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Maybank ATMKUALA LUMPUR, Oct 31 – Post-Budget 2014 sentiments are still fresh in the minds of Malaysians, with many trying to grasp what the Government has put forth. Goods and Services Tax(GST) implantation, revised Real Property Gain Tax rates, more development programmes and additional handouts are just some of the elements that Prime Minister Datuk Seri Najib Razak announced, in hopes to help therakyatand creating a better economy. In his speech, he highlighted the projected growth of the domestic economy, increased share points with record high levels of market capitalisation and the continuing increase of investors’ confidence in the economy. To top it off, many of the planned policies and programmes for the future come with multi-billion ringgit price tags, all for the sake of development, according to the Government. But amidst all these, development expenditure is just taking up a small fraction of the total Budget 2014 allocation, standing at RM46.5 billion, while the rest of the RM217.7 billion is allocated to operating expenditure. If you are wondering about what exactly this means, it basically shows that the government is pouring more money into supplies, services, government salaries and grants, and less into the economic sector, education, training, health, welfare and security. When highlighting this point at an iCapital Investor Day 2013 talk at KLCC recently, Lembah Pantai MP Nurul Izzah Anwar said in any form of economy, be it a mixed economy, capitalist or socialist one, a good ratio of operational to development cost would be 60:40, and this clearly isn’t the case at the moment, as she observes. This, according to Nurul, has been happening from 2005 to 2013, whereby development cost took up a mere 17% whereas a bulk of 83% went into operational cost. “In Malaysia, we’ve been caught in the middle income trap for so long and it’s important to think of development in a more futuristic way. RM46 billion going into development and RM264 billion into operations is not good,” she told the audience. One of the ways she thinks the economy could have benefitted in the past was in the form of the Government’s 2010 New Economic Model. “It listed the key weaknesses of the Malaysian economy, the need to move from a race-based affirmative action programme to a needs-based affirmative action programme. It was well-written and well-researched,” she said. But this was replaced eventually by the Economic Transformation Programme (ETP), which she said is the anti-thesis of the NEM. Moving forward however, she stated the need for the Government to spend some time comparing our economic systems with other successful cases around the world, such as Singapore and South Korea, to understand where we stand and how we can improve. These should be done in the areas of educational advancement, innovative achievements and ability in tackling corruption, because while we seem to spend a lot on these areas every year, we rank extremely low by global rankings. Citing the Global Innovation Index rankings, Malaysia ranks 32 in terms of innovation while Singapore and South Korea take the 8th and 18th spot each. Comparing ourselves in terms of having cheaper labour and electricity just doesn’t quite cut it, according to Nurul. “After a while, you have to move up the value chain and try to encourage investments in terms of other strengths,” she added. She also took the opportunity to also use Perwaja as an example, stating that its failure was due to its lack of financial controls, tendering procedures for supply and capital investment contracts, and the absence of a performance evaluation control for contractors. In comparison, South Korea’s steel industry went from a 0.1% production rate in 1970 to being the sixth largest steel producing nation in the world by 2009, although they lack in many natural resources Malaysia enjoys. “It’s about having a strong monitoring body to ensure that whatever you do, there’s a set key performance indicator (KPI) to achieve and should you fail, you know what to do after that.”

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