbroking licences, will stimulate liquidity and trading on the local bourse.
Moreover, the establishment of a private pension fund can also increase liquidity in the domestic capital markets while providing another avenue of investment for employees and the self-employed.
No less important is the Government's continued initiatives to strengthen Malaysia's position as a global Islamic capital market, specifically through the development of a trading platform that enables foreign securities, including Shariah-compliant investment products, to be listed.
Taken as a whole, the domestic capital markets are expected to experience considerable improvement in liquidity and overall trading activity in 2011, more so after the further liberalisation of capital controls.
High-income structural initiatives
Budget 2011 has made special mention of initiatives to accelerate Malaysia's growth momentum in the coming decade. In particular, the abolishment of a broad range of import tariffs will provide more competitive pressure for domestic industries, thus driving them to improve while offering consumers a greater array of products.
Elsewhere, important measures have been taken to enhance human capital and the efficiency of the domestic labour market, over and above the annual allocation for education.
The Budget has unveiled many initiatives to encourage the increased participation of women in the workforce, the lack of which has been revealed as a significant weakness in the domestic economy compared to many advanced countries. Last but not least, the Government has announced the establishment of a National Wage Consultation Council as a means of promoting more efficient wage determination in the future.
Sundra Rajoo, Director of Kuala Lumpur Regional Centre for Arbitration (KLRCA):
Creating A Business-friendly Environment - Protecting commercial interests
With the government's announcement of the Economic Transformation Programme (ETP), the private sector will be in the driving seat in moving the national economy forward and transforming Malaysia into a high-income economy by 2020. As private investment both locally and from foreign investors is expected to increase to RM 86 billion in 2011, commercial disputes will inevitably arise. Bearing in mind the phenomenal increase in economic and commercial transactions in which Malaysian commodities and services are being widely exported and industrial products imported, disputes between companies are already on an uptrend.
While the Government has established 2 Commercial Division Courts to expedite the hearing of commercial cases and resolve them within 9 months, compared with a longer time frame previously, we feel that the Government can do more to protect commercial interests of both local and foreign companies.
As the country seeks to attract more Foreign Direct Investment and also stimulate domestic spending, the importance of arbitration as an alternative to the courts system should be highlighted to investors and the legal profession as a whole. Arbitration plays a vital role in:
1)'' providing an option that is speedier, flexible, more cost effective and ensures the confidentiality of the parties in dispute. With arbitration, the disputes can be resolved within 6 to 12 months.
2)'' reducing the backlog of cases in the commercial courts.
The Malaysian courts have in fact acknowledged the importance of arbitration and also highlighted its vital role in reducing the number of business disputes in the commercial courts.
We are proposing that all investment contracts should include an arbitration clause, as it would benefit all parties involved if there is a dispute. This provides a greater sense of confidence and assurance to investors as arbitration awards are legally binding and are enforceable in 145 countries (subject to certain conditions). We are committed to supporting the Government's efforts to create a business-friendly environment by protecting the commercial interests of all investors.
Datuk Badlisham Ghazali,'' Chief Executive Officer of Multimedia Development Corporation Berhad (MDeC)
This budget is a clear signal of the governments' seriousness about transforming the country's economic framework to meet the challenges of an Innovative Digital Economy. It is a very good budget for the ICT sector because of the focused and strategic nature of the proposed measures which are aimed at strengthening the eco-system, nurturing talent and creating a culture of innovation and entrepreneurship.'' This dovetails with Phase 3 of MSC Malaysia's development plans.
The four key strategies on which the Budget is built are critical components that address Malaysia's journey towards developed nation status.'' The key initiatives under the Budget will bring Malaysia closer to an innovation-led high-income economy that is competitive globally.
The country needs to leverage on the transformative use of ICT and embrace the opportunities that lie in an Innovative Digital Economy, where knowledge, TECHNOLOGY [], entrepreneurship and innovation are central to economic growth and smart public-private partnerships are essential to spur higher productivity and greater innovation.
With the focus on human capital development in this budget, it is clear that the government understands that much of this transformation sits squarely on our ability to deliver the right quality and quantity of talent.
There is an urgent need to increase efforts to attract, motivate, enhance and retain talented human capital from within the country and abroad.'' Specifically for the ICT sector, where technology is fast-changing, the measures offered will help address the shortage and quality issues on a short-, medium- and long-term basis.
The RM50 million allocated to MDeC to train graduates in ICT to enhance their employability under the 'Finishing School' initiative will support efforts to upskill an additional 25,000 graduates to meet demand in the ICT industry.
The measures announced under the MY Creative Content Programme are significant for the multimedia creative content industry. The RM119 million allocated will further spur the creation and hosting of local multimedia content.
Today, the creative industry is still a relatively untapped but potentially lucrative trillion dollar industry and development of this sector must be further accelerated as a source of national growth and income.
We also laud the initiatives around technopreneur development. The venture capital industry is a cornerstone for innovation, development and growth particularly in high technology sectors such as ICT and the creative industry.
The proposed funding and other incentives will help to create an eco-system which is conducive for entrepreneurs to flourish and thrive. The proposed changes in insolvency laws will also go a long way in encouraging businesses to take risks and stretch their horizons. We also see a lot of opportunities for ICT under the electrical & electronics industry offerings.
The RM857 million allocated will help drive the local ICT sector further, particularly in the MSC Malaysia Cybercity and Cybercentre locations in Penang and Kulim Hi-Tech Park.
The governments' allocation for business outsourcing services is another area that bodes well for ICT. Services like these offer a unique opportunity from both a domestic and foreign investment perspective as well as act as a driver for knowledge and skills development. ICT also gets a great leg-up via the incentives around 'green technology'. Most if not all of the new technologies are ICT-intensive and this will prove to be a great boost to the sector.
In summary, this has been a 'bumper' budget for ICT, from the perspective of ICT as an industry as well as an enabler. It is a clarion call for industry players and reiterates the government's clear drive towards an Innovative Digital Economy.
MDeC is very pleased with the measures provided by the government in this budget as it will help us transform the landscape of business via ICT and push Malaysia closer to becoming an innovation-led high-income economy.
Chartered Tax Institute of Malaysia (CTIM)
Chartered Tax Institute of Malaysia (CTIM) welcomes the Prime Minister's Budget Speech. This is the first budget under the 10th Malaysia Plan, and the strategies are well formulated towards achieving a high income economy by the year 2020.
In line with the Economic Transformation Programme and the New Economic Model, the Budget focuses on boosting private investment, developing the human capital, improving the quality of life of the Rakyat and improving the public service delivery.
There is special emphasis on projects identified under the National Key Economic Areas. The budget deficit for 2011, targeted to be reduced to 5.4% of the GDP from 5.6% in 2010, is a move in the right direction. To achieve this, various tax measures have been introduced in the Budget such as increasing the rate of service tax by 1% to 6% This is expected to compensate for the projected revenue from the implementation of GST.
The scope of service tax has been extended to include subscribers of paid broadcasting services (such as Astro). The Government also hopes to boost revenue from tourism by exempting import duty on approximately 300 items aimed at turning Malaysia into a 'shopping haven'.
To encourage home ownership and ease the burden of first-time purchasers of residential property, there is a 50% exemption of stamp duty for PROPERTIES [] costing not more than RM350,000, with a corresponding 50% exemption of stamp duty on the related loan agreements.
The scope for tax relief of RM5,000 in relation to medical expenses for parents has been widened to include among other things treatment and care at home, day care centres or home care centres. These measures are welcome and reflect the Government's initiative to counter the rising cost of living.
The extension of the Green Technology incentive period should encourage more investments in environment=friendly projects and this move is lauded. Generally, Budget 2011 does not have major changes in direct taxes, and appears to reflect the Government's objective of consolidating the economic recovery and future growth by introducing various fiscal measures to create wealth and employment, with a minor tweaking from the indirect tax perspective.
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