2019 BUDGET SPEECH BY YB TUAN LIM GUAN ENG MINISTER OF FINANCE (Part 1)

Link to the original post :The 2019 Budget Speech
Mr Speaker Sir,

1. I beg to move the Bill intituled “An Act to apply a sum from
   the Consolidated Fund for the service of the year 2019 and to
   appropriate that sum for the service of that year” be read a
   second time.

INTRODUCTION

1. Greetings, Salam Harapan and Salam Sayangi Malaysiaku, I
   bid to Mr Speaker, the Honourable Members of Parliament of both
   the Government and the Opposition and fellow Malaysians. Indeed,
   we are truly fortunate to have been given the trust, support and
   opportunity for the Pakatan Harapan Government to reshape the
   administration of this nation in a more developed, competitive and
   transparent manner.

2. I stand before you on this momentous day to table Budget
   2019 which is the first budget under the Pakatan Harapan
   Government. I wish to firstly thank the Malaysian people who
   displayed great tenacity, bravery, and an undying love for the
   country in replacing a global kleptocracy government with a clean
   and democratic government. You, the people have created history
   after sixty-one years by choosing a new government which is led
   by not only the oldest Prime Minister in the world but also one of
   the most respected statesmen internationally.

ECONOMIC PERFORMANCE AND CHALLENGES

Mr Speaker Sir,

1. The new Government has inherited a worrying state of
   financial affairs which was in dire straits. Our actual debt and
   liabilities as at end June 2018 stand at RM1,065 billion, a debt
   burden that is nearly RM350 billion higher than that officially
   disclosed by the previous government. The breakdown constitutes
   RM725.2 billion in direct federal government debt, RM155.8 billion
   in committed contingent liabilities and RM184.9 billion in other
   liabilities including leased payments for Public Private Partnership
   (PPP) projects.

2. The trillion ringgit debt was caused by financial scandals
   disguised as investments and mega debts masked as mega
   projects. We discovered that the Federal Government was secretly
   paying for the debts of 1MDB amounting to nearly RM7 billion as
   at 30 April 2018. Despite that, we have also confirmed that we may
   be liable to pay up to RM43.9 billion more, to settle all of 1MDB’s
   debts. We discovered aberrant contracts such as the Trans-Sabah
   Gas Pipeline and Multi-Product Pipeline projects which were to
   cost approximately RM9.6 billion, where RM8.3 billion has already
   been paid despite less than 10% of the work being completed.
   Mega projects such as the East Coast Rail Link (ECRL) will cost up
   to RM81 billion, and tens of billions of ringgit more in recurring
   operational losses.

3. Further, the Accountant-General has confirmed the
   disclosures by both the Royal Malaysian Customs (Customs) and
   the Inland Revenue Board (IRB) that the Government revenues
   have been overstated for the past few years, by not paying back
   the Goods and Services Tax (GST) and Income Tax refunds. As at
   31 May 2018, the GST refunds of RM19.4 billion and income tax
   refunds of RM16 billion, totalling RM35.4 billion of tax refunds.
   These refunds belong to the tax payers and were misused without
   their permission or knowledge. Unlike the debts accruing to 1MDB
   and other financial scandals, which can be repaid over a longer
   period of time, the Government has a moral imperative that these
   tax refunds must be returned in 2019 to their rightful owners,
   companies and the people of Malaysia.

4. This is the high price that Malaysians have to pay as a result
   of becoming a global kleptocracy. To restore our fiscal health, the
   Prime Minister has asked Malaysians to be prepared for sacrifices
   for the nation. Therefore, while we are committed towards fiscal
   consolidation, we will equally prioritize economic growth to
   improve the socio-economic well-being of the rakyat.

Mr Speaker Sir,

1. The International Monetary Fund has revised downwards the
   global economic growth forecast from 3.9% to 3.7% in 2018. Next
   year, the global growth is expected to remain at 3.7%. The global
   trade growth forecast has also been reduced from 4.8% to 4.2% for
   2018 and 4% in 2019.

2. The rising prospect of a full-blown trade war between the
   United States of America (US) and the People’s Republic of China
   (PRC), as well as a hawkish US monetary policy, has already
   precipitated massive capital outflows from Emerging Markets back
   into the US. Countries with twin deficits (current account deficit
   and fiscal deficit) are hit hardest. The Turkish Lira has lost 32.1%
   of its value this year against the US dollar up to 31 October 2018.
   Argentina which lost 48.7% on its currency had to raise interest
   rates to 72% to stem capital outflows. Meanwhile, the Indonesian
   Rupiah has fallen by 11.3% against the US dollar.

1. Malaysia, as an emerging economy, will face the inevitable
   prospect of net foreign outflows. While this puts pressure on the
   Ringgit, confidence in the Malaysian economy and the current
   account surplus, will provide support to our currency and avoid
   steep interest rate hikes. As a result, the Ringgit has been one of
   the best performing Emerging Markets currency this year up to 31
   October 2018. We have appreciated against the Indian Rupee by
   12.3%, Indonesian Rupiah by 8.1%, Filipina Peso by 3%, China
   Renminbi by 3.2% and Singapore Dollar by 0.6%.

2. In addition, the Malaysian equity market has also proven to
   be resilient with the FBM KLCI declining by 4.1% YTD this year as
   at 31 October 2018, as opposed to the MSCI Emerging Market
   Index, which has fallen 17.7% since the start of 2018. In the other
   key regional markets, Singapore has declined by 12.0%, Hong
   Kong by 18.3%, South Korea by 18.2%, the Philippines by 18.2%,
   Indonesia by 8% and Thailand by 6.2%. This is a vote of confidence
   from domestic and foreign investors in the new Pakatan Harapan
   government.

3. In light of the above global headwinds and consistent with
   IMF’s cut in global economic growth rate, Malaysia will be revising
   downwards our projected GDP growth rate from the previously
   announced 5.0-5.5% to 4.8% for 2018. Our exports have
   continued to grow at 6.9% for the period between January to June
   this year contributing to a healthy current account surplus of
   RM18.9 billion or 2.8% of the GDP. As at 15 October 2018, our
   international reserves are at US$102.8 billion or RM426 billion,
   which is sufficient to finance 7.3 months of imports. Our inflation
   rate remains low, recording only 1.2% for the period from January
   to September, allowing our monetary policy to remain
   accommodative and conducive for economic growth.

4. In presenting this year’s Budget, Malaysia is mindful of an
   increasingly hostile global environment that compels us to
   prioritise sustainable economic growth as much as urgent fiscal
   consolidation and discipline. We expect the GDP to continue to
   grow healthily despite the global economic uncertainties in 2019
   at 4.9%.

FOCUS OF THE 2019 BUDGET

Mr Speaker Sir,

1. The theme for the 2019 Budget is “A Resurgent Malaysia, A
   Dynamic Economy, A Prosperous Society” will have three focus
   areas with twelve key strategies to map out a path to restore the
   Malaysian economy as an Asian Tiger. The three focus areas are:
   FIRST : TO IMPLEMENT INSTITUTIONAL REFORMS;
   SECOND : TO ENSURE THE SOCIO-ECONOMIC WELLBEING
   OF MALAYSIANS; AND
   THREE : TO FOSTER AN ENTREPRENEURIAL ECONOMY.
   FOCUS 1: IMPLEMENTING INSTITUTIONAL REFORMS

1. The weakest link in Malaysia’s macroeconomic management
   is in the mismanagement of our public finances, exemplified by the
   RM50 billion 1MDB scandal and explicitly outlined in the book
   “Billion Dollar Whale”. We shall implement institutional reforms
   that promote transparent fiscal discipline which will not only
   prevent repeats of such malfeasance, but also ensure overall
   macroeconomic stability and the sustainability of our economic
   growth.
   Strategy 1: Strengthen Fiscal Administration

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1. ONE: The Federal government is implementing a ‘zero-based
   budgeting’ exercise for this Budget. Improved effectiveness, greater
   efficiency and higher cost-savings are achieved by firstly, ensuring
   spending is justified by objectives rather than the previous year's
   budget; secondly, review alternative scenarios to achieve the same
   objectives; and thirdly, all discretionary spending is planned from
   zero.

2. TWO: We will table a Fiscal Responsibility Act by 2021 to
   avoid reckless mega spending that entails mega debts.

3. THREE: We intend to table a new Government Procurement
   Act next year to govern procurement processes to ensure
   transparency and competition, while punishing abuse of power,
   negligence and corruption. Open tenders will not only achieve
   more value for money for the tax payers, it will also breed a more
   efficient and competitive private sector.

1. FOUR: To ensure full disclosure of our debts and liabilities,
   as well as the value of our assets, the current cash basis of
   accounting shall be converted to an accrual basis by 2021.

Mr Speaker Sir,
Strategy 2: Restructuring and Rationalising Government Debt

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1. Over the past decade, the Federal Government had
   increasingly relied on less transparent government guaranteed
   borrowings or lease financing programmes known as the Public
   Private Partnership (PPP) projects, to fund its expenditure. The
   value of the Government guaranteed borrowings increased from
   RM69.2 billion in 2008 to RM238 billion in 2017, a massive
   increase of 244%. In contrast, the official federal government debt
   has only increased by 124% over the same period of time.

2. Essentially, the budget deficits announced and achieved in
   the previous years never truly reflected the real deficits incurred.
   Hence, in spite of our best efforts to reduce cost and postpone noncritical
   expenditures, it was unrealistic to achieve the 2018 deficit
   target of 2.8%. The 2.8% deficit target can only be attained if we
   continued the previous practice of hiding our expenses off-balance
   sheet.

3. Therefore, the fiscal deficit is projected to be 3.7% for 2018.
   The increase in fiscal deficit arises after we have taken into
   account previously unbudgeted items such as RM1 billion interest
   servicing cost for 1MDB debts, RM1.3 billion in compensation for
   the acquisition of Eastern Dispersal Link in Johor which was
   announced last year, RM1 billion for Prasarana, RM1.4
   billion for Ministry of Transport rail projects and paying back some
   GST refunds of RM3.9 billion.

4. For the next three years, the Harapan administration is
   committed to maintain a path of fiscal consolidation to achieve a
   deficit of 3.4% in 2019; 3.0% in 2020 and 2.8% in 2021. Over the
   medium term, we expect the deficit to be reduced further to the
   region of 2%.

5. Going forward, the Federal Government will still be issuing
   Government Guarantees, but only for existing infrastructure
   projects to be completed such as the MRT2 and LRT3 projects, as
   well as for selected agencies which are able to demonstrate a
   degree of financial sustainability.

6. To ensure a successful fiscal consolidation exercise on our
   RM1 trillion debt, this Government will reduce our debt as a
   percentage of our GDP via the following measures: