A new goods and services tax, additional benefits for the police force, some liberalisation of the capital markets are key measures announced by Prime Minister Abdullah Ahmad Badawi in a two-hour speech in Parliament today.

Budget deficit reduced to 3.8 percent

The budget deficit in 2005, the eighth deficit in a row, is expected to be reduced to 3.8 percent. The government will be spending RM117.4 billion, with revenue estimated at RM99.2 billion.

The 2005 budget deficit continues its downward trend from 4.5 percent in 2004 and 5.3 percent in 2003. A narrower deficit may help Malaysia win a higher debt rating, reducing borrowing costs for the government and companies.

Malaysia's per capita income is expected to increase to RM16,098 and purchasing power parity to US$10,163.

New goods and services tax

The government has introduced a goods and services tax (GST) to be implemented on Jan 1, 2007. The rates of this new tax has yet to be determined. The government will consult public and private organisations regarding the implementation of GST

With the introduction of the new tax, the government will reduce corporate and individual income tax rates.

Streamlining public transport

The government will introduce measures to increase the quality of light rail and existing bus services. This include improving connectivity in public transport terminals, as well as the use of integrated ticketing and fare system.

The aim is to encourage greater use of public transportation, thereby reducing traffic congestion, particularly in Kuala Lumpur.

Traffic congestion in the Klang Valley has worsened due to declining utilisation of public transport, particularly of buses, from 34 percent in 1985 to 16 percent currently. On the other hand, the use of private cars has increased significantly from 47 percent to 71 percent.

The operation of transport facilities will be undertaken by the newly established, government-owned Rangkaian Pengangkutan Integrasi Deras (RAPID) KL.

RM500 million for public infrastructure maintenance

A sum of RM500 million is allocated for the maintenance of public infrastructure in 2005.

The programme on maintenance of public facilities, such as hospitals, schools and government staff quarters will be undertaken through outsourcing the function to small entrepreneurs at the district level, particularly class F bumiputera contractors.

Agriculture, third engine of growth

The government will focus on revamping the agriculture sector as the third engine of growth, after the manufacturing and services sectors. This policy is to reduce dependence on food imports, which amount to RM13.9 billion in 2003.

To encourage the commercialisation of the agriculture sector, the government will establish a fund of RM300 million for seed capital. In addition, a sum of RM1.5 billion is allocated for agricultural projects, especially for projects involving smallholders.

Tax incentives include a 100 percent deduction on capital expenditure, pioneer status or investment tax allowance for five years and reinvestment allowance for 15 years.

Companies which produce halal food will be given tax exemption for five years. A Special Fund for Development and Promotion of Halal Products will be established with an allocation of RM10 million.

Liberalisation of capital markets

To increase global competitiveness, the government will allow up to five major foreign stockbrokers and five leading global fund managers to operate in Malaysia.

It will also allow 100 percent foreign ownership in futures broking companies and venture capital companies.

The Employees Provident Fund (EPF) can increase the size of its funds placed with local fund management companies, including non-bank owned companies from RM6 billion to RM12 billion within three years.

New Islamic banking measures

The government will issue Islamic Treasury Bills, which are currently only issued in conventional form. The Government Investment Issues, issued based on syariah principles will be increased in 2005.

Overseas branches of local banks can now establish Islamic banking counters. In countries where Malaysian banks do not have branches, joint ventures are encouraged to provide Islamic banking services.

Increase education, health tourism

Additional measures will be taken to further promote education tourism, where currently we have 51,000 foreign students from 130 countries.

The government will expedite approvals and accreditation of courses by private institutions of higher learning (IPTS), and to rank the performance of IPTA (public institutions) and IPTS based on international standards.

To promote health tourism - where 103,000 foreigners visited Malaysia under the health tourism packages in 2003, bringing the country a total revenue of RM58.3 million - the government will organise health tourism packages through coordinating efforts between hospitals and hotels as well as establishing an international referral network.

Abolish or reduce certain import duties

Import duty on selected goods such as surgical gloves, carpet, glassware and semi-finished components for the wood-based industry - currently between 5 and 25 percent - will be abolished.

Import duty on selected raw materials for the apparel industry and herbicides from between 10 and 35 percent will be reduced to between 5 and 30 percent.

Encouraging small and medium-size industries

The Small and Medium Industry Fund 2 will be increased by RM1.5 billion to RM4.5 billion and the New Entrepreneurs' Fund 2 by RM550 million to RM2 billion.

Two additional funds will be created - a Fund for Enhancing Marketing Skills of SMEs with an allocation of RM50 million and a Fund for Enhancing Product Design, Packaging and Labelling Capabilities of SMEs with an allocation of RM100 million.

National Service programme to continue

The National Service Programme will be improved. About 69,000 youths are expected to participate in the programme in 2004 and another 85,000 youths in 2005.

As for education, a sum of RM670 million is provided to build new institutions in addition to RM248 million for upgrading existing facilities.

The government will increase the number of places for Mara sponsored students overseas from 700 to 1,000 annually under Skim Pelajar Cemerlang.

Long-term gov't contracts for bumis

The government currently awards long-term contracts for a period of five years to bumiputera entrepreneurs only in the defence industry.

This will be extended to other industries involving technology transfer, including mechanical and engineering equipment industries as well as health services. The contract can be extended for another five years, if the company shows excellent performance and has the potential to penetrate export markets.

Poverty reduction

A sum of RM94.2 million is allocated for Housing Assistance Programme, Income Generating Programme, Dietary Food Supplement Programme, Mindset Change Programme and Training and Educational Programme. An amount of RM205 million is provided for the implementation of the Tuition Voucher Scheme for children from the low-income group.

To enhance the standard of living of Orang Asli, involving 147,500 people nationwide, a sum of RM77.3 million is provided.

There will be additional tax relief for disabled taxpayers, from RM5,000 to RM6,000. For disabled spouses, the government proposes the additional tax relief currently at RM2,500 be increased to RM3,500.

Additional spending for rural areas

A sum of RM130 million is allocated for rural electricity supply programme and RM95 million for water supply.

An additional sum of RM174 million is provided for construction of kampung roads and RM50 million for building and completion of rural roads. To improve rural health, a sum of RM18.7 million is provided.

Tax rebates

The tax rebate for the purchase of personal computers will be increased from RM400 to RM500 given to individual taxpayers.

For the purchase of books, the tax rebate will be increased from RM500 to RM700.

Low-cost housing

RM778 million will be allocated for the construction of 21,000 units of low-cost houses under the Projek Perumahan Rakyat for squatters in Kuala Lumpur and major towns.

State governments will be provided an additional RM177 million in loans for the construction of 3,000 units of houses under Projek Perumahan Awam Kos Rendah, while the allocation for Projek Perumahan Mesra Rakyat will also be increased by RM100 million.

The former Pudu Prison site will be developed into a commercial and residential centre.

Health services

To upgrade the health services, the government has allocated nearly RM7.9 billion in 2005. A total of five new hospitals, 13 health clinics and a health laboratory will be operational, while two hospitals will be upgraded.

A sum of RM48.3 million is provided for treatment facilities in Intensive Care Unit, establishment of haemodialysis units and cancer treatment programmes. An additional sum of RM19.2 million is provided for the Public Health Programme.

Additional incentives for medical assistants - the on-call allowance of RM60 per month currently provided for those working alone in health clinics in Sabah and Sarawak will now be extended to Peninsular Malaysia. The government will also increase the incentive payment from RM30 to RM100 per month for health attendants in hospital mortuaries.

Hike in taxes for cigarettes, alcohol

Excise duty on cigarettes be increased from RM58 to RM81 per 1,000 sticks. This will translate into about 50 sen increase for a normal pack of cigarrettes.

Excise duty on liquor be increased from between 5 sen and RM23.40 to between 10 sen and RM28 per litre.

Funding for NGOs

In 2005, a sum of RM141.6 million is provided under nine ministries and departments to finance various NGO activities.

A sum of RM150 million is allocated for preventive, treatment and rehabilitation programmes as well as for the administration of 28 rehabilitation centres nationwide. Allocations will also be provided to NGOs, such as Pemadam and Pengasih to carry out their activities.

Protection of the environment

A sum of RM194 million is provided for operating and development expenditure of environmental programmes.

Benefits for police force

As of Jan 1 next year, the monthly incentive payments for the police force will increase from RM375 to RM600 for those who have served between 1 to 10 years, RM750 between 11 to 15 years and RM900 for those exceeding 16 years. This represents an increase in payments of between 60 percent to 140 percent.

A sum of RM107 million has also been provided for salary adjustments for the police, while the remuneration scheme and facilities for the Pasukan Gerak Khas, Polis DiRaja Malaysia and Pasukan Komando Angkatan Tentera Malaysia have been reviewed.

Bonus for civil servants

Civil servants earning up to RM1,000 a month will be paid a bonus of one and a half months salary and those earning more than RM1,000 a month will be paid a bonus of one month salary subject to a minimum of RM1,500.

The bonus will be paid in two instalments, the first in October and the second in December.

The housing allowance for the Managerial and Professional Group Grade 41-44 from RM165 to RM210 a month, while for the supporting staff in Grade 1 to 40 from RM135 to RM180 a month.