What if Malaysia was run like a business (with Budget 2022)
The unveiling of Budget 2022 was THE big thing a week ago, and it really took Malaysia by storm. I think as people get more informed and well-versed in things, the more we as the Rakyat have formed our opinion about how our country is being run.
At first glance, I was quite disappointed with Budget 2022. Then, I thought to myself, “I know nothing about how a government should run the country and set budget, but I know a thing or two about businesses.”
That’s what got me to craft up this post. The intention is to draw on some of the budget 2022 points to reflect it in a business context. There has been a lot of news and posts about what benefits you can gain from budget 2022 already. This post of mine is intended to put us all on a different thinking hat. To consider what Budget 2022 means for Malaysia.
This is purely a “what if” scenario for entertainment purposes (with a tinge of seriousness). I do not even want to presume that I know anything about running a government.
So let’s start.
Setting up the Business
To be able to relate, we need to have a Business to relate to: Malaysia Sdn Bhd
The business is run by the C(abinet)-suites and the Budget comes under the CFO, naturally. As Malaysia Sdn Bhd is a conglomerate, they are involved in all sorts of industries and hence have a diverse team in different disciplines – health, education, design, industrial, services, etc.
The staff is the Rakyat because we work hard to generate tax income for the government. This is likened to a business where the staff force helps in different areas to generate profits for the owners of the business.
Staff composition by ethnic group (as extracted from Department of Statistics Malaysia):
- Bumiputera: 69.8%
- Chinese: 22.4%
- Indians: 6.8%
- Others: 1.0%
Overview of Budget 2022
It begins with the numbers of 2022:
- Revenue = RM234 billion (FY2021: RM221 billion)
- Expenses = RM332 billion (FY2021: RM320 billion)
- Deficit = RM98 billion (FY2021: RM99 billion)
- Debt = RM1.4 TRILLION
In case you’re shocked at the number, countries running on deficit is common when implementing an Expansionary Fiscal Policy to stimulate the economy. This means that the government is putting in more money into the economy than taking out to encourage growth in the economy.
Having a budget deficit with the proper spending is sensible in the government context. But let’s examine in detail what Malaysian spending going to in the following sections.
The true worrisome part about the budget is that our national debt continues to grow to an astronomical amount. For context, our estimated Gross Domestic Product (GDP) in 2022 is RM1.6 trillion. This loosely means that Malaysia as a whole generates RM1.6 trillion in terms of income. The RM1.4 trillion debt represents 87% of our GDP.
What kind of business can sustain with increasing debt levels that matches the business value?
Revenue: Taxes
Main income source of governments around the world falls down to taxes. In return, the government uses tax to further the development and growth of the country. Let’s talk about a few of these worth noting.
(1) Prosperity Tax
The infamous prosperity tax introduced by the government sent worrisome signal to the market. This tax imposes a one-off 33% tax (9% higher than the corporate tax rate) on businesses who are earning above RM100 million in chargeable income.
Let’s say in Malaysia Sdn Bhd each business unit / department produces profit for the company. And the owners take 24% of the profit for themselves and distributes the rest to the staff in the department as bonus. This has been the practice in the past.
With this new initiative, any department that exceeds a certain profit threshold, the business owners will take 33% of the profit instead for the coming year. So all of a sudden, highly profitable business units will have less bonus to distribute to its staff. *Hint: Dividend to shareholders*
(2) Sales tax on low value items sourced overseas sold by online merchants
And sent to Malaysia via air courier. Let’s ignore this part first.
That business unit in Malaysia Sdn Bhd that does Airdropping has previously showcased a high profit margin. Now, the management imposes a management fee (aka sales tax) on all these items.
Hence, 2 things will happen here. Either the business unit will suck it up and take the hit with a lower profitability (lower bonus for their staff too) or they will pass through the tax to the buyers with a price increase.
There is a 3rd option that plays on the air courier criteria: Whereby all these items will now be shipped via slow courier (by sea) and everyone needs to be patient to receive their items.
(3) Investment stamp duty taxes
Stamp duty for investing in Bursa Malaysia is currently 0.1% with a cap of RM200. There is also a 6% service tax on the brokerage fee.
The new rate in 2022 will see the stamp duty increased to 0.15% and no longer have a cap. No more 6% service tax.
The service tax is negligible. The removal of RM200 cap is a game-changing impact to big investors (>RM133k per trade).
This has no relation to Malaysia Sdn Bhd, but I think it warrants a mention.
Expenses
The new change in taxes are fine as long as the spending is adequate. With the big budget of RM332 billion in spending, let’s see what Malaysians get.
(1) Biggest budget goes to… Education
Whilst very noble, the question is where will the RM52.6 billion go?
I can’t find much information on this, other than RM2.5 billion (4% of total) that was captured in this article by NST.
This is like having a budget reveal in Malaysia Sdn Bhd and saying Education Business Unit gets 16% of the total allocated goodies from our profits but not saying what is in there.
This is quite common in the budget reveal. So, for the next few points I’m gonna just take some specific ones that will be relevant.
(2) Racial allocation
Growing up in a country with a diverse race and culture can be quite fun. We get to enjoy the festivities, culture, food and live in harmony with one another.
Now, Budget 2022 has gone out of its way to introduce a RM11.4 billion allocation for Bumiputera empowerment, whilst non-bumiputera is about RM300 million. Remember how the distribution of ethnicity is 70% bumiputera : 30% others?
The budget allocation split is 97% : 3%.
This has not accounted for matching grant for Bumiputera SMEs for aerospace industry, allocation for Islamic affairs, Islamic school maintenance, etc.
In essence, the management of Malaysia Sdn Bhd is coming out to say, “We have all these initiatives on how to improve our office to be better, and on top of that, we will take a portion of our profits to distribute it to our staff as additional benefits. The split will be 97% to Bumiputera and the rest will take 3%.”
Wow. I’m sorry, but what’s the reason we can’t have a budget that says “Malaysian empowerment” or “Malaysian schools”?
(3) Support for businesses and investments
A big part of the budget is allocated to support businesses, including investments such as RM3 billion given to Khazanah to manage, of which most expect it to support businesses that are struggling.
To put this in Malaysia Sdn Bhd context: The management unveils a portion of its budget is to be used to support business units with a potential to generate returns for them. The funds will be parked with the “investment committee” who will *most likely* have free reign on which business unit they will give the funds to.
It should help business units that have good potential to grow! Quick one.. has anyone checked the investment committee’s track record?
(4) More handouts for Civil Servants
Malaysia Sdn Bhd has quite a handful of staff who works in shared service / supporting functions. Other departments (private sector) suffered from the wave of the pandemic, having to reduce pay and let staff go due to heavy losses incurred. But not the shared service staff, though. Or at least not as severe.
Still, Malaysia Sdn Bhd decides to give handouts to its shared service staff as an additional Budget initiative.
I have friends who are civil servants, earning decent wages that could very well support their lifestyle, and they’re getting this handout. Cool, right?
(Bonus) Compulsory for public listed company to have at least 1 female director on the board
I fail to see the relevance of this to budgeting.
On top of that, what does gender have to do with business? As long as the person can do his/her job properly, who cares if it’s a male or female? I agree that there may be a stigma with people (usually older folks) that males be in leadership positions. But
Imagine if Malaysia Sdn Bhd implemented that every business unit must have at least 1 female member. Business units who somehow have only male team members now have to scour specifically for female team members. Worst case scenario, they take in a female team member that do not contribute at all. On the other hand a full female team will not require to have any male in their team.
Just saying.
Closing Thoughts
Yea, we can’t use the government budget to run a business (and there are many more things that we can mention, to boot). It’s so blatant that when we put these things in business context, it becomes outright ridiculous. Some of which will even be a question mark over the survivability of the business if implemented.
Still, it has a few pointers that are worth looking deeper into it.
The national budget is prepared for the betterment of the country and its people. Whilst there are some initiatives that are dedicated to that, there are others that seem to aim for a different purpose.
So what do you think about our budget 2022?
