2011 Budget analysis

By Syed Akbar Ali

 

Hot news versus one week later analysis. Well when sometime has passed we get more hindsight and more 'analysis paralysis'. I am just rounding it up and putting my two cents worth about the Budget 2011.

 

Today the Plus folks reveal that the five year postponement of toll hikes simply means that the Government has to pay Plus RM5.0 billion compensation. Plus the RM2.5 bilion unpaid compensation still owing to Plus by the Government, that is RM7.5 Billion of taxpayers’ funds. That is simply leaving money in the right pocket and paying taxpayers money to Plus from the left pocket. Apa beza sangat ?

 

There are adventurous ideas like building an RM5 billion 100-storey Warisan Merdeka by PNB. The PM said yesterday, somewhere, that the 100 floors of this building will fill up with offices and businesses, implying the 100 storey building means jobs and humming businesses. Well it does not work that way.

 

Assuming each floor has a minimum of 100 occupants, the 100 storey building will house 10,000 people. These 10,000 people must already have successful businesses before they can move in and pay the rent in a 100 storey “Malaysia’s tallest building”. You cannot build a 100 storey building which will magically create successful businesses to become its tenants.

 

I guess what will happen is that PNB will arm twist all the GLCs under its wing to take up space at the 100 storey Warisan Merdeka.

 

There is precedent because this is what UEM(?), MRCB(?) had to do to fill up the Sentral Project in Brickfields. Ask the GLCs and Government departments to move into Sentral. Wouldn’t 1MDB’s Sg Besi redevelopment, Naza’s Jalan Duta redevelopment and all the other Greater Kuala Lumpur skyscrapers also be clamoring for the same GLCs and the same Government departments to fill up their empty spaces? So please plan well.

 

Then the PM’s wife’s pet project the Permata program has been given another RM111 of taxpayers’ money – three times the RM36 million given last year.

 

Last year the Prime Minister said there were 900 “anak pintar”. So do we have three times more anak pintar kids this year? Number of children is a biological function. You cannot triple ‘pintar kids’ in one year. Todate the total amount spent on the Pintar program is over RM176 million – which works out to RM195,500 spent per pintar kid so far. That’s more than degree at a private university. OK let me ask a simple question : how are the Pintar kids doing? Folks our money is being spent. So how are the Pintar kids doing? Do you all recall the Monsoon Cup?

 

Critics have also pointed out an allocation of RM65 million to renovate the Prime Minister’s residence. The question is why? It’s still a new house, made of concrete and steel. Why renovate a new house? And why cost so much?

 

The good part in the Budget are the incentives for home buyers. A 4 percent interest rate for a maximum of RM60,000 for low cost houses, government guaranteed down payments of 10 percent for houses below RM220,000 for first time buyers earning less that RM3000 a month, and 50 percent stamp duty exemption for first-time house buyers of houses not exceeding RM350,000 is just great. Helping folks financially with the 10% house deposit for huses below RM220,000 is just awesome.

 

This will help more Malays and other lower income folks own houses (this is a real problem lah). Kudos to whoever managed to slip this gem into the Budget. I take it that this also means that the banks can still lend 90% loans for the remainder purchase price? Syabas. Lets increase house ownership – it will lead to economic growth.

 

Abolishing import duty on approximately 300 items like apparel, handbags, shoes, shampoo, suits, children’s apparel, wallets, hair colourants, golf balls, imitation jewellery, talcum powder, curtains, table cloth, blankets, bed sheets, shirts, undergarments, lingerie, nightwear, perfumes and mosquito netting (?) is great.

 

Please include cars and motorbikes in the list too.

 

I agree with Dr Mahathir that the Employees Provident Funds should be careful with investing 20 percent of its assets overseas (from 7% now). On the one hand we want foreign investment. On the other hand we are sending out our money by the shiploads. What gives? Please don’t buy shopping malls overseas ok. Want to play safe buy OECD Government securities. If it is Greek, discount heavily first.

 

The Auditor General’s Report has been postponed. Do you share the feeling that there is going to be some embarrassing news? FMT has written about the 2006 Auditor-General’s Report “about a RM32 screwdriver set bought for RM224, a RM160 pen for RM1,146, and a RM50 carjack for RM5,700? …more shocking RM290 million spent by the Customs Department for an outdated user-hostile information system.”

 

This is the sin of our system for the past 40 years, we do not pay market prices. We always overpay and get less. It is not just bad for us the taxpayers but it is worse for the businesses, the entrepreneurs and the economy. Easy money has made us non competitive and condemned us to the wheel chair.

 

One Taikor said “the Government pays three times more fo everything anyway”. That is three time market price. The 2011 Budget totals RM212 Billion. There is plenty of fat inside I am sure. Looking at past Auditor-General’s Reports and what the Taikor said, we can achieve what we want to achieve for 2011 using maybe just one third of the amount or RM70 Billion only.

 

The remainder RM142 Billion will be used to make nails in our coffin, by making easy money GLCs, easy money cronies and other easy money addicts uncompetitive, lazy and handout driven. No need to be innovative, creative, work hard or be bold.

 

The 2011 Budget also says that “Private Sector Investment” will increase to RM86 Billion. There is some ‘pulling the wool over the eyes’ going on here. The businesses that I run are 100% private sector. The Government never asked me how much I will be investing over 2011. Even if they did, how does my “private sector investment” become part of the Government’s Budget Planning?

 

What is meant by “private sector investment” actually means spending by the GLCs. That is taxpayer’s money ok, it is NOT private sector investment. For example the Government has Guaranteed 1MDB’s RM5.0 billion Bond issue (that’s taxpayers money folks).

 

i. The Kuala Lumpur International Financial District valued at RM26 billion.

ii. The Mass Rapid Transit in Greater KL costing RM40 billion (targeted 2020).

iii. the Warisan Merdeka 100-storey tower valued at RM5 billion

 

So I hope someone will advise the Prime Minister not to keep repeating Private Sector Financing (do you notice that they have dropped that other misnomer “Private Finance Initiative”?) There is no such thing. The taxpayer’s will be paying for everything.

 

Other than the 100 storey Warisan Merdeka, there are a couple of other dicey suggestions which have slipped under the radar. One is the RM3.0 billion resort developmet in Karambunai.

 

“Najib said Nexus Karambunai, a renowned resort in Sabah, had committed to developing an integrated RM3bil eco-nature resort, the first in the world, by leveraging on its natural beauty and uniqueness.”

 

The Government will “give” RM100.0 million. Hah? What do you mean by “give”? Let me guess, the balance RM2.9 billion is “private sector financing”? I find this very hard to accept. I suspect taxpayer’s money will be involved again. Somehow I smell fish here. RM3.0 billion for a resort? In Sabah? I say bro, RM30.0 million tak boleh ke?

 

Here is some Standard Two calculation to get the Pay Back period. Pay Back period represents the number of years for a business to generate net profit to payback the total money invested in the project.

 

Saya the Karambunai Eco Resort will have 500 rooms. Say it is 5 star and room rates average RM500 per day (well lets assume the Mubadalla guys from Abu Dhabi will stay there).

 

Assuming 80% occupancy the whole year (I am being very very optimistic) the calculation is like this : 500 rooms x 80% x 365 days x RM500 = RM73.0 million revenue. Taking 30% "net profit" (a very very optimistic assumption again), net profit will be = RM22.0 million.

 

 

So Pay Back Period = RM3.0 billion / RM22.0 million = 136 years ! ! It will be 136 years before they can recover the investment. (Usually most viable businesses have a payback period of 6 - 12 years)

 

Lets give them even more optimistic scenarios. Lets double the room rates to RM1000 per day (OK lah the Emir of Abu Dhabi may come calling too). At double the net profit, the Pay Back period will be halved ie 68 years. This is still too far fetched.

 

 

Here is some more Darjah Dua arithmetic. Say the cost of construction is RM100 psf. It means RM3.0 billion will buy us 3.0 million square feet of resort space in Karambunai. For your imagination and comparison, the Mid Valley Mega Mall has 4.5 million sq ft of space.

 

Here is some trivia about the Mid Valley Megamall

 

4.5 million square feet (420,000 m²), a shopping mall, an office tower block, 30 signature offices and 2 hotels, 430 shops on five and a half floors, five anchor tenants; Carrefour, Jusco, Golden Screen Cinemas, Metrojaya and Harvey Norman, an 18 screen Cinema, a state-of-the-art bowling centre, two mega food courts, a 48,300 square foot (4,500 m²) convention centre, a 646 room business hotel named Cititel

 

I know a resort and a shopping mall are not like “apples and apples” but RM3.0 billion for an eco resort? Shouldn’t it be the case that in an “eco” resort you must preserve the greenery with minimum cutting and covering with concrete. RM3.0 billion sounds way too much. Sinkhole comes to mind.

 

The other ‘blackhole’ that should be on our radar is the Talent Corporation. Even the name Talent Corporation sounds like some Las Vegas adult entertainment “talent hunting” company. There was no mention of the amount to be given to this Talent Hunters but I think it is a ripoff of taxpayers funds.

 

The plan to get back 70,000 Malaysians working overseas is ridiculous. Even getting back 10% of this figure or 7000 of them is ridiculous.

 

Most of them are non Malays who have left the shores for greener pastures overseas. Why would they come back? And if they come back, where would the Talent Corporation place them? Can the Talent Corporation go to IOI Corporation or Gleneagles Medical Center and say ‘we have found this guy who is earning USD30,000 a month overseas. Can you give him a job for RM150,000 a month?’

 

Its not going to happen. The only alternative is to find them places in the GLCs. I don’t think this will happen either.

 

So what gives? The fun will be in the “talent hunt”. Whoever the clever beggar “con” sultant or sub-contractor who thought up this idea and slipped it between the sheets is going to make tons of money undertaking the “hunt”. Whether they bag any birds is not relevant. The fun (and the money to be made) is in the hunt. No need to head to the Las Vegas “one armed bandits”. The stick up can be done here. ‘Stick ‘em up’.