MUHAMMAD NAWAWI BIN SHAMSUDDIN

NOR AZUANI BINTI MOHAMED ARIFF

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NIK ROSNAH BINTI NIK ZAUDIN
ANIDA BINTI MOHD ZAIN

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INTRODUCTION
The Honourable Prime Minister, YAB Dato Sri Mohd Najib Tun Abdul Razak as the Finance
Minister, tabled the 2016 Budget on Friday, 23 October 2015. The 2016 Budgets theme of
Prospering the Rakyat and its 5 priorities reflect the Governments aspiration to achieve its
goals of safeguarding the rights and interests of the Rakyat, achieving inclusive and
sustainable growth and transforming Malaysia into a high income and advanced economy.
Budget 2016 allocates total RM267.2 billion, an increase from a revised allocation of 260.7
billion for 2015. The initial allocation for 2015 was RM273.9 billion. For 2016, federal
government revenue collection is projected at RM225.7 billion, up RM3.2 billion from 2015.
Malaysia is currently facing three challenges:
a) Declining global demand, which has hurt its export income, especially as it has
become more reliant on commodity exports;
b) Dampening domestic consumption and investment due to high household debt
levels;
c) Deteriorating confidence in the leadership, which has hurt both private investment
as well as foreign capital inflows.
These three issues were not adequately addressed by the 2016 Budget, which we believe will
continue to plague in the economy in the near term.
While spending is expected to continue spurring growth, Budget 2016 will also be watched to
see if it will take steps such as reducing the rate of the goods and services tax (GST) to ease
the rising cost of living, and for substantive and transformative measures that will go beyond
cash handouts to closing the wealth inequality gap as Malaysia strives to become a highincome nation. Notably, this budget will be the first under the 11th Malaysia Plan a master
plan to chart the countrys development from next year until 2020.

BUDGET 2016 PRIORITIES : PROSPERING THE RAKYAT

GST 5023 ORGANIZATIONAL DESIGN
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There have 5 priorities in budget 2016 :

Strengthening Economic Resilience

Increasing Productivity, Innovation and Green Technology
Empowering Human Capital
Advancing Bumiputera Agenda
Easing the Cost of Living of the Rakyat

This is in line with the people-oriented 11th Malaysian Plan (11MP). The Six Strategic
Thrusts of 11MP contain people-centric elements: Enhancing inclusiveness towards equitable society, with specialfocus on the
Bottom-40% (B40) of the household by income as well as rural areas via better access
to quality education and training, efficient infrastructure and amenities, improved
connectivity, better employment and entrepreneurial opportunities, as well as wealth

ownership.
Improving well-being for all by rising standards of living and quality of life,
among others by providing quality healthcare, affordable housing and safer

neighborhoods.
Accelerating human capital development for an advanced nation through
improvement in labor market productivity and create more high-skilled job
opportunities, supported by reform of the education system to produce talents, and
shift in Technical and Vocational Education and Training (TVET) towards industry-

led programmes to supply workforce that meets industry demand.

Pursuing green growth for sustainability and resilience to ensure environment and

natural endowment are conserved and protected for current and future generations.
Strengthening infrastructure to support economic expansion and ensure the
people have access to essential amenities and services such as transport,

communications, electricity and clean water.

Re-engineering growth for greater prosperity by migrating all economic sectors
into more knowledge-intensive and high-value added activities that not just create
jobs per se, but generate higher-paying jobs.

BUDGET OVERVIEW
Budget 2015
Economic growth and declining commodity prices. Other promising performance indicators
for The Malaysian economy impressively grew by 5.3% in the first half of 2015, despite the
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slowdown in global 2015 include a reduction in the fiscal deficit to 3.2% of Gross Domestic
Product (GDP) and an unemployment rate of 2.9%.
Budget 2016
Against this background, the Governments predictions for 2016 include a 4% 5% increase
in GDP and a manageable inflation rate of 2% 3% with private investment and consumption
being touted as the key drivers of growth. With national revenue and expenditure forecasted
at RM225.7 billion and RM267.2 billion respectively, Malaysias fiscal deficit for 2016 is
expected to decline to 3.1% of GDP. National revenue is still expected to register some
growth in 2016 despite the weak oil prices due to strong Goods and Services Tax (GST)
collection, which will be a key contributor to Government revenue.
In line with the Governments assurance that revenue from GST will be returned to benefit
the Rakyat, 2016 Budget contains several laudable measures, clearly aimed at striking a
balance between a Capital Economy and a People Economy. Amongst others, a wide range
of tax incentives have been proposed to promote and strengthen investment in targeted key
sectors. For the Rakyat, many individuals and families stand to benefit from the enhanced
personal tax reliefs and expansion of the GST zero-rated list to include a wider variety of
controlled medicines and basic food items.
Overall, 2016 Budget provides a promising foundation to support both businesses and
individuals in our collective pursuit of a robust economy.

IMPACT TO HRM
Extract Budget 2016 :

Salary adjustment whereby 1.6m civil servants will benefit

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30% of the human resource development fund to implement training programmes to

meet the needs of local industries in Sabah & Sarawak as well as an outplacement
centre to retrain retrenched workers

1Malaysia training scheme (SL1M) with RM250m allocation to be financed by GLCs

Good focus for housing, vocational training , various tax breaks for the middle class

Less allocation for KPT by RM1.4b

Pro & Cons :

Tax breaks and salary adjustments will ensure a more satisfied workforce and higher
disposable income to circulate into the economy

The salary adjustment will also ensure that the workers will better cope and adjust to
the rising cost of living

Relative price increase in the consumer goods after the announcement of the salary
adjustment to government servants may increase the cost of living

Empowering the human capital in measures to improve both the current and future
workforce with vocational trainings and other development programmes ~ more
skilled and semi-skilled workers

Recommendation on implementation :

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Government to encourage involvement of GLCs and other corporation bodies in

providing on-the-job training to the potential workforce i.e. joint venture between
IPTAs and GLCs to provide practical training to students.

Government to provide tax incentive for GLCs or other corporation bodies that give
grants to IPTAs to do research and other related programmes for the benefits of
students and enhancing the skill of the future workforce

Government agencies to work closely together to avoid conflicting purposes in

building our nations and handling the problem of rising cost of living. For example,
imposing price control over more consumer items to avoid price hike after the
announcement of the salary adjustment to government servants.

Government to reverse the mentality of our people that working in certain industries
such as domestic helps, constructions and agriculture is not degrading by providing
training to up-skill our workforce to a professional levels that can demand higher
wages, salaries and benefits. It may be a gradual and slow process but constant efforts
and exposure to other countries that recognize the workers in these industries as
professionals i.e. Australia and United Kingdom, will be beneficial and eye-opening.

IMPACT TO ENTREPRENEURSHIP / SMEs

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RM6.26b in 2016 against RM6.52b in 2015 a reduction of RM260 million.

Extract Budget 2016 :

RM1.55b in 2016 for Bumiputera Entrepreneurs against RM980m in 2015

RM250m in 2016 for Indian Entrepreneurs compared to RM50m in 2015

Chinese Entrepreneurs to get RM140m in 2016 against RM50m in 2015

Young Entrepreneurs is allocated RM170m in 2016

RM2.17b allocated for Small and Medium Enterprises (SMEs) in 2016 against
RM5.29b in 2015

Other Generalised Entrepreneurship Benefits (RM1.98b)

Pro & Cons :

Incentives mostly focus on domestic entrepreneurship to increase in productivity for

entrepreneurs and boost local economies, indirectly generate entrepreneurs with
higher-income.

Financial assistance to assist the entrepreneurs especially young entrepreneurs.

The assistance may not reached the targeted groups and may only be focus on certain
groups.

Recommendations on Implementation :

To make the entrepreneurs aware of the various schemes and programmes to give
financial assistance and train the entrepreneurs through seminars, courses and roadshows to villages, small towns and towns.

To disseminate the information to various local authorities and government agencies

for them to pass the correct information that can assist the entrepreneurs and SMEs in
getting the suitable and required helps and assistance.

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To advertise the various financial assistance and loans and the target groups via
various channel i.e. television, radio and road-shows.

To organize go and meet programmes for the related agencies to go and meet the
entrepreneurs and give explanations on the available assistance.

IPTAs with entrepreneurship programmes should be equipped with all the knowledge
on the availability of the assistance to entrepreneurs and SMEs to enable them to
disseminate the information and assist the entrepreneurs and SMEs in getting the
same. They also should be in collaboration with all the agencies involve to better
assist the entrepreneurs and SMEs.

IMPACT TO LABOUR RELATIONS

The minimum wage increase for private sector workers in the peninsula from RM900
to RM1,000, and from RM800 to RM920 for those in Sabah, Sarawak and Labuan.

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The minimum wage does not apply to domestic workers.

The minimum wage of civil servants to begin at RM1,200 and to take effect from
middle of next year.

The increase in the national minimum wage will give long-term benefit for
Employees Provident Fund (EPF) contributors, especially among the low-income
earners, would have sufficient savings for their retirement.

The government's decision to raise the minimum wage for workers in the country in
the 2016 Budget is to reduce dependence on foreign workers as it would enable more
people to have the opportunity to be employed in various occupations from the aspect
of industries and technologies.

Employers have to be creative in ensuring that the workers productivity

commensurate with the minimum wage paid. If not the increase in cost will be
burdensome to them and may also result in employers laying off workers

May result in increased price of goods as a relative effect

Pros & Cons :

May reduce dependence the nation dependence on foreign worker as the higher
salaries may attract local workforce to enter the industries

Standard minimum wage across Peninsular Malaysia and across Sabah & Sarawak
may curb the migration of workforce from small towns or villagers to big cities.

Relative effect on the price of goods may result in higher cost of living.

Employers may suffer the increase in their operational cost; especially for the
employers in smaller towns as the different in wages upon implementation of the
minimum wage is higher.

Possibility of employers to lay off their existing workers in their pursuits to manage
their cost of operation.

GST 5023 ORGANIZATIONAL DESIGN

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Recommendations on Implementation :

Employers to take these opportunities to recruit local workforce and start to reduce
their reliance on foreign workers.

Employers to be more creative in their planning for the job scopes and descriptions of
their employees to commensurate the rate of minimum wage. KPIs have to be
adjusted to promote productivities.

SWOT ANALYSIS
i) STRENGTH
Improved workers welfare

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Increased household disposable income/purchasing power i.e. better cope

with rising cost of living
Better wages attract local workforce, may reduce unemployment rate
Less dependency to foreign worker

ii) WEAKNESS
Increased cost of living
Burdensome to employers in this trying economic downturn
Local workforce reluctance to enter certain industries i.e. construction or
hospitality as laborers
iii) OPPORTUNITIES
Better job opportunities with various development initiatives/plans
Vocational training and up-skills provided by Government & GLCs to
empower workforce and equip our entrepreneurs/SMEs
Better fundings, grants & loans to assist entrepreneurs/SMEs
Tax relief/incentive to SMEs/individuals
Better infrastructure development
iv) THREATS
Global economic uncertainties. Last three decades saw three major crises
in each decade which affect small and open economy economies like
Malaysia i.e. the collapse of world commodity prices in 1985; Asian
financial crisis in 1997/1998 and the Global Financial Crisis in 2008/2009.
Clear and present danger in the current decade is prolonged softness in
commodity prices after the recent drastic falls; big realignments in
currencies including Ringgit vis--vis US Dollar; and risk of economic
downturn in major trading partners, especially China.
Lagging productivity growth. Currently, Malaysias labour productivity is
lagging behind other high-income economies e.g. 32.4% of the US and
56.1% of South Korea. This is mainly due to low contribution of MFP to
growth as inputs of factors of production (capital, labour) are still the main
driver of growth. Higher MFP will ensure sustainable growth and equitable
distribution of wealth in the long run.
Inadequate fiscal space. The Federal Government budget balance remains
in deficit, although on a declining trend during 10MP compared with 9MP.
In view of the external risks and global economic uncertainties, fiscal

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consolidation must continue to provide room for policy flexibility in the

future, though not at the expense of delivery and quality of public services.
Low compensation to employees. The GDP share of employees in
Malaysia was 33.2% during 2010-2015 period, lower than that of
highincome and middle-income economies like Australia (47.8%), South
Korea (43.2%) and South Africa (45.9%).
Disparity in household income. Even though the Bottom 40% (B40) of
households monthly average income increased by 12% p.a. between 2009
and 2014, their share of total household income increased marginally from

14.3% in 2009 to 16.5% in 2014.

Weakening of RM i.e forex loss for importers
Declining commodity price i.e crude oil
Fluctuating investors confidence
Weakened position of employers in many industries/sectors
Lower allocation to IPT may hamper their performance in developing
nations human capital

CONCLUSION
Budget 2016 is a very important budget for Malaysia because the drop in demand
from Europe and emerging markets, weakening ringgit, falling crude oil and
commodity prices and fluctuating investor confidence presents a complex set of
challenges to policy makers.
However, the reforms undertaken by the government in past five years in the form of
the Government Transformation Programme (GTP), Economic Transformation
Programme (ETP) and the implementation of the Goods and Services Tax (GST) have
diversified the governments revenue base, created domestic engines of growth,
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ensured greater public consumption and provided strong economic fundamentals that
will hold its own despite the growing global economic turbulence.
Wage growth, accelerating innovation and productivity, cost of living and social
mobility remain of concern as we progress on the path of developed nation status we
must also ensure that every Malaysian actually benefits from this advancement and
that there are tangible effects.
However, the question on everyones mind is whether Prime Minister Najib Razak
can deliver a gravity-defying 2016 budget that can withstand the dampening forces of
sluggish global growth, declining domestic demand, and deteriorating confidence.
Instead of opting for substantive reforms to boost Malaysias competitiveness, the PM
focused on populist policies to gain the publics support. While kind to Malaysian at
first sight, the budget will hardly help the economy gain the competitiveness it needs
to get out of its current malaise.
Yes, the medicine is harsh, but the patient requires it in order to live.
Margaret Thatcher

APPENDIX

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