Acknowledgement

INTRODUCTION

A budget is a quantitative expression of a plan for a defined period of time. It may include
planned sales volumes and revenues, resource quantities, costs and expenses, assets,
liabilities and cash flows. It expresses strategic plans of business units, organizations,
activities or events in measurable terms. International Budget Partnership regularly monitors
global budget information for the civil society. Budget helps to aid the planning of actual
operations by forcing managers to consider how the conditions might change and what steps
should be taken now and by encouraging managers to consider problems before they arise.
It also helps co-ordinate the activities of the organization by compelling managers to
examine relationships between their own operation and those of other departments. Other
essentials of budget include:

To control resources

To communicate plans to various responsibility center managers.

To motivate managers to strive to achieve budget goals.

To evaluate the performance of managers

To provide visibility into the company's performance

For accountability

Plan is a five year development plan the government. This is a five-year plan relics from the
days of British rule in Malaya after World War II. Five-year plan starting with the First Malaya
Plan, that is, from 1956 to 1960. After that linked with Malaya Plan II from 1961 to 1965. After
the formation of Malaysia in 1963, this five-year plan was changed to Malaysia Plan (RM)
with the First Malaysia Plan began in 1966 to 1970. The difference is that the formation of
Malaysia's economic planning earlier, the focus for this time and so is the rest of Malaysia
including Sabah and Sarawak.

BUDGET 2015 (RMK-10)

As the year 2015 will coincide with the final year of the Tenth Malaysia Plan (10MP), 201115, the budget would serve as a platform for the policymakers to take stock and outline short
to medium-term economic initiatives and strategies for a final push of the 10MP and going
into the 11th Malaysia Plan (11MP). Besides this, 2015 is also a big focus year, as it marks
the implementation of the goods and services tax (GST) on April 1. The Government is
expected to set Budget 2015s deficit target at 3.0% of gross domestic product (GDP)
(estimated 3.5% of GDP in 2014).
The budget is a matter of meeting competing priorities. Carefully crafted fiscal discipline
carries the day. Clearly, the Government needs to increase spending allocation where they
are critically needed and re-prioritise spending to ensure a sustainable economy. The
daunting task and delicate balancing act is for Najib to draw up a radical and responsible
budget and execute it well in the year ahead. Broadly, the budget should focus on five
thrusts: fiscal consolidation, continued improvement in the management of public funds,
sustaining investment momentum, productivity and innovation, controlling inflation and the
rising cost of living as well as ensuring affordable housing.
Thrust One
There should be no compromise on fiscal consolidation to avoid the sovereign de-rating risk.
Budget 2015 must get the balance right between supporting economic growth, primarily
through productivity gains rather than imposing additional taxes, which will hinder investment
performance, and generating operating surplus, primarily through productive spending and
cost savings. The long-awaited multi-tier fuel price scheme based on income will be unveiled
in the budget. Fuel subsidies are likely to come down, but the saving of this has been eaten
away by higher cash handouts to low and middle-income households.
In Budget 2015, expectations are that the quantum of the 1Malaysia Peoples Aid (BR1M)
scheme will be increased by between RM150 and RM200 for eligible households. The
quantum of increase could be higher to offset the impact of the GST implementation on the
net disposable income of targeted households. We reckon that the guiding principle for
prudent fiscal management is based on a targeted subsidy programme, aimed at reaching
out to the needy groups, but some have questioned the sustainability of cash transfers,
going forward. The worry is that conditional cash transfers can cause unintended
consequences, including fiscal costs and perverse incentives to work harder for more
income or to seek rent.
A fiscal consolidation strategy should be accompanied by better fiscal and financial control
over public-private partnerships and state-owned enterprises, aimed at putting the gross
public debt-to-GDP ratio, as well as contingent liabilities (loans guaranteed by the federal
government), on a firm downward trajectory in the medium term. It is timely to revamp the
public sector pension scheme to ensure fiscal sustainability whilst providing adequate
retirement security and maintaining public sector workforce productivity. A migration to a
collective defined-contribution plan from a defined-benefit pension system is best suited to
meet the overarching goal of balancing the competing interests of public employees and
taxpayers.

The Government may revisit the restructuring of its housing loan division (estimated
outstanding loans of RM42bil), as part of efforts to consolidate the fiscal deficit and ease the
Governments financial burden. This initiative was mooted in Budget 2013, whereby the
Government would appoint panels from commercial banks to manage new housing loans,
effective January 2013. However, nothing has been implemented.
Thrust Two
There should be continued improvement in the management of public funds, with a view to
increasing transparency and accountability in the management of public expenditure. The
fiscal transformation programme entails radical and sustainable reform, not only in curtailing
operating expenditure via subsidy rationalisation, but also in undertaking more cost-saving
initiatives, including the implementation of a critical review and reform of the procurement
system to combat wastages and leakages. The problem of overlapping spending schemes
has to be avoided. A fundamental review is also required to weed out the countrys nondevelopmental, low-priority and unproductive expenditure, while focusing on growth-oriented
spending. The supplies and services component made up 16% of total operating
expenditure and 15.9% of total revenue in 2013. The authorities need to put in place tougher
and more deterrent rules to stop rampant cases of financial mismanagement and leakages,
as well as cost overruns of development projects exposed in the Auditor-Generals Report.
Senior management of implementing agencies will have to assume greater accountability for
the mismanagement of funds, poor judgement as well as carelessness in the monitoring of
projects.
Thrust Three
Private investment has regained strong momentum to expand by 15.8% per annum in 20102013 (12.8% of GDP in 2010 and 16.7% of GDP in 2013) and 13.1% pa in the first half of
2014 (H114) (19.1% of GDP in H114). The challenge going forward is how to sustain
investment momentum when the Economic Transformation Programme (ETP) hits its
maturing phase in the years ahead. Additional measures and initiatives will be needed to
ensure that stable, balanced private investment growth can continue in Malaysia.
The vitality of private investment needs to be given focus, as it is now ready to take over the
drivers seat as the Government continues to consolidate its fiscal balance sheet. It is vital,
therefore, that Budget 2015 provides a clear outline and direction on how the Government
intends to deal with the fuel subsidy rationalisation, tariff rebalancing structure, minimum
wage and foreign labour policies. Be prepared and ready to reap the opportunities out of the
Asean Economic Community (AEC) by 2015.
The Government needs to reaffirm Malaysias stable and transparent corporate tax regime,
with a view of lowering the tax rate (currently at 25%) to a more competitive level regionally.
In Budget 2014, the Government had pre-announced that the corporate income tax would be
reduced by 1% pt from 25% to 24%, while the income tax rate for small and medium
enterprises (SMEs) will be reduced from 20% to 19% from the 2016 year of assessment.
The budget needs to reflect on the vital importance of increasing productivity, creativity and
innovation, the SME sector and seizing investment in domestic enterprises. The following
measures could be considered in the budget:

1) qualifying capital allowance be given for companies involved in productivity and innovation
enhancement in high value-added and knowledge-based industries, including services and
trading companies,
2) accelerating the utilisation of ICT-supporting solutions by SMEs via tax deductions or tax
credits,
3) enhancing the micro-loan programme and seed capital funding to encourage youth
entrepreneurship. The Government should design a risk sharing scheme with participating
financial institutions for loans to young SMEs, and
4) supporting entrepreneurs through intensive mentoring via public-private partnerships
incubator programme. The funding will be used by participating organisations to provide
entrepreneurs with intensive mentoring and other resources to develop their business.
Where enhancing skills is concerned, the Government must continue to critically review as
well as strengthen policies that align skills training and capacity building with labour market
needs. Providing graduates with the right skills is essential to further Malaysias economic
prospects. Looking to harness the demographic dividend, the budget should re-allocate
spending on a national multi-skill programme, including re-skilling and up-skilling to enhance
employability and entrepreneur skills. The following initiatives can be considered:
1) providing tax credits to support tangible investments in productive and job-creating
initiatives, and
2) setting up a dedicated fund (public-private partnerships) for supporting apprentices,
apprenticeship technical training as well as internships for diploma students and graduates
in high-demand fields.
Thrust Four
Managing the rising cost of living remains the Governments priority. Higher inflation
expectations will remain for some time, as consumers brace for the second wave of price
inflation when the fuel subsidy reform likely resumes in the fourth quarter of 2014 (Q414)
after the last fuel hike in September 2013 and the rollout of the GST on April1, 2015. Owing
to concerns about the bunching impact of price increases on consumers and businesses,
careful planning and sequencing on the timing of the subsidy rationalisation is deemed
appropriate, allowing households and the business sector to digest the anticipated price
pressures.
It is undeniable that consumer inflation will likely rise initially following the GST, but the
higher inflation rate will wear off eventually after some months. What worries us is that this
may not hold if prices are sticky downward, as businesses will continue to maintain profit
margins despite enjoying lower input costs, the GST-imputed input tax rebate. It remains
challenging for the Government to manage the GST-inflicted impact on domestic inflation
during the transition period. The stepping up of the consumer awareness campaign, effective
price monitoring and regulatory price check enforcement, especially at the initial
implementation stage, as well as real-time price information on GST-imposed items, are vital
to help rein in unfair price setting practices or curtail excessive profiteering. The budget is
expected to roll out the list of zero-rated and exempt supplies goods and services. A
Shoppers Guide, which indicates the price changes due to the GST implementation based

on selected regions, should be widely disseminated and made available through all channels
in Q414 or January 2015, so that consumers have more time to digest the information.
The budget is expected to unveil some initiatives to improve the supply chain of production,
marketing and distribution channels of agriculture produce and essential food items to help
stabilise prices and ensure sustainable supply. If warranted, there should be a fundamental
review in terms of procurement, storage and distribution functions to strengthen the
effectiveness of these agencies.
On mitigating the rising cost of living, the Government may provide a one-off GST voucher
for eligible households and older Malaysians, especially those who are retired or have no
income, as they are usually more affected by increases in the cost of living.
Thrust Five
On the issue of ensuring affordable housing accessible to targeted groups, a holistic
affordable housing programme needs to be implemented to help close the gap of the
demand and supply of affordable housing premised on three broad approaches to affordable
housing - rental assistance, homeownership assistance and regulatory policies.
Regulation can be a powerful housing policy tool. However, often overlooked, land use and
development regulations such as zoning policies, land use restrictions, development fees,
sub-division and design requirements, as well as other regulations, have explicitly or
implicitly limited or prevented the development of affordable housing in a jurisdiction. While
some of these regulations are necessary, others can be hindered and, when reviewed or
removed, should facilitate the supply of more affordable rental and home-ownership.
While there are incipient signs pointing to the easing of the property-buying frenzy, an
element of housing froth would still be intact if left unchecked. It is too early for the
Government to lift its cooling measures, as the current trend of property prices moderating is
manageable, in tandem with the policy intention of keeping Malaysias property market
stable and sustainable. Going forward, expectations are that property prices would remain
firm or rise further, as the developers have factored in GST-related repricing and the recosting exercise. The impending implementation of the GST from April 2015 onwards is
causing a lot of uncertainties in the property market. Although residential properties that are
for sale, purchase and rental will be GST-exempt, the higher development and input costs
may be passed onto purchasers in terms of higher selling prices.
Excessive speculative property investment financed by over-leveraging would pose a
systemic risk to the financial system. Over-investment in the property sector during good
times could cause economic malaise when the growth cycle takes a negative turn, resulting
in higher non-performing loans, and thus, increasing risks to the banking sector. Besides
this, over-concentration in property development projects to support economic growth could
lead to the misallocation of resources at the expense of other productive sectors.
Bank Negara is not likely to roll out new macro-prudential measures amid continued
vigilance on the household indebtedness, especially for those earning between RM3,000
and RM5,000. Banks thorough credit risk assessment on eligible borrowers accompanied by
the resumption of interest rate normalisation in July this year are likely to help contain the
rise of unsustainable debt-fueled spending. At this juncture, Bank Negara is unlikely to take

any policy risk that could trigger an over-adjustment. Growth in household debt has been
moderating for six consecutive quarters as a result of Bank Negaras macro and microprudential measures.

Budget 2015 (11 th Malaysia Plan) themed The Peoples Economy was announced by our
sixth Prime Minister who is also the Finance Minister, Dato' Sri Haji Mohammad Najib bin
Tun Haji Abdul Razak on 10 October 2014 in Dewan Rakyat. The Prime Minister claimed
that Budget 2015 will be pro-rakyat as the projects proposed will be focused on the Rakyat.
The total amount of allocation for Budget 2015 has also been raised to RM 273.9 billion, an
increment of RM 9.8 billion from the last budget. Budget 2015 is targeted to enhance
national economy growth, nation-wide development and prioritising the well-being of the
people. The budget is outlined into several sections which are GST and living cost,
transportation and infrastructure, business and enterprises, and lastly housing and rural
development. In this report, we are going to discuss on the effect of Budget 2015 to housing
and rural development. We are going to understand and analyse how this budget can be
beneficial to the peoples life in several aspects. 1

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BUDGET 2016 (RMK-11)