Budget 2012: Another interesting debate --- RPGT

Property prices had been skyrocketing since 2009, creating more millionaires in Malaysia. The key factors behind the increasing properties prices were low interest-rate environment, attractive housing loan packages and ample of liquidity in financial system. These had prompt investors ,and general public too, to invest into properties searching for better return among all the investment instruments. Oppss... Favorable Real Property Gain Tax (RPGT) is one of the factor too.

While creating millionaires, many middle and low income groups are facing difficulties to come out the higher capital required to purchase their homes. Genuine buyers, who are first-time house buyers, were being forced to delay their buying and ended up renting. This will resulted in widening wealth gaps between Malaysians. As such, government had proposed to increase the quantum of RPGT to counter the potential socioeconomic backlash. (see attachment)

Curbing speculations?

Traditionally, there are two important tools available to government to curb excessive properties speculations and they are interest rate and RPGT. Since 2008 global financial crisis, central banks globally including Malaysia had slashed their interest rate to all time low in order to spur economic activities.

Picture taken from Business Times

On top of that, RPGT stayed low at a flat 5% for properties sold within 5 years. "5% only?" you may ask. Yes, and this is a contributing factor on why properties prices remain elevated.

Is it enough?

However, economists are saying that the latest announcement made on RPGT was relatively "too soft" in contain the problem. Anyway, this is a good news though for property speculators or investors as 10% RPGT within 2 years can be easily absorbed. Then, how much is enough?

     

     Genuine buyers said: "Higher is better".

     Property developers said: "Current rate is enough".

Finance Malaysia reckons that 10% is definitely not enough. The marginal increments looks like government is only "entertain" the perception of general public, while protecting property developers, we think. As such, we are suggesting a higher rate as below:

By imposing a higher RPGT, that could possibly boosted government tax revenue, thus lowering down the over-optimism budget deficit target. Why don't government implement that way?

Goodbye Italy

Look at the numbers: $ 2.6 Trillion national debt which amounts to 120 percent of GDP. Nearly 15 percent of that debt comes due within the next twelve months. Yields on 10 year bonds now north of 7 percent. That's Italy.

The Italian political leader Berlusconi has resigned, joining his pal Papandreou. It's over for Italy. All that is left to speculate about is when Italy will recognize the necessity to do a planned workout -- commonly known as a (partial) default.

Before this is over, the leadership in Germany, France, and Spain will also step down, either voluntarily or by action of the voters.

This game has only one end. Either these countries sit down with their bondholders and work out a partial default plan or total chaos will be the end result when they simply can no longer sell debt at all and can't pay their day to day bills.

The unreality of the approach of European leaders is almost comic, except for the tragic implications that their foolishness may lead to.

There is no harm in a partial default. The bondholders already know they are in deep, deep trouble. A partial default only recognizes what markets have already accomplished -- major losses for bondholders. The bondholders are already there -- time for a workout.

Of course, this means that the entitlement systems can no longer function as they have in the past. There are simply no funds available for these systems. No one is willing to lend money to support other people in a grand lifestyle -- not anymore.

The countries of Europe will be forced, after a debt workout, to dismantle the entitlement systems that have undermined the work ethic in Europe and saddled their countries and much of the rest of the world with bonds that cannot be repaid.

Next up on the docket is the US. It's just a matter of time, but it is basically the same scenario.

Failed PPSMI: What is the impact to our Economy?

Yes. Another U-turn from our government. This is called my beloved Malaysia. But, this time it involve our students (innocent future voters) who had to bear the uncertainties between studying Science and Maths in English and Bahasa Malaysia (BM). The new education policy was mooted by then Prime Minister Tun Dr. Mahathir in 2003 in order to raise our competitiveness especially in Science matters.

However, everything can be changed and the government said that it had abolished the teaching of Science and Maths in English (PPSMI) citing poor command of English language deter students from excelling in these two subjects. And, the education ministries said that they already consulted all the schools nationwide, and concluded that majority of them doesn't want to continue with PPSMI for the benefits of students.

Why PPSMI failed in Malaysia?

I would said that the only reason is the lack of commitment from Government. If there is not enough qualified English educated teachers, train them or hire them. If the students are not capable, train them or even make the subject compulsory to pass. If we believes that the PPSMI is crucial for our nation to excel, we must not give up after merely few years of trying. Instead, we should find the solutions to the problems we faced. Every changes on policies will be difficult at the beginning, no need to mention education policies. I believe the 54 years old government should know this better.

What is the impact to our economy?

1. Credibility of the government had lost. How would foreign countries looking at us? At first, they're happy by the move, but settled with disappointment now.
2. Most of the Foreign Direct Investment (FDI) that pouring into R&D and science related industries were westerners. Like it or not, their preferred language is English simply because it is the original language of innovation.
3. Poor commanding of English language is one of the main reason why Malaysia losing out to SIngapore in attracting multi-national companies. We can't deny this. Otherwise, we will continue to lose out.

To end this post, let's understand the following statements by Dr. M:

“You never know, the people who are calling for both subjects to be taught in Bahasa Malaysia may be sending their children to English schools”

Greek Political Turmoil

According to the news media, what Greek politicians do next will determine whether or not the current Euro crisis can be "resolved." Not really.

The main significance of the past week of Greek political back and forth is that political leaders throughout Europe are in trouble -- big trouble.

Countries forced into austerity measures will, in the end, replace their political leadership. That process is already under way in Greece and Spain and is surfacing in Italy as well.

Countries who are putting their taxpayers on the line to support the bailout of the profligate countries will also soon begin the process of replacing their political leaders -- Germany and France.

Neither side of this grand scheme, the bailors or the bailees, have the support of their voters. Why is this a surprise? The effort to bail out the sovereign debt problems of Greece, Spain, Italy (Portugal, Ireland) is a "lose-lose" policy and voters can see clearly that it is not in their interest, no matter what country they live in.

What works is a recognition that the debts are unsustainable and that it is time to sit down with creditors and do a workout -- a planned default.

It might take changing the political leadership in all major European countries, not just in Greece, to get the focus on the real solution to the European debt crisis.

Corzine Bets and Loses

John Corzine, former Senator and Governor of New Jersey and former Chairman of Goldman Sachs, stepped down today as Chairman of MFGlobal, as MFGlobal remained in the headlines for its bankruptcy filing two days ago. Corzine presided over the firm as it made huge bets on European sovereign debt, thinking that the worst of that crisis had passed. Unfortunately for Corzine and MFGlobal, the worst of the crisis is yet to come and MFGlobal and its leader are no more.

To Corzine's credit, he has always espoused the view that sovereign debt problems are imaginary and not real problems. He never had much interest in measures that might tame the growth in US national debt or the debt problems in New Jersey. So, at least, Corzine is consistent.

The blind spot that poisoned Corzine's reign at MFGlobal is the same blindspot that pervades current attitudes on the US's national debt (and the obligations of a number of state governments). These huge debt loads are not sustainable, blind spots notwithstanding.

One good thing worth noting is that there was no rescue for MFGlobal, which is good. Second, Corzine took no severance as he fell on his sword today. That is also good.

There is a whiff in the air that there might be a problem in customer accounts, but I suspect that that is probably not the case, but we shall see. Assuming no mingling of customer accounts, this seems to be a case where markets worked properly and the outcome is the proper one. The company made a big bad bet and it didn't work. The result -- bankruptcy. That is as it should be. Firms will learn if we let them.

The Unraveling of a Dumb Idea

The proposed "deal" that has been crafted by France and Germany for the EU to "save" the Euro is one of the most absurd plans that has ever been concocted. It should be obvious that neither the bailors nor the bailees are going to go along with this (even if their leaders continue to pursue such foolishness).

It's time to say: "we're broke" and be done with all of this obfuscation. None of the deals make any sense and none will survive past the self-congratulatory posturing deal-announcements of Merkel and Sarcozy. Give it up.

It isn't clear on the basis of the data that the sovereign debt of France and Germany has any real hope of survival, much less the southern periphery of Europe. (Is the US really in a position to "bail out" Illinois, California and New York, when the inevitable time of their impending defaults arrive?).

The problem is not "confidence" or "liquidity." When your house is burning to the ground, a cup of water isn't going to help. The problem in Europe is identical to the problem in the US and Japan. Promises have been made to people that cannot be kept. There is no way to shift the chairs around on the deck. No one can afford all the free and subsidized stuff that Europe and America have promised. The party is over.

Two generations have lived high on the hog until the ponzi-scheme nature of the funding of retirement and health care have been exposed. Now, the party is over. There isn't some group of future bondholders out there willing to throw good money after bad. Let's face it. It's time for Greece, Spain, Italy, etc (probably Germany and France as well within two or three years) to throw in the towel and began to sit down with their creditors and fashion a realistic deal (meaning default).

A lot of newsprint and stock market gyrations have been wasted on the continuing political sideshow going on in Europe. It will lead nowhere and defaults are inevitable.

Greeks Should Vote No

Why should the Greeks agree to the bailout terms of the EU? If I were a Greek citizen, I would vote no. There is simply no way that generations of Greeks should buy in to austerity to support bad decisions by Greek bondholders. Default is the right answer -- for everyone -- not just for Greece.

If Greece defaults, and that doesn't necessarily mean leaving the Euro (any more than when Illinois defaults, which it will, that it means Illinois will leave the US dollar zone), then and only then can Greece, on its own, begin to correct the absurd government policies that have wrecked their economy. They have to reach this realization on their own. It cannot be forced from outside.

Greece is just the first gong in a series of bells that will ring of default through the Western world. No one, no one, can afford the economic policies that Europe has adopted over the past half century. Why the present US administration wants to emulate this disastrous course is not clear.

The idea that health care, retirement, education, housing, minimum wages, right to sue for virtually any absurd reason that one can dream up are all rights that must be provided to every citizen free of charge is so absurd as to hardly call for discussion. But these are the very policies that the Western world has adopted. Now, Europe and the US will have to live with the consequences and they are not pretty.

Again, Asia (ex-Japan), has not adopted the foolish policies of the West. Asia will achieve economic supremacy and fairly quickly as the West descends into the economic chaos that it has brought upon itself by the foolish view that government can provide all things to all people free of charge.