Thursday, October 18, 2012
CAUGHT WITH OUR PANTS DOWN IN THE PERFECT STORM PARLIAMENTARY DEBATE ON THE 2013 BUDGET
This is the English version of the speech delivered during the parliamentary debate on the 2013 Budget reminding the Government that we will be caught with our pants down in the perfect storm in the wake of uncertain promises,changing to a regressive tax regime, Ah Longs causing havoc with bankers refusing to lend, AP for cabbages, prosecutorsnot prosecuting corrupt practices, fighting crime from dilapidated police stations and private institutions feeding on PTPTN.
Honourable Tan Sri/ Dato Speaker,
1 Thank you for giving me the opportunity to take part in the 2013 Budget debate.
The Perfect Storm
2 According to economist,NourielRoubini, our country’s economy is the most vulnerable in the “Perfect Storm” that will hit the global economy with the simultaneous economic slowdown in the USA, Europe and China coupled with the military tension and politicalinstability in the Middle East with the Iran nuclear programme. Roubini says that our nation’s economy is one of the lowest ranked in terms of monetary and fiscal capacity to respond to a financial crisis.
3 Roubini said Malaysia has not put into place the critical structural reforms needed. The Federal Government’s debt has almost doubled in less than 5 years from RM247 billion in 2007 to RM421 billion in 2011 far outpacing revenues which only grew 31% in the same period. According to the 2012/2013 Economic Report, Federal Government debt as at June 2012 was RM502.359 billion. This is the result of 16 consecutive years of budget deficits. The Federal Government debt amounts to 53.7% of GDP which is just a whisker away from the 55% of GDP ceiling.
4 The Honorable Members from PermatangPauh, Gombak,Machang, Klang, Shah Alam and others from this side of this August Hall have raised various issuesto protect the nation from the adverse effects of the economic slowdown.They have referred to Pakatan Rakyat’s alternative budget. The BarisanNasional Government,however,remains in denial. BN insists the Malaysian economy will not be affected. While responsible governments have taken heed of Roubini’s warning and have batten down the hatches to face the perfect storm, our Federal Government is merrily giving cash handouts with borrowed funds. We are going to be caught with our pants down when the crunch comes. Therefore, I wish to touch on 7 issues in the hope that the Federal Government takescorrective action to provide some shelter to Malaysians from the impending global economicmaelstrom.
The 1stIssue: Certainty of the Governing Policy
5 The Government must firstly clarify whether the New Economic Policy will be extended after the 13th General Elections (“the 13GE”). Malaysians and investors both foreign and domestic need to know the Government’s direction to preparefor the impending economic crisis. The uncertainty arises from certain contradictory statements.
6 On 30th March 2010, the Prime Minister unveiled the New Economic Model (“NEM”) at the Invest Malaysia Convention. The Prime Minister in paragraph 14 of his speech said:-
“We must recognize that some policies which served a purpose in a previous era, may now be impediments to success, distorting the market and putting us at a competitive disadvantage.”
The Prime Minister went on to say at paragraph 32 of his speech:-
“The New Economic Policy launched about 40 years ago with its affirmative action policy has served the nation well, balancing the economic growth strategies with the need to address structural inequalities and promote social harmony…However, we still have an unacceptably large segment of low-income households in Malaysia. We, the Government are now dealing with 21st century problems that require fresh 21st century approaches.”
7 On 29 May 2010, the Malay Advisory Council (MajlisPerundinganMelayu) (“MPM”), 76 Bumiputra NGOs and PERKASA at the Bumiputra Economic Congress firmly and clearly rejected the NEM. The HonourableMember from Pasir Mas who was the Congress Chairman and PERKASA President said:-
“The NEM has failed make provisions for the Bumiputra Agenda which is one of the pillars of the constitution.The NEM in summary is a betrayal of NEP’s spirit.”
8 The Prime Minister in his closing speech at the Bumiputra Economic Congress said:-
“It is impossible that I, the son of NEP’s founder, will betray his father’s struggle. It is impossible. In my heart,I want to see the Malays rise and prosper.”
9 Based on the Prime Minister’s Congress speech, his earlier promise given at the Invest Malaysia Convention will notbe fulfilled. The Prime Minister has promised the MPM, the Bumiputra NGOs and PERKASA that the NEP will be continued. However, Roubini an NEAC adviser, wrote in an article dated 13 January 2011 that because of certain Bumiputra groups’ objections the NEM will not be implemented before the 13GE but will be implemented after the general elections.
10 If what Roubini says that the NEM will be implemented after the 13GE is true and that the NEP will be discontinued then this will be unfair to the Bumiputra groups who believe in the promise of the NEP’s continued existence. It is for this reason the BarisanNasional Government must disclose whether the NEP will be discontinued after the 13GE. It is important for both groups to know, the one that wants the NEP continued and the other group that does not, so they will not have the rude shock of finding out after the 13GE that they are victims of a hidden agenda.
The 2nd Issue: No Public Debate on Changing to GST Tax Regime
11 From reading paragraphs 80-83 and 145 of the Prime Minister’s 2013 Budget speech, the Government in lowering the 1% income tax rate is doing so in preparation for changing the regime from income tax to the Goods and Services Tax (“GST”). The Government must allow public debate on this change because the tax regime affects everyone.
12 GST is an unfair tax because it is a tax on consumption. It is a regressive tax. The rich and the poor pay the same rate. GST will burden the middle class as well as the poor and affect their quality of life. The Government must not forget that 60% of the households have a monthly income of less than RM3,000.00 which qualify them for BR1M. When they have to pay GST the amount of tax they have to pay will be more than the BR1M they received.
13 I also ask the Government to explain whether GST at the rate of 4% with cost of 3% and net revenue of 1% is worth the trouble the peoplehave to undergo with GST.
The 3rd Issue: Shielding the People from the Credit Crunch
14 We have an open economy and cannot avoid the effectsofa global economic crisis. The Government must take steps to shield and lessen the impact on our citizens. With the overall reduction in the volume of our exports, the Government has changed its focused to the domestic sector.
15 The Government has introduced several measures to encourage the private sector to play a leading role in generating economic activities. Private investment has increased 22.4% to RM94.9 billion in 2011 from RM84.6 billion in 2010. Although the volume of investment is encouraging, the contribution to the GDP remains low at 26.8% compared with 40% before the Asian Financial Crisis in 1995-1997. Further, after 30 years the manufacturing sector is concentrated in assembly operations. Malaysia needs to attract domestic investments for high value added products and to raise the competitive level of the Small and Medium Enterprises (“SMEs”) and shield them during this turbulent time.
16 SMEs constitute 99.2% of total business establishments in Malaysia and contribute 32% of GDP, 60% of employment and 19% of exports. There are various issues confronting SMEs that must be addressed. Among the impediments to the SMEs is the lack of access to financing. As a consequence SMEs will be among the first victims of the credit crunch.
17 The Government must find the means to alleviate the credit crunch that will affect the SMEs. This problem arises from the merger of 55 financial institutions, that in 1999 consist of 20 commercial banks, 23 finance companies and 12 merchant banks, into 10 anchor banks. There are two adverse consequence of having only 10 anchor banks:-
a. The banks are more focused on “fee income” than income from lending to the extent that fee income makes up more than 30% of some banks’ total revenues. The banks have taken advantage of their near monopolistic situation to impose unfair charges at oppressive rates:-
i. There are charges for ATM use;
ii. There is a bank commission for changing coins that is why coins are so precious to the hawkers and stall holders;
iii. There is a bank commission for counting the cash you deposit into your own bank account. I told the bank that if they want to charge me for counting the money I am depositing into their bank then they do not have to count but they counted and still charged me anyway;
iv. There are charges for using cheque and current accounts;
v. RM50 is payable for a confirmation letter for EPF housing loans;
vi. RM20 is payable for a copy of the loan agreement;
vii. RM120 for the bank to issue a redemption letter so the borrower knows the amount he has to pay to settle his loan;
viii. RM200 for successful applications to reduce the bank’s interest charges on your loans;
b. The second consequence of the bank mergersis that without the second tier banks to compete for loans the Banks imposed stringent borrowing conditions. This was implemented long before Bank Negara Malaysia issued the Guideline on Responsible Borrowing. The 10 anchor banks only lend if you are rich, have assets to offer as security and have an excellent track record. This means SMEs and young entrepreneurs do not get access to loans and liquidity even if they have a good project or business because they do not have assets and a track record.
18 Without access to loans from the Banks, borrowers have no alternative but to resort to illegal moneylenders, whom we call “Ah Longs”. We are all familiar with the notorious means the Ah Longs use once they get their clutches on the borrowers. The Honourable Member from Serdang has reported that there were 280 reports lodged with the police on the illegal means used by these Ah Longs, 578 cases in 2009 and the number increased each year. All of us have also heard of the horror stories that led to borrowers running away leaving behind broken homes and more tragically that some of the borrowers committed suicide and killed their familiesin the ultimate desperate act of escapingfrom the Ah Longs.
19 I therefore ask the Government to review the policy of having 10 anchor banks that has caused pain and suffering to the SMEs and other small business concerns. There is a role for second tier lenders such as finance companies and leasing companies to provide financing to those the big anchor banks refuse to entertain.
The 4th Issue: Policy Implementation
20 I ask the Government to give attention to how policies are implemented. Poor implementation of good policiesresults in the target group not receiving the intended benefitsbut suffer losses instead. An example is the AP for cabbages.
21 Please be informed that there are not only APs for importing cars but there are also APs for importing vegetables. One of this is the AP for cabbages. Malaysians eat and munch away 6,000 tons of cabbage a month. The cabbage farmers are in Cameron Highlands. They do not own the land and have to rent the 1-2 acres to grow cabbages. They are thus unable to put in substantial investments. Despite these constraints the local farmers produce between 4,000 to 5,000 tons of cabbages a month.
22 The Government allows cabbages to be imported to meet the excess demand over local production. The price of imported cabbages from Thailand, China,Indonesia and even Holland are cheaper than the local cabbages. This is because of the high prices of fertilizers, pesticides and the lack of economies of scale for the local tenant farmers. FAMA monitors the local production and the amount that can be imported to meet the excess of demand over supply. However, FAMA does not issue the APs. The Ministry of Agriculture issues the APs. The Ministry issued APs to import cabbages without taking into consideration FAMA’s recommendations, thereby allowing more than the amount needed to meet the excess of demand over local supplyto be imported. That is APs are issued for more than the 1,000 to 2,000 tons that the local farmers cannot produce to meet the demand. With the importation of cheaper foreign cabbages, the local farmers cannot sell their produce. The APs have allowed imported cabbages to eat into the local farmers’ market. This is an example where the implementation of a good policy has created a negative effect.
23 Another example is the ban on bird nest exports. The Government has not been able to resolve the issue with the local producers after 15 months. The Government has imposed conditions not acceptable to the local producers. I asked the Government to provide the reasons for the impasse and the proposal to resolve the issue.
The 5th Issue: Corruption
24 The Prime Minister announced in the 2013 Budget a RM276 million allocation to combat corruption. Although funding is important, the Government needs to address MACC’s difficulties:-
a. According to the Sarawak Report, the Attorney General did not provide the co-operation required by ICAC Hong Kong in their investigation into transactions involving the Chief Minister of Sabah. Due to the lack of co-operation ICAC withdrew charges and returned S$16 million seized earlier;
b. It appears there is some basis to the disclosures by Sarawak Report because the authorities in Switzerland have commenced a money-laundering investigation into UBS Bank’s involvement in the proceeds relating to accounts said to be connected to the Sabah Chief Minister;
25 I also ask the Government to explain why MACC has failed to investigate and charge those in Malaysia who received bribes when the authorities in the home countries of the companies whose officers gave bribes to the Malaysians have been charged, convicted and fined. The following are three examples:-
a. The Securities and Exchange Commission USA has fined Alcatel-Lucent US$137 million for corrupt offences in various countries including for a US$700,000.00 payment to 2 Malaysian officials for confidential information;
b. The German giant, Siemens has been fined a record US$1.6 billion for corrupt offences in various countries including Malaysia involving the Power Transmission and Distribution Group of Siemens;
c. The French company, Alstom, was fined by the authorities in Switzerland RM133 million for corrupt practices in various countries including payments for obtaining contracts in Malaysia. Alstom had been awarded contracts involving RM2.8 billion from Tenaga Malaysia for a 1300 MW power generation plant in Manjung. Alstom also obtained contracts in Lumut, Kuala Langat, HuluTrengganu and others.
The 6th issue: Security
26 The Honourable Prime Minister has allocated RM591 million to reduce the crime rate. Among others, is an allocation of RM20 million for the purchase of 1,000 motorcycles for the police. I welcome the allocation to improve security even though the price for each motorcycle is higher than usual.
27 Besides providing motorcycles to the police, I ask the Government to give its attention to the building of police stations. The 9th Malaysia Plan and 10th Malaysia Plan have made provisions for the building of police stations. Unfortunately, the money allocated has not been paid to the police. For example, the land for the police station in Bandar Country Homes in Rawang has been gazetted but yet to be built. The developer provided its show house for use as a temporary police station but after 15 years the police are still waiting for the police station and the show house has become dilapidated. We must sympathize with our policemen who bravely performtheir duties riding on new motorcycles but have no proper police station to protect them from the sun and the rain and to have a proper working place.
28 Further since the temporary police station is a community police base,the regulations provide that no more than 15 personnel can be assigned to Bandar Country Homes. This is insufficient because the population has grown over the 15 years with more than 50,000 living in Bandar Country Homes and the surrounding areas like BayuPermai, Taman Desa, Taman Velox and Kota Emerald. As a consequence the residents are living in fear of the criminals. I ask the Government to look into the plight of the residents in Bandar Country Home and the surrounding areas.
The 7th Issue: Reducing Graduates’ PTPTN Burden
29 The Prime Minister castigated Pakatan Rakyat’s proposal for free university education. He saidthat it will bankrupt the country. The Prime Minister instead announced a 20% discount for full PTPTN repayments and 10% discount for those who make consistent repayment on schedule.
30 I ask the Government to consider giving the PTPTN borrowers a moratorium from repayments during this economic crisis until the borrowersare able to find a job with a salary that commensurate with the borrowers’ qualification for example a monthly salary of RM3,000.00.
31 The Government must accept responsibility for the high cost of tertiary education in this country. The Government decided in 1996 to allow profit-seeking private institutions to open and operate institutions of higher learning. These institutions are referred to as “for profit” private institutions to differentiate them from the earlier private education institutions that provided education as a mission or form of social service. One of the reasons for allowing for profit private institutions is the belief that this will lessen the Government’s financial burden to build and operate sufficient numbers of universities to cater for the growing number of students. The Government enacted 6 pieces of legislation for the liberalization of private higher education and corporatization of public universities.
32 With public listed companies entering into the field of higher education for the sole purpose of making a profit the quality of the education provided by such companies became an issue. The National Higher Education Research Institute in a report dated 31 May 2012 stated that the quality of the education provided by private higher institutions of learning has become a critical issue. As they say it never rains but pours. The unfortunate graduates from such institutions not only have to repay the PTPTN loans but also find themselves without suitable employment due to the poor quality of their education.
33 Among the quality issues of private higher institutions are:-
a. The quality of the teaching programmes;
b. The qualification of the lecturers, the lecturers in public universities hold at least a masters degree while those in private institutions generally have undergraduate degrees;
c. The low level of research and publication by the private institution academicians;
d. Due to the profit element, facilities such as libraries are not of the standard of a public university;
34 The argument that the Government’s financial burden will be lessened by allowing private entities to operate higher institutions of learning has been proven to be false. This is because due to the higher fees charged by the private institutions, the Government had to assist by providing student loans which led to the formation of PTPTN. The Government is actually forking out the money for the building and operation costs except that it is in the form of student loans and the money is received by the private institutions as profits. In the process, the students are saddled with the burden of loan repayments even before they can find a job. PTPTN has in 14 years given RM44.62 billion in loans to 1.99 million students, RM23.78 billion to public institutions and RM20.84 billion to private institutions. Out of the 1.99 million students only 769,848 have repaid a total of RM3.37 billion. The reason the rest do not pay may be due to high unemployment rate of local graduates or graduates securing jobs with salaries that do not commensurate with their qualifications. More than 600 private institutions depend on PTPTN because the majority of their students pay for their studies with PTPTN loans. Therefore it is clear that the for profit private institutions of higher learning are feeding on PTPTN.The Government in making the payments to these private universities do not get to own the assets and the money is received by the owners as profits.
35 In the circumstances, the Government must review its decision to privatize higher education because the argument that the financial burden will be lessened is not true. The cost of running PTPTN and the constant need for further financing PTPTN is higher than if the Government had built and operated the universities.
36 The 2013 Budget has not provided the means to deal with the global economic slowdown. With an open economy like ours, we cannot avoid the adverse effects. The Government must give priority to the domestic sector and alleviate the lot of the consumers and the SMEs. However, this cannot be done without increasing disposable income. Only by reducing the cost of cars, public transport, housing and necessities can Malaysians have a chance to overcome the global economic crisis. The Government must also improve its service delivery because a flawed implementation of a good policy will end up hurting the target group more than not having the policy at all. It is hoped that the Government will give attention to these critical matters for the sake of the livelihood and interests of all Malaysians.
9th October 2012
CAUGHT WITH OUR PANTS DOWN IN THE PERFECT STORM
PARLIAMENTARY DEBATE ON THE 2013 BUDGET
WILLIAM LEONG JEE KEEN MEMBER OF PARLIAMENT SELAYANG
at 3:31 PM