Friday, September 01, 2006

Budget 2007 Highlights.

Prime Minister Datuk Seri Abdullah Ahmad Badawi has unveiled an expansionary budget for next year, which contains not only perks to boost business and raise the nation's competitiveness, but also steps to ease the burden of Malaysians in more ways than one. In other words, there was something for everyone in the government's action plan to spearhead the implementation of the National Mission towards realising the objectives of Vision 2020.

They include lowering the corporate tax by two percentage points on a staggered basis from the present 28 per cent to 27 per cent in year of assessment 2007 and 26 per cent in 2008, scrapping school examination fees and helping the 31,000 unemployed graduates in the country to find jobs. Other perks include a bonus of between one and two months for government servants and higher housing loans for civil servants, more houses for the low-income group and increased funds to push development in the agriculture sector.

Some 146,000 civil servants living in government quarters also have much to cheer as they will also now enjoy the cost of living allowance (COLA) previously extended to those who do not live in such premises. But those living in quarters will get only half the COLA rate.

In tabling the 2007 budget at the Dewan Rakyat here Friday, Abdullah, who is also Finance Minister, outlined a host of measures to provide a more conducive environment to accelerate the growth of the private sector, which would resume its role to spearhead the country's economic development and move the economy up the value chain. He also announced moves for more quality education and training at all levels and more scholarships for bright students to develop the country's human capital to realise the objectives of Vision 2020.

As expected by many, the government, in efforts to promote a healthy lifestyle, has raised the specific excise duty on cigarettes by one sen per stick while liquor with alcohol content of more than 40 percent will see the specific excise duty raised by RM5 per litre.

To encourage women to take mammogram tests, they will be given a subsidy of RM50 for every test done in private clinics and hospitals.

To help some 542,000 government pensioners deal with rising costs of living, the government will provide a one-off payment of RM400 to those currently receiving pensions of less than RM750 a month and RM200 for those receiving more than RM750 monthly.

To assist the disabled, Abdullah also announced an increase in sign language instructors and special education teachers for autistic children and raising the monthly allowance of some 9,000 disabled children to RM50 from RM25 currently.

To boost enrolment in national schools, the Chinese language will be a full subject in 150 national schools and Tamil in 70 national schools from next year.

Abdullah also said the government would build 30,000 houses under the people's housing project, Syarikat Perumahan Negara Bhd would build 34,000 affordable housing units, 2,000 under the plan to revive abandoned houses and 2,500 under the "Rumah Mesra Rakyat" programme.

Besides this, a sum of RM2.2 billion would be set aside to build 46,000 units of government quarters, such as the Royal Malaysian Police (PDRM), the Malaysian Armed Forces, Fire and Rescue Department and Royal Malaysian Customs Department and other civil servants.

New hospitals would also be built in Shah Alam, Pendang in Kedah and Permai in Johor with a allocation of RM125 million. "The government will also improve the services of mobile clinics to generate awareness among the people in rural and remote areas on healthcare and nutrition, as well as provide free medical examinations, especially for early detection of chronic illnesses such as cancer, cardiac diseases, high blood pressure and diabetes," he said.

The prime minister said RM159.4 billion would be set aside to finance the budget from RM137 billion in Budget 2006 in efforts to soften the impact of slower global growth on the economy. Of this, allocation for operating expenditure would increase 11.6 percent to RM112.9 billion while funds for development expenditure would increase 31 percent to RM46.5 billion.

Abdullah said the budget deficit would be reduced to 3.4 percent of Gross Domestic Product next year from 3.5 percent this year.

Private investment is expected to further expand by 10.5 percent while public investment would continue to be expansionary, with a growth of 8.0 per cent following significant increase in federal government development expenditure of 32.4 percent.

The manufacturing sector will continue to record strong growth of 6.8 percent, services sector including ICT, tourism and education, 6 percent, agriculture 4.7 per cent and construction 3.7 per cent.

To contain inflation, Abdullah said the government would incur RM19 billion this year in the form of oil subsidy and tax foregone, higher than the RM16 billion last year. Based on the assumption that oil prices would hover at US$70 per barrel next year, the subsidy and tax foregone are expected to remain at the current levels. Here, the prime minister stressed that the government would intensify enforcement efforts to ensure traders do not raise prices of essential goods "indiscriminately."

Of the proposed development expenditure, the largest allocation of RM20.8 billion is for the economic sector, comprising agriculture, industry and infrastructure.

Some RM14.2 billion is for the social sector, including education, health and housing while the vital security sector would be given RM6.8 billion, of which RM2.7 billion is for general administration and RM2 billion for contingency reserves.

To reduce business costs, venture capital companies investing at least 50 percent of their investment funds in seed capital would be given tax exemption for 10 years.

Also, to reduce the tax burden of the private sector, the zakat paid by cooperatives and trust bodies up to 2.5 per cent of their aggregate income would be given tax deduction.

Besides the RM20 billion of projects to be implemented under the private financing initiatives (PFI), he said the PFI Facilitation Fund of RM5 billion has been established.

Abdullah said RM3.6 billion would be given to develop the agriculture sector in efforts to transform it into a modern, commercial and competitive sector. A substantial portion would be used to increase the Fund for Food by RM300 million to RM1.9 billion to finance food production, RM20 million to set up a non-food agriculture credit scheme to encourage farmers to venture into non-food agriculture such as floriculture and kenaf.

Abdullah said RM40 million had been set aside to implement the Beef Valley project in Gemas, Negeri Sembilan while the aquaculture industry would receive a boost of RM92 million for projects such as ornamental fish clusters in Penang, Kedah and Perlis and freshwater fishery research centre in Negeri Sembilan.

Given that the planting of tobacco was no longer viable, especially in Kelantan, he said farmers would be given financing facilities by Bank Pertanian to grow other crops or venture into other industries to generate higher income.

To eradicate hardcore poverty, RM578 million will be allocated to speed up programmes and projects which will benefit some 110,000 participants while RM144 million would be given to further help the Orang Asli.

Abdullah also said RM90 million would be given to purchase and open up new plantation areas.

To boost rural development, RM3.4 billion has been allocated, of which RM780 million would be used to build rural roads, RM251 million for water supply and RM200 million for electricity supply while KEMAS will be given RM615 million to undertake pre-school education programmes, community activities and skills training.

In efforts to make Malaysia a leading international Islamic Financial Centre, Abdullah said all Islamic Banking and Takaful entities that conduct their businesses in foreign currencies would be given tax exemptions for 10 years.

Local and foreign fund managers who manage Islamic funds for foreign investors will also be given tax exemption for 10 years while tax deductions will be given on expenses incurred in establishing an Islamic stockbroking firm.

The prime minister said the government had also proposed that dividends, received by local and foreign individual investors and local unit trusts from listed real estate investment trusts (REITS) be taxed at 15 per cent and foreign institutional investors at 20 per cent for five years.

To encourage banks to expand their operations overseas and set up a regional presence, the government has proposed that Malaysian banks be given tax exemption for five years on income received from their new branches or remittances from subsidiaries overseas, operating within the three year period.

Some RM210 million will be allocated under the 2007 budget to develop biotechnology as well as incentives for companies involved in the sector.

In unwavering efforts to promote the halal industry, the prime minister said RM50 million would be used to set up halal parks in Pasir Mas in Kelantan, Gambang in Pahang, Chendering in Terengganu and Padang Besar in Perlis. "The SME Bank has also allocated RM20 million to finance entrepreneurs to develop these products," he said.

As part of measures to improve the quality of teachers, Abdullah said RM782 million would be allocated for teacher training including pre-service teacher training and in-service teacher training programmes. Some RM101 million will be made available for building 67 housing projects for teachers especially in rural areas.

"The government will ensure students who obtain 10 A1's in SPM or its equivalent from families with a monthly income of RM1,500 and below, are given scholarships to pursue tertiary education," said Abdullah.

To spur the reading habit and life long learning, he said the government had raised the tax relief on purchase of books to RM1,000 per year from RM700.

He said RM33.4 billion would be allocated for education, of which RM6.7 billion is for primary education, RM6.2 billion for secondary education, RM10.4 billion for higher education and RM10.1 billion for training programmes.

The prime minister also lauded women's contribution to society, saying, "we now have a woman among the potential candidates to become Malaysia's first astronaut, another who has crossed the South Pole as well as a world squash champion." He said the government had increased the annual grant provided to non-governmental organisations to undertake women, family and community programmes to RM30 million from RM20 million. To further assist female employees in the public sector, the one-off launching grant given to ministries to set up child care centres would now be expanded to all government departments, he said. Abdullah also called on the private sector to provide similar facilities to female employees.

Turning to youths, he said RM91 million would be provided for sports and training programmes including scholarships for athletes with potential.

In efforts to reduce regional disparity, he said the Northern Economic Corridor covering Kedah, Perlis, Seberang Perai and Northern Perak has huge potential to be developed for a host of specific economic activities. To this end, he said Perlis would be declared a promoted area whereby designated projects in the state would be eligible for a higher level of income tax exemption similar to projects located in the Eastern Corridor of Peninsular Malaysia, Sabah and Sarawak.

Abdullah also said the East Coast border areas such as Tok Bali-Besut and Kemaman-Cherating would be developed with Petronas spearheading the development of the corridor, mainly in downstream industries based on petrochemicals, handicraft and tourism.

As for Sarawak, projects to be implemented include upgrading of Jalan Kuching-Sibu from Simpang Julau to Sibu, the expansion of Kuching International Airport, construction of Jalan Sibu-Bawang-Assan-Seredeng and the Integrated Deep Sea Fishing Port Tanjung Manis as well as palm oil-based cluster industry.

In Sabah, among the major projects are the construction of Jalan Sapulut-Kalabakan, upgrading of the Kota Kinabalu and Labuan Airports, improvement of the Sabah railway as well as the development of palm oil-based cluster industry.

As part of Malaysia's quest to protect the environment, some RM1 billion would be given for various programmes such as preserving the ecological balance and splendour with RM716 million given for a major flood mitigation project.

To ensure public safety, RM4.9 billion would be allocated to make the police more efficient, including installing CCTVs in crime prone areas and deploying an additional 2,000 police patrol cars.

Also, the number of posts for police drivers would be increased by 3,000 plus the existing compensation allowance for motorcycles for police patrols to be raised to RM120 from RM80.

The prime minister said to inculcate greater appreciation of the arts, culture and heritage, RM865 million has been allocated for their promotion including building state cultural parks in Sabah and Kelantan, improvement works of Sultan Abdul Samad building here and the setting up of a Silk Museum in Chendering in Terengganu.

He also said a RM100 million Creative Industry Development Fund would be set in efforts to export quality media content.

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