I refer to the Malaysiakini report Najib unveils RM60bil stimulus package .

In the face of the global slump for exports, and coupled with the fact that exports account for 100% of Malaysia’s GDP, the stimulus needs to have two basic ingredients –

1. boosting domestic consumption to replace dwindling export demand; and

2. reducing business costs especially for exporters who are facing shutdowns due to the sharp decline in foreign demand.

While the government has announced measures to deal with the latter, little is being introduced to address the former.

There is little in the budget which raises disposable income for Malaysians. Instead, the government opted to spend a subsidy of RM674 million to avoid price increases for necessities like bread, flour and sugar.

Another RM480 million is allocated to compensate toll operators for not raising their rates. So, after RM1 billion of spending, it is still the status quo for Malaysian consumers.

The biggest beneficiaries of the RM1 billion largesse are the toll companies, who despite the global recession, are still enjoying guaranteed profits. The only silver lining for Malaysian taxpayers is the tax relief given on housing loans.

The stimulus should have had bold measures to put more money in the pockets of Malaysians immediately as this is the fastest and most direct way to recycle more ringgit into the local economy to raise aggregate demand and via the multiplier effect, increase incomes for everyone.

This could be achieved by providing higher income tax relief for 2008, or better still, free spending coupons a la Taiwan’s style to jump-start local spending.

The RM30 billion or so worth of corporate/loan guarantees is a right step in enabling cash- strapped but otherwise healthy companies that are still seeing demand for their products to have access to fast and cheap credit.

This will prevent companies who are still cost-competitive from collapsing simply because of the tighter credit market. However, when a business is suffering from a slump in demand for its product or services, easier access to credit will not ensure survival if the recovery in demand does not come fast enough.

In this aspect, it is more critical for these companies, many whom are exporters, to receive subsidies to reduce their operations costs or some form of export tax rebates. Otherwise, the only option left for these companies to slash costs is to fire staff.

One way is to abolish the Human Resource Development Fund (HRDF). A cursory look at the balance in fund would reveal hundreds of millions of ringgit not being used. It is perverse to force companies to continue to pay even 0.5% of their total wage bill to the HRDF, which then lies idle, when they are struggling to pay normal wages.

And since the government is already spending billions on re-training and HRDF as a means to spur companies to train their existing staff, why the need to tax companies’ wage bill? The government should be subsidising the companies’ costs of retraining, not taxing them more.

There are also no incentives given to companies to retain their workers. In fact, companies now have an incentive to terminate their current workers and then re-employ those retrenched since they can enjoy double tax deductions equivalent to the annual salary of the re-hired worker.

The government has to remember this – governments cannot create private sector jobs. It is the businesses that create these jobs. The government’s role is to facilitate private businesses by creating robust consumer spending and simultaneously reducing the operational costs of businesses.

Instead of shuffling those retrenched or unemployed into temporary jobs or into some retraining scheme which may or may not match potential employers’ requirements, the funds for these schemes should instead be diverted to companies who are not retrenching workers to help them cope with the current slump.

There is also a statement in the stimulus package which is kind of quirky. It states: ‘The poor performance of Bursa Malaysia has also adversely impacted investor and consumer sentiment as well as the services sector, which normally is a high-growth sector’.

The cause and effect is reversed here. More accurately, it is the poor investor and consumer sentiment which caused the poor performance of the Bursa Malaysia. The poor sentiments are, in turn, caused by the falling demand for Malaysian goods/services and deteriorating corporate earnings.

Indeed, while private think-tanks have been forecasting, at best, zero growth for Malaysia, the government as recent as a few weeks ago was still preaching the ‘fundamental strength’ of the local economy. Investors clearly did not share in this optimism, which then sent the Bursa index falling.

In all, fiscal spending only amounts to RM15 billion in this RM60 billion budget. The balance is in the form of loan/corporate guarantees, etc. So lets not get ‘wow-ed’ by the RM60billion figure being bandied about.

The government should have opted to put more money directly into the rakyat ’s pocket – the impact would certainly be more forceful in stimulating the local economy rather then largely depending on public expenditure to boost local consumption.

The latter, as we know, is prone to slow execution and leakages via corruption/rent-seeking. Still, at least the government is now admitting that Malaysia, despite its ‘stellar fundamentals’ is not immune from the global economic malaise after all. Better late than never, I suppose.