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Main Page BUDGET Yearly Budget Budget 2000
Budget 2000 Print E-mail


THE 2000 BUDGET SPEECH

 
"PEOPLE'S BUDGET"
By
YB DAIM ZAINUDDIN

MINISTRY OF FINANCE MALAYSIA
INTRODUCTION THE SUPLY BILL (2000)
AT THE DEWAN RAKYAT
ON 29 OKTOBER 1999
CONTENTS
I
INTRODUCTION
V
PROSPECTS FOR THE MALAYSIAN ECONOMY IN 2000
II
MALAYSIA'S ECONOMIC PERFORMANCE
VI
CONCLUSION
III
APPENDIX
IV
BUDGET STRATEGY 2000


Mr. Speaker Sir,

I beg to move the Bill intituled "An Act to supply a sum from the Consolidated Fund for the service of the year 2000 and to appropriate that sum for the service of that year" be read a second time.

  I INTRODUCTION

    Mr. Speaker Sir,

    When I was appointed the Minister of Finance in 1984, the signs of the recession were beginning to be seen. Hardship was experienced when the economy contracted in 1985. However, the timely implementation of effective policies by Government successfully turned the economy around in a short space of time. When presenting the 1987 Budget, I urged the rakyat who had become accustomed to good times to face reality. Numerous companies were forced to wind up and many lost their jobs. The Government and the private sector took cost cutting measures. Several measures were also undertaken to stimulate economic recovery. Many of you will certainly recall the effort by Government to assist thousands of graduates who were unemployed through the Skim Khidmat Sambilan. However, effective measures by Government successfully overcome the recession. The recovery was followed by strong economic growth, averaging more than 9 percent per annum for 10 consecutive years.

    Economic crisis recurred after currency traders attacked the Thai baht in July 1997. The crisis this time was different in nature from the recession we faced 10 years ago. At that time, the primary cause of the economic crisis was the sharp decline in prices of primary commodities, following a slow down in world growth. At the same time, the composite index of the stock market also declined. This time around, the economic downturn is the worst since the Second World War, and is caused primarily by speculative activities of currency traders that led to the collapse of the stock and currency markets. What is even more damaging, is the simultaneous collapse of both these markets. In addition, the economic contraction in 1985 was much smaller, at 1.1 percent compared to the sharp contraction of 7.5 percent in 1998.

    Unfortunately for the nation, measures taken to mitigate the crisis in the stock and currency markets did not work, as the then Minister of Finance, chose to adopt the International Monetary Fund (IMF) approach that aggravated the hardship.

    Subsequently, the Government established the National Economic Action Council (NEAC) in January 1998. NEAC, comprising representatives from various sectors, aimed at identifying the most appropriate strategies to mitigate the impact of the regional economic crisis. NEAC was also tasked to identify ways to revive the economy. These efforts have already yielded results. Although the economy has recovered, much remains to be done after a contraction of 7.5 percent last year. In this context, I believe that regardless of the strategies or measures outlined in this Budget, members of the opposition will still be prone to label it as an Election Budget.

    In fact my expectation has already come true as members of the opposition were already throwing such accusations last week. They dispute the indicators of recovery. Statistics do not lie. Do they want the Government to manipulate statistics? Of course, this has become a political platform for opposition members who question every move by the Government. As a responsible Government we do not use the Budget for political advantage nor to garner votes. On the contrary, in 1990, the Government postponed the presentation of the Budget to hold elections. However, when the election was held we won with an overwhelming majority. I would like to stress that the Budget this year is aimed at strengthening the foundations for the achievement of economic growth and the well being of the people. The Barisan Nasional Government is a responsible Government and has never misled the people.

    Mr. Speaker Sir,

    In planning for the future, it is important that we learn from the experiences and lessons of the past two recessions.

    When the Hon. Prime Minister presented the 1999 Budget in this House, the economy was still at the height of the crisis. At that time, selective exchange controls had just been introduced following extensive discussions with the EXCO of the NEAC in 26 meetings.

    Malaysia is not the only country that has implemented exchange controls. Various forms of exchange controls had also been implemented by a number of countries, including Britain, Australia, Germany, Chile and Taiwan at different times.

    Without giving exchange controls a chance to work, critics were harsh in their condemnation. They labelled the measures were impediments to inflows of foreign investment and lamented that Malaysia was moving away from being an open economy. Calls by the Hon. Prime Minister to the international community, in particular developed countries and major powers, to regulate the speculative activities of hedge funds and currency traders not only went unheeded but also drew strong opposition.

    After one year, the hard-hitting critics in the West have come to acknowledge the success of these measures. The Managing Director of the IMF himself commended Malaysia for its success in turning around the economy. While the IMF and World Bank strongly opposed these measures in the past, today their views are more positive. The Minister of Finance of Japan, Kiichi Miyazawa has also acknowledged the success of these measures. However, there are still critics at home who, together with foreign journalists, continue to dispute the success although the indicators of recovery are so evident. Unfortunately, among the most cynical about Government’s measures are Malaysians who conspire with foreigners envious of our success.

    While developed countries acknowledged the instability caused by activities of hedge funds and currency traders, we remain doubtful about their willingness to introduce regulations to monitor international capital flows. We also regret that not even a single crisis-affected country in ASEAN, has been included in the Group of 20 that will be discussing the New International Financial Architecture. This clearly shows that developed countries are not concerned about the interests of developing countries but are instead caught up with their own agenda.

    As a multi-ethnic and multi-religious nation, the formulation of economic policies and strategies must take cognisance of the socio-political fabric of the country. We had strong reasons for not asking the IMF for assistance. We do not want our destiny to be determined by foreigners; we do not want to lose ownership of domestic banks and strategic industries; we do not want to see Bumiputera being marginalised again and we are not willing to see our political direction determined by pressures from foreign parties. If we were to submit to the dictates of foreigners in formulating our national policies disregarding our socio-political realities, we will have to bear the adverse consequences. If we choose wrongly, we could lose our sovereignty to manage and administer our economy. We may be forced into submission. Mr. Speaker Sir, national dignity and sovereignty cannot be compromised.

    Unfortunately, there are some quarters that persist in taking these threats lightly in order to continue to be popular in the eyes of some western powers and the foreign media. When the crisis hit us, there was a time when we blindly accepted the policy approach of the IMF. In fact, these policies were implemented on the insistence of Bank Negara together with those who managed the economy then. Allocation for Development Expenditure was reduced by 21 percent. Banks imposed high interest rates. Growth in bank lending in 1998 was initially capped at 20 percent and was further reduced to 15 percent. In addition, the period for the classification of non-performing loans (NPL) was reduced from six to three months. What was the basis of the IMF prescription then? They claimed that such measures would restore the confidence of foreign investors in our currency and stock markets. They reiterated the need for reform and discipline in financial management, as if the Government was undisciplined and irresponsible in managing the nation’s finances. If this were indeed true, we would certainly not have the economic and financial resilience that enabled us to mitigate the problems of the recession.

    The IMF approach was clearly not suitable for us. Eventually, after much time was wasted and after much hardship was felt, we decided to do it our way.

    One of the measures undertaken by the Government was to assist viable companies facing financial problems. However, critics only viewed these measures as bailouts for the large companies. This is certainly not true. On the contrary, there are also thousands of small companies that benefited from this policy. These measures were undertaken to save thousands of jobs and in recognition of the significant contribution of these companies to the nation. This action is not peculiar to Malaysia, as many other countries have done it before, including the United States, France and Australia. This is another proof of the double standards of developed countries for whatever agenda they may have.

    Bumiputera community represents an important segment of the Malaysian society. Indeed, the National Development Policy emphasises their role as partners in the nation’s development. We will not compromise on this policy, given that it is aimed at balancing the economic status of Bumiputera vis-a-vis the non-Bumiputera in this country. At the same time, the Government will also not compromise the rights and position of the non-Bumiputera.

    Economic recovery is increasingly evident. We are more confident that we can achieve even greater success. Our success thus far should motivate us to reach for greater heights into the new millenium.

II    MALAYSIA'S ECONOMIC PERFORMANCE

    Mr. Speaker Sir,

    When presenting the Budget last year, the Government forecast that the economy will grow at 1 percent this year. We are grateful that the performance of the economy is far better than we expected. The economy has recovered to register positive growth of 4.1 percent in the second quarter of this year, after experiencing contraction for five preceeding consecutive quarters. Based on the expectations of a stronger growth of 7.2 percent in the second half of 1999, real Gross Domestic Product (GDP) is expected to grow 4.3 percent this year. Measures taken by the Government has resulted in significant recovery of the economy as compared with the contraction of 7.5 percent in 1998. This is a massive turn around of 11.8 percentage points in a short space of time. The recovery is largely due to domestic economic activities. This significant recovery has been achieved in an environment of lower inflation. Consequuently, per capita purchasing power parity has improved by 4.4 percent to 8,604 US dollars this year. As compared with other crisis-affected economies, this increase is among the highest.

    Almost all the economic sectors are expected to contribute to this positive growth. The manufacturing sector that constitutes 29 percent of GDP is expected to grow rapidly by 8.9 percent . This growth is led by expansion in output of domestic and export market-oriented industries. The agriculture sector is also expected to expand at 4.6 percent on account of the expansion in the output of palm oil. Consistent with the recovery in the major economic sectors of the economy, the services sector is also expected to expand by 2.4 percent. The construction sector is expected to contract moderately at 3.6 percent compared with 23 percent in 1998, given the current excess capacity in the industry.

    Trade performance is also expected to improve significantly with export value in US dollar terms increasing by 23.1 percent in the January to August period this year. The value of imports has also increased reflecting stronger domestic demand. Consequently, the nation continued to register a trade surplus for 22 consecutive months up to August this year. From 1990 to 1997, the current account of the balance of payments recorded yearly deficits. However, since 1998 we have been successful in registering large surpluses in the current account of the balance of payments as a result of large trade surpluses.

    The nation’s external reserves has increased significantly to 30.2 billion US dollars on 28 October 1999 compared with only 20.2 billion US dollars at end-August 1998. This amount is sufficient to finance 6.2 months of retained imports compared with only 3.8 months registered at this time last year. At this level, reserves are four times higher than the nation’s short-term external debt, reflecting a strengthening of the nation’s resilence to external shocks.

    Investor confidence is also on the rise. On 28 October 1999, the KLCI stood at 750.2 points, 185.6 percent higher than the level on 1 September 1998. Market capitalisation has also recovered and stands at 502.99 billion ringgit compared to 181.5 billion ringgit last year. This means that 321.49 billion ringgit of financial wealth has been recovered. The impact of this recovery in wealth has restored consumer confidence that was severely affected at the height of the crisis last year.

    Domestic inflationary pressures have also abated. The rate of increase in inflation continues to decline, averaging 3 percent in the first nine months of this year compared with 5.2 percent in the corresponding period last year. On a monthly basis, inflation has decelerated from a high of 6.2 percent in June 1998 to 2.1 percent in September 1999. The Government will ensure that the level of inflation remains low so that it does not burden the people.

    In regard to the labour market, the total number of workers that has been laid off declined from a high of 12,335 in July to 4,084 in September 1999. Job vacancies have also increased from a low of 4,244 in October 1998 to 10,767 in September 1999. For the year as a whole, unemployment is expected to be 3 percent, lower than the full employment rate of 4 percent. In terms of contribution to the Employees Provident Fund (EPF), the number of contributors has increased by almost 1 million from September 1998 to September 1999. Monthly contributions have increased to 1.3 billion ringgit compared with 1.2 billion ringgit in August last year. All these indicators provide clear evidence of the economic recovery.

    The implementation performance of public sector projects has been encouraging, following closer monitoring of progress of these projects, particularly at the weekly meetings chaired personally by Ministers. Up to 13 October 1999, 63 percent of development expenditure for 1999 has been utilised. This includes economic and social projects like agriculture, public facilities, education and health. The Government will ensure that expenditure allocations are fully utilised to enable the fiscal stimulus to provide the anticipated positive impact on the economy.

    In regard to capital control measures, critics estimated that a large outflow of funds would occur on 1 September 1999. As it turned out, net funds that left the country on that day only amounted to 327.9 million US dollars. This is small compared with the 10 billion US dollars that was estimated earlier by our critics. It is clear that despite all the dire predictions, the large outflow did not occur after all.

    The performance of the banking system continues to improve as a result of the measures taken to restructure and revitalise the economy. The risk-weighted capital ratio of the banking system stood at 12.7 percent in September 1999 compared with 10.6 percent in September 1998, higher than the Basle Standard of 8 percent. The NPLs of the banking sector was at a manageable level of 7.9 percent in August 1999, based on a 6-month classification, compared with 11.4 percent in August 1998. At the same time, the base lending rate has been reduced from 11.7 percent in August 1998 to below 7 percent currently.

    The Government has also taken full advantage of the economic recovery and the return of stability to financial markets to intensify efforts aimed at strengthening the financial system against systemic risks. The establishment of Danaharta, Danamodal and the Corporate Debt Restructuring Committee (CDRC) has successfully addressed the NPL problems, enhanced the capital base of the banking system and encouraged corporate restructuring. Up to 15 October, Danaharta has taken over and manage NPLs amounting to 39.3 billion ringgit while Danamodal has injected funds totaling 6.91 billion ringgit in 10 banking institutions. During the same period, CDRC received 63 applications with debts totaling 35.02 billion ringgit. Of this, 15 debt restructuring schemes involving 12.73 billion ringgit have been resolved. The World Bank has acknowledged that our achievement in strengthening the financial sector has been significant. In fact, a survey of fund managers undertaken by NEAC revealed that some of them considered our achievement as the best in the region.

    The critics have once again leveled the accusation that the CDRC was established to provide ‘bail-outs’. This accusation is completely baseless. Are we prepared to have these companies with growth potential fail and become bankrupt? Perhaps that is what some would like to see happen; bloodshed, suicides, thousands unemployed or forced to sleep on the side walk, as what has happened in a number of other countries affected by the same economic crisis. As a responsible and caring Government and with the view to preventing corporate failures and the closure of businesses, the CDRC was established. This will ensure the resilence of the banking system. It will also prevent an even worse outcome, like massive lay offs and increasing unemployment and the deterioration of confidence. The Government wishes to stress that it will ensure that the interests and well-being of all are taken care of, including investors, workers and even more importantly, the people.

    There are indications that the pace of activities in the corporate sector has picked up. The registration of new companies has once again increased significantly by 50.3 percent to 20,350 companies in the January-September 1999 period compared with the corresponding period in 1998. Meanwhile, the average monthly loans disbursed in the January to August 1999 period was 26.4 billion ringgit, an increase of 32.3 percent compared with the monthly average of 19.9 billion ringgit for the whole of 1998. In the same period, loans approved by the banking system increased by 75.2 percent to 8.4 billion ringgit compared with 4.8 billion ringgit for the whole of 1998. In this regard, the Government would like to urge the corporate sector to continue to take advantage of the ample liquidity to redouble their efforts to further strengthen the nation’s recovery.

III    ECONOMIC CHALLENGES

Mr. Speaker Sir,

Although the economy has recovered strongly and growth will become more sustainable next year, we must be vigilant and ready to face challenges, from within and externally. Among the external risks that can threaten the growth prospects of the economy are:

 First :the ability of the United States to maintain its growth momentum may be affected if interest rates are increased to contain inflationary pressures;
 Second :the Malaysian stock market will be affected if there is a major correction in the United States stock market and if Hong Kong undertakes to sell its shares in a big way;
 Third :the economic recovery in Japan remains fragile, if a delay occurs in implementing policies to stimulate growth, in particular, the fiscal stimulus and measures to manage the problem of weaknesses in its financial system;
 Fourth :if the strengthening of the yen vis-à-vis the US dollar is sustained, it could delay the recovery of the Japanese economy and burden other Asian countries, including Malaysia, in particular, a rise in the cost of imports and debt burden;
 Fifth :the recovery of regional economies is not as yet entrenched and still depends on the ability of crisis-affected countries to restructure their corporate sectors and strengthen further their banking sectors. In addition, uncertainties in regard to the weather can also threaten the agriculture sector in Southeast Asia; and
 Sixth :the region is still exposed to continuing risks from attacks by foreign speculators, like that which occurred on currencies like the Thai baht in the Hong Kong market early this September.

 

We are determined to address domestic economic issues to strengthen the foundations for economic growth. Although Malaysia has recovered from the worst of the crisis, the recent financial crisis has been a lesson to us to address our structural weaknesses. Our economy is overly dependent on external demand, while domestic demand in particular, that of the private sector is insufficient to support economic growth. Our export base needs to be expanded and diversified to reduce the over dependence on a few exports of manufactured goods, in particular electronics and semiconductors. As such, to sustain economic growth, the foundations of our economy must be more balanced and sources of growth diversified.

IV.    BUDGET STRATEGY 2000

 

Mr. Speaker Sir,

Taking into account the external economic environment and domestic circumstances, the Government is determined to continue with its pragmatic approach in strengthening the economic recovery. This year’s Budget will be the first for the 21st century. As such, this Budget will lay the foundation and determine the policy and strategic directions for the nation's development to face challenges as well as to avail of the opportunities in the new millenium. The thrust of the Budget 2000 strategy is aimed at:

 icontinuing the recovery through revitalising economic growth to a level consistent with the growth potential of the nation;
 iistrengthening further the competitiveness and resilience of the nation to external risks;
 iiitransforming services into a lead economic growth sector in addition to strengthening the development of the agriculture sector;
 ivdeveloping the human resource in respect of their skills and knowledge; and
 vextending social programmes and programmes for the well being of the people and environmental preservation.

 

  1. Continuing the Recovery through Revitalising

    Economic Growth

    Encouraging Private Sector Activities

    The Budget 2000 strategy will continue to focus on efforts to speed up economic growth, in particular to revitalise domestic demand as a primary source of growth. The private sector needs to play a more active role to accelerate economic activities. In this regard, the Government has provided a conducive environment to assist the private sector to increase investment and its competitiveness, in addition to encouraging domestic consumption expenditure.

    For this purpose, I propose that from the year of assessment 2000 individual income tax rates be reduced by one percentage point across the board and as such the highest rate is reduced from 30 percent to 29 percent. In addition, income tax rates for cooperatives will be reduced by one percentage point across the board while individual income tax rate for non-residents by one percentage point. I also propose that personal relief be increased from 5,000 ringgit to 8,000 ringgit. With these measures, the Government will forego revenue amounting to 700 million ringgit. With this change, 213,000 persons or approximately 15 percent of the total number of taxpayers will no longer be required to pay tax. As a result of these measures a single person with a monthly income of about 1,400 ringgit and a married person with two children with a monthly income of about 2,100 ringgit will no longer be required to pay income tax.

    These measures reflect the Government’s commitment to an equitable tax system where income tax is imposed on the basis of the ability to pay. It is also the Government's policy to move to a lower tax regime. As the Government believes that total national income will increase with economic growth, the Government will endeavour to further reduce individual and company income taxes from time to time.

    The amendment of Section 365 of the Companies Act, 1965 restricted the payment of dividends to an amount not exceeding the after-tax profit of that financial year or not exceeding the average dividends declared in respect of the two financial years immediately preceding that financial year, whichever is greater. Since its implementation, there have been many calls for a review. As a Government that is receptive to constructive views and suggestions, I now wish to announce that the restriction be removed with immediate effect.

    Continuing the Fiscal Stimulus

    The Government will continue to implement the fiscal stimulus with a view to further revitalising economic growth. However, in line with fiscal prudence, the Government will ensure that the current account of the Federal Government will be in surplus or at least balanced, while the overall deficit of the Federal Government will be maintained at a sustainable level.

    Mr. Speaker Sir,

    Based on these principles, I propose a sum of 78.03 billion ringgit be allocated for Budget 2000. This amount is 19.9 percent higher than the original estimate for the year 1999. A sum of 53.35 billion ringgit will be for Operating Expenditure and 24.67 billion ringgit will be for Development Expenditure. With revenue estimated at 59.9 billion ringgit, the overall account of the Federal Government is expected to register a deficit of 12.97 billion ringgit or 4.4 percent of Gross National Product (GNP).

    A sum of 28.37 billion ringgit from the Operating Expenditure is allocated for Grants and Fixed Payments, such as debt service charges, payment of pensions and gratuities and contributions to statutory funds. An amount of 14.61 billion ringgit is for Emoluments, 7.56 billion ringgit for Services and Supplies, 610 million ringgit is provided for the purchase of office equipment and facilities and 2.2 billion ringgit for other expenditure, including tax refunds.

    Of the total Development Expenditure, a sum of 10.88 billion ringgit or 44.1 percent is for the economic sector; 7.25 billion ringgit or 29.4 percent for the social sector; 2.63 billion ringgit or 10.7 percent for the security sector; and 2.91 billion ringgit or 11.8 percent for the general services sector. The balance of 1 billion ringgit or 4 percent is for the contingency reserve.

    Expenditure for education projects and skills training programmes will be given priority in line with the objective of providing a highly skilled labour force. For this purpose, an allocation of 3.7 billion ringgit or 15 percent of total development expenditure is proposed. To overcome the problem of insufficient supplies of low and medium-cost houses, a sum of 1.2 billion ringgit or 4.9 percent of total development expenditure is allocated. The Government will also continue to upgrade the standard of health services throughout the country. For this purpose, a total of 908 million ringgit is proposed. For the agriculture and rural sectors, a sum of 2.45 billion ringgit or 9.5 percent of the total allocation is proposed.

    ii. Strengthening Competitiveness and Resilience

    Globalisation and liberalisation of markets under the World Trade Organisation (WTO) and the ASEAN Free Trade Area (AFTA) require that Malaysia continue to be able to compete not only in the global market for goods but also in trade in services as well as in attracting investment. While the nation will benefit from globalisation, we must be ready and alert to the negative impact that can threaten national interest. For this purpose, a think-tank will be established to formulate long-term strategies. This group is based on the NEAC model that has been successful in resolving the economic crisis. In addition, this group will get expert contribution from the academicians in institutions of higher learning.

    As a measure to prepare domestic producers to be competitive, especially those who have been given tariff protection for more than 10 years, I propose that import duties be reduced on 305 products from the present rates of between 5 percent and 30 percent to between 0 percent and 20 percent. Among the products involved are fabrics, sewing machines, furniture, leather shoes and parts for electric motor and generators. This measure will result in a revenue loss of 141 million ringgit.

    The Government will continue to intensify its efforts to attract high quality investment in order to enhance national competitiveness. Such investments require a special package of incentives that cannot be offered based on current regulations. A high level committee will be established at the Ministry of Finance to give urgent consideration for the granting of this special incentive package.

     

    Lowering the Cost of Doing Business

    The nation's competitiveness needs to be enhanced to face the challenges of globalisation and a more open world market. In this connection, efforts to reduce the cost of doing business need to be an important agenda. The private sector must cooperate with the Government in this effort. The Government will continue to ensure that the public services sector becomes stronger, more efficient and effective and more productive. The relevant parties in the private sector need to ensure that the cost of services and supplies remains low and reasonable. Companies receiving privatisation concessions from the Government must ensure that tariff rates and service charges are low.

    To further reduce the cost of doing business, I propose the following tax measures:

     First :the exemption period of import duty and sales tax on spares and consumables given on a selective basis to the manufacturing sector be extended to 31 December 2000;
     Second :freight cost from Sabah and Sarawak to Peninsular Malaysia be given double deduction; and
     Third :the classification and rate for annual capital allowance for plant and machinery to be reduced from 16 to 3 classifications with rates of 10 percent, 14 percent and 20 percent.

    Strengthening the Banking System

    The banking sector will continue to be strengthened through mergers to enable it to be more dynamic and modern to meet the requirements of an expanding economy. To encourage the banking sector to continue to be active as an engine of growth in revitalising economic activities, the banking sector must also be efficient in granting loans so that new projects can be initiated quickly. For this purpose, I propose that interest income derived from growth in net lending of 8 percent be exempted from income tax on the condition that the bank achieves growth in net lending of 10 percent or more in productive sectors for the year of assessment 2000.

    As an additional measure to strengthen the banking system, I propose that the interest-in-suspense for the year 2000 be allowed full deduction for the purpose of company income tax.

     

    Developing the Islamic Banking System

    The Islamic banking system has achieved encouraging progress since its introduction. In a period of only five and a half years, assets of the Islamic banking system have increased from 2.4 billion ringgit in 1993 to 34 billion ringgit at the end of June 1999 while total deposits increased to 26 billion ringgit compared with 2.3 billion ringgit in 1993. Recently, the Government established another Islamic bank, that is Bank Muamalat Malaysia Berhad that commenced operations on October 1. To enable the Islamic banking system to grow more rapidly, in addition to expanding investments, new financing instruments using viable Islamic financial approaches will be encouraged. This is in line with promoting Malaysia as a centre for Islamic banking.

    Among the products introduced is a term loan based on floating interest rate known as the "Al-Ijarah Term Loan". As this product has the characteristics of a lease, it attracts a higher stamp duty and at the same time has to be paid more than once. To make this product more competitive, I propose that stamp duty on the instrument be given the same treatment as similar instruments used in conventional banking.

    In addition, I propose that other instruments used in Islamic banking, such as overdrafts, letters of credit and unsecured loans that are currently subject to stamp duty more than once be subject to stamp duty only once.

     

    Encouraging Corporate Restructuring

    To ensure that viable corporate entities continue to sustain their business activities, thereby ensuring employment, they need to be provided with assistance to resolve their financial problems, in particular in restructuring their debt. For this purpose, I propose that:

     First:stamp duty incurred in the debt restructuring under the CDRC and Danaharta be exempted; and
     Second:all expenses incurred in debt restructuring be allowed as a deduction in corporate income tax.

    Strengthening Corporate Governance

    The recent financial crisis has raised awareness about the importance of management accountability and transparency. In this connection, the High Level Committee on Corporate Governance, has prepared a comprehensive report comprising 70 key findings to raise the standard of corporate governance and best practices, in addition to protecting the rights of minority shareholders. To date, progress has been achieved in implementing these findings, including the proposal to amend the Securities Commission Act 1993 and the Companies Act 1965 in relation to powers to approve prospectus and amend guidelines to offer securities, in addition to reviewing the listing requirements of the KLSE. These amendments will provide the basis for the enforcement of the Code on Corporate Governance that will provide a shift to a disclosure-based system.

    Strengthening the Capital Market

    To establish a viable capital market, efforts to widen and deepen the financial markets will be undertaken. Other sources of financing, like bond markets and new venture capital market instruments will be encouraged. In addition, for development in the longer term, more structured and comprehensive planning is required. For this purpose, the Strategic Capital Market Committee that was recently set-up by the Government will prepare a Capital Market Master Plan. Consultants have already been appointed and the Master Plan is expected to be ready in six months.

    To encourage mergers of the insurance and stock broking firms, I propose that 50 percent of the accumulated losses of the acquired insurance and stock broking firms be allowed as a deduction to the acquiring entity in the form of tax credit to be utilised within 2 years. In addition, I propose that stamp duty and real property gains tax be granted to stock broking companies that undergo merger exercises from 30 October 1999 to 31 December 2000. As for insurance companies, the stamp duty and real property gains tax exemptions that have already been approved will be extended to 30 September 2000.

    Developing the Bond Market

    The development of the bond market will continue to be undertaken to complement the role of the bank as a traditional provider of loans in addition to reducing the dependence on the banking system. This reliance on the banking system can expose it to systemic risks. As long-term financing of the corporate sector is met through short-term loans, the corporate sector has faced problems of financing mismatches. To develop an integrated bond market, the Government has established a National Bond Market Committee and decided that the Securities Commission will be the sole regulatory authority for the corporate bond market. In addition, the review of regulations to monitor the bond market will be ready by the end of the first quarter of 2000. For this purpose, several amendments will be effected through the relevant legislation. In addition, to develop the bond market, I propose that the stamp duty and real property gains tax be exempted on the instruments used in the securitisation of assets.

    Encouraging Venture Capital

    Financing of venture capital must be enhanced to encourage the development of new high technology industries as the engine of economic growth. These industries include advanced electronics, biotechnology, precision engineering, advance manufacturing and information technology. The Government will continue to provide assistance to venture capital companies to enable them to play a bigger role in supporting economic growth. For this purpose, a fund of 200 million ringgit will be established to finance high-tech projects. In this regard, Bank Industri Malaysia Berhad (BIMB) will be restructured to become Bank Industri dan Teknologi Malaysia Berhad (BITMB). Perbadanan Usahawan Nasional Berhad (PUNB) will also introduce Islamic venture capital to provide financing facilities to Bumiputera entrepreneurs. In addition, Bank Negara Malaysia and two commercial banks will provide 300 million ringgit to finance venture companies. As such, I also propose that additional incentives be given to venture capital companies (VCC) that undertake the risk in providing capital to venture companies. These incentives will be given for loans provided to IT companies and for the commercialisation of agriculture research adopted from local research institutes, such as MARDI. A special task force will be established to intensify the commercialisation of agriculture research. VCC will be given full tax exemption on all sources of income received during its life span or for a period of 10 years, whichever is earlier. The VCC must, however, invest 70 percent of its funds in promoted activities and used as seed capital, start-up capital and first stage financing.

    Unit Trusts

    Federal and State Governments' sponsored unit trust companies have the potential to play a bigger role in mobilising savings among small savers, and can further contribute to enhancing the stability of the share market through their portfolio investment. As an incentive for unit trust companies to expand their role, I propose that unit trusts, sponsored by the Federal and State Governments be given company income tax exemption for the years of assessment 2000 and 2001.

    Modernising Small and Medium-Scale Industries

    Mr. Speaker Sir,

    Modern, competitive small and medium-scale industries (SMEs) can contribute to improving the capabilities and resilience of the economy. This sector will therefore continue to be given priority so that it can contribute more significantly to domestic demand and the export market.

    To date, a sum of 4.7 billion ringgit has been allocated through a number of funds to develop the SMEs. To ensure that these funds benefit a larger number of businessmen and are fairly distributed, qualifying conditions will be reviewed. Given that the loan scheme under the Credit Guarantee Corporation (CGC) plays an important role in facilitating small businessmen to obtain loan facilities, the Government will allocate a sum of 200 million ringgit for 1999 and 100 million ringgit for 2000. The CGC will also be restructured to improve its efficiency and effectiveness. In addition, a sum of 76.7 million ringgit will be provided for easy credit facilities for SME entrepreneurs, the construction of infrastructure facilities, development of technology and assistance in the promotion of Malaysian products overseas. The Government will also set up Entrepreneur Rehabilitation Fund II with a sum of 300 million ringgit to assist small businessmen.

    Developing Bumiputera Contractors and Entrepreneurs

    The Government will continue with efforts to develop Bumiputera contractors and entrepreneurs in various fields, in particular in business and the construction industry. An allocation of 106.1 million ringgit will be provided under the Ministry of Entrepreneurial Development to purchase business premises in strategic locations that can then be rented to Bumiputera entrepreneurs.

    The Government is aware of the problems faced by Bumiputera contractors during the economic recession. As such, Bumiputera contractors will be given priority to implement Government development projects. In addition, to assist contractors resolve their cash flow problems, the Government will relax contract procedures such as replacing bank guarantees with performance bonds, advance payment of 15 percent and payment of 50 percent within 14 days from the date the claim is received.

    Research and Development

    Rapidly changing trends in technological development and innovation at the global level will influence the development of products and processes, as well as domestic marketing systems. As such, new technology, in addition to research and development (R&D) need to be upgraded, given that currently R&D expenditure is still low at 0.3 percent of GNP compared with 3 percent in the United States and Japan.

    A sum of 226.85 million ringgit will be set aside for the Intensification of Research in Priority Areas (IRPA) programme that will be shared by 36 public research and higher education institutions. Priority will also be given to high technology industries. A sum of 25.17 million ringgit will be provided for programmes promoting science and technology in addition to the Development of Industrial Technology Action Plan to encourage the use of new technology and upgrade innovative capabilities, inventions and commercialise home grown technology and market them abroad. Several other agencies will also be given a special allocation to undertake studies and specific research. The Rubber Board of Malaysia will receive 13 million ringgit, PORIM 5.3 million ringgit, FRIM 11.6 million ringgit, Cocoa Board of Malaysia a sum of 1.7 million ringgit and a sum of 1.9 million ringgit will be allocated to the Department of Mines. SIRIM will focus on strategic R&D activities to assist Malaysian companies improve their competitiveness in the domestic and international markets. A sum of 98.1 million ringgit has been allocated for this purpose.

    In line with efforts to commercialise R&D activities, the Ministry of Education will hold exhibitions on the findings of R&D activities that are being undertaken by public Institutions of Higher Learning as well as other government research institutions early next year.

    iii.    Transforming the Services Sector into an Engine of Economic Growth in addition to Strengthening the Agriculture Sector

It is anticipated that the services sector, in particular tourism, information technology and research, will play a leading role in economic growth aside from the continued contribution of the agriculture sector. Both these sectors have tremendous growth potential. Thus far, the services sector is still domestic oriented and is unable to compete internationally. The Government will ensure that the use of local professionals is increased given that payments for foreign contracts and professional services totalled 7.7 billion ringgit between January to September this year. The agriculture sector is still not productive enough and needs to be revitalised. The 2000 Budget will thus provide an environment to improve productivity in the agriculture sector as well as the levels of efficiency and competitiveness of the services sector to export its services.

 Developing the Tourism Industry

 In the past few years, the tourism industry has made a big contribution to foreign exchange earnings and economic growth. The potential for expansion is still tremendous as the country has many natural attractions that can be developed to attract more tourists. The country has among the best and the cheapest facilities and tourist products in the region. In 2000, a total of 240.5 million ringgit is proposed to implement development projects and promotional activities including promotion overseas. As a result of these efforts, an estimated 6.5 million tourists are expected to visit Malaysia in 2000 compared to 6 million in 1999.

 The Government is determined to make Malaysia a centre for trade and international exhibitions. We have been successful in organising international exhibitions in the aviation and maritime industries in Langkawi. To further supplement the exhibition facilities, the Sultan Abdul Aziz Shah Airport in Subang will be transformed into an International Trade and Exhibition Centre – ITECs, including an aerospace park, intelligent warehouse, aviation business park, research and development and theme park. The development of ITECs will involve six exhibition halls with a space of 34,400 square metres and an open hall covering 130,000 square metres. These facilities are expected to be completed by end 2000. The Government will also encourage the organising of international meetings, seminars, conventions and exhibitions (MICE).

 Tour operating companies can continue to play an important role in increasing the inflow of foreign tourists and to enhance the interest of Malaysians in domestic tourism. As an incentive for tour operating companies to provide more attractive tour packag

Last Updated on Monday, 28 July 2008 10:01
 

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