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August 30, 2008

Malaysia’s PM unveils popular budget
Malaysian Prime Minister Abdullah Ahmad Badawi, with his leadership under siege amid a sluggish economy
and rising inflation, on Friday slashed personal income tax and increased government spending in his 2009 budget to shore up support, Kyodo news agency reported.

Malaysia's economy is targeted to grow 5.7 percent this year before easing to 5.4 percent in 2009. In 2007, the economy expanded 6.3 percent.

"Growth in the second half (of 2008) is expected to moderate following the slower external sector as well as the pass-through effects of the higher pump prices of petrol and diesel," Abdullah, who is also finance minister, said in the 2008/2009 Economic Report which was released in conjunction with the tabling of the 2009 budget in parliament.

"Higher fuel prices along with other price increases will reduce net disposable income and affect consumption," he added.

Inflation hit a 27-year high of 8.5 percent in July after the government cut fuel subsidies and raised gasoline and diesel prices by 41 and 63 percent, respectively, in June.

The massive public outcry that ensued forced the government to cut gasoline prices by 5.6 percent and diesel by 3.1 percent last week.

The 2009 budget is aimed at "reducing the impact of the higher cost of living," Abdullah said in his speech.

Among the slew of measures, he raised allocations for those on welfare assistance and pensioners, and increased the threshold for taxable income which would affect 100,000 taxpayers. The government also cut import duties on food and various consumer durables such as rice cookers and microwave ovens.

For the more than 1 million civil servants, they will be getting a one-month bonus this year.

Abdullah proposed a budget allocation of 207.9 billion ringgit (about $62.1 billion) which is 5.1 percent higher than this year. Some 53.7 billion ringgit will be used for development of infrastructure, education, health and others.

The government is expected to incur a deficit of 3.6 percent in 2009. For 2008, the deficit is expected to top 4.8 percent.

Abdullah had to jettison analysts' calls to cut the deficit as the sluggish economy has been one of the reasons his party had performed badly in the March general election. The ruling National Front coalition saw its two-thirds grip in parliament dented for the first time in 40 years.

It is also one of the factors that led to the rise of opposition leader Anwar Ibrahim.

With Anwar seated directly opposite him in the parliament, Abdullah fired a warning to his rival in his budget speech.

"Efforts by certain parties to destabilize the country by attempting to seize power though illegitimate means and without the mandate of the people, must be rejected," Abdullah said. "We cannot allow uncertainties to continue as this will adversely affect foreign investment, economic sentiment and the capital markets. I will not allow this disturbance to continue."

"We need to get on with the business of governing and not waste any more time with opportunistic threats to seize the people's mandate through undemocratic means," he added.

He accused the opposition of making "populist claims" which, if implemented, he warned, could bankrupt the nation.

Anwar had pledged to bring down fuel prices further if he takes over the government.

"They are in a complete state of denial," Anwar told reporters outside the parliament. "They still have the audacity to talk about democracy and preach about the democratic process."

On Abdullah's budget proposal, he said the government would not be able to attract foreign investment unless they tackled the "rampant corruption" and implement a more transparent tender system.

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