(Pre-Budget 2005 Commentary) Another year of agricultural revolution?

 

3 September 2004 . The 2005 Budget will be the first ever presented by the new Prime Minister, Dato' Seri Abdullah Badawi, and by all reckoning, it is expected to be a growth-orientated budget.

Since the last budget, the government has put in place measures to provide a foundation for long-term growth, powered by domestic sources. The government has lately continued to emphasize the need to shift its growth strategy to face the global economy.

In 2004, the country took bold steps to shift the policy that is based on exports to domestic-led growth, and received various negative comments. The agriculture sector has somehow been ignored and sidelined for many years, at the expenses of the more “glamorous” manufacturing and high technology industries. Therefore, is the transformation of our economy from being foreign direct investment-driven to domestic-led a right move?

To shed light on FDI, China has in 2002 absorbed about US$53 billion worth of investment. Another emerging country, India, merely absorbed less than 10% of it. Under such a serious threat, it will be too competitive for Malaysia to go for its “fight”. Not forgetting besides China and India, there are many Asian countries pose tough competition to our country. Also not forgetting, other than to attract new FDIs, there must also be measures to retain the existing investments.

This circumstance has therefore cautioned the government to play safe. In fact, our Prime Minister had on many occasions made it known that Malaysia's direction is all for Agricultural Revolution. Malaysia after all, has the natures given resources. Furthermore, given the respectable status of Malaysia among the Islamic countries, the mission to develop Malaysia as a “Halal Hub” can also be made possible.

As per Bank Negara's statistic, Malaysia's export rate has shown an impressive growth, rising 22% year-on-year to almost RM40 billion as at June 2004, whereas the trade surplus stood at RM5 billion. These figures augur well for the economy and of no doubt, our palm oil industry has robustly increased the surplus.

Having said about agricultural, no new incentive was proposed for it in the 2004 budget except for the tax incentive for new companies providing cold chain facilities and services for perishable agricultural produce. If agricultural is still the focus, it is anticipated that Budget 2005 will fine-tune the shift with more new incentives.

2004 budget has disappointed the corporate sector as there was no reduction in corporate tax.

As in every budget, corporate tax and personal tax have always been touted for a reduction in the scale. However, it is not simply a matter of reducing the rate of tax. Any reduction will have the effect of reducing the Government's coffer. Alternative means of substituting the reduced revenue has to be found and new tax machinery in the country has to be overhauled.

The alternate consumption taxes are true temptation for fiscal planners but it is fraught with pitfall. As taxpayers are already having a difficult time adjusting to self-assessment system, it would certainly be a wrong time to introduce a new consumption tax and burden the businessman further.

Budget 2005 is indeed crucial to Pak Lah to continue to generate good GDP growth and yet not neglecting the social agenda. If Pak Lah has his way, the target for Malaysia to become a net exporter of food by 2010 is achievable; the competitiveness in private sectors will also be strengthened.