Budgeting for Growth

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Brunei's Legislative Council has ratified the sultanate's budget for the 2008-09 financial year, approving a spending plan geared towards investment and economic development.

The council wrapped up seven days of deliberations on March 13 by endorsing the $3.4bn draft budget tabled by Finance Minister II Pehin Dato Abdul Rahman.

One of the main components of the budget was the allocation of $720m for development projects in eight key sectors identified by the government as priority investment targets. The increased funding being directed to these sectors (social services, transport and communication, public utilities, information and communication technology, public buildings, security and science, and research and technology development) is part of the government's efforts to strengthen and diversify the economy, Pehin Rahman said.

"The implementation of projects is expected to bring development in the non-oil sector such as construction, banking and finance, insurance, financial services and property that will generate spin-offs such as wholesale and retail, transport, communication and business service," Pehin Rahman told the council on March 12.

The lion's share of the development funding has been directed to the social services sector, which received $204m, 27.4% of the total, with a focus on education, supporting business training and human resources development.

The sultanate's industry and trade sectors are to receive $150m, an increase of 182% over the 2006-07 allocation, to support the activities of Brunei's economic development board and to develop economic clusters. Meanwhile transport and communications projects were funded to the tune of $90m, mainly to improve roads, telecommunications and civil aviation services.

A major feature of the budget was the amendments made to Brunei's income tax regime, with corporate income tax reduced from 30% to 27.5% for 2008 and 25.5% for next year, a move intended to assist small businesses and start ups. The amendment also introduced a sliding scale of taxation, with a lower rate imposed on the first $35,500 of profit earned and a set tax rate of just 11.5% for small firms on the first $71,000 annualised profits for the first three years after they are incorporated.

Another area that received increased funding was research and development, which was allocated $7m. In his budgetary speech, the minister said the aim for Brunei was to develop into a producer society through creative and innovative programmes such as research on renewable energy resources.

In forward projections tabled before the Legislative Council, research and development will receive $113m over the next five years, to be used to support the finance sector, halal product development and the downstream oil industry.

One sector that also benefited from the budget was tourism, with $28m being allocated for promotional activities over the next five years, reflecting both the strong growth in overseas arrivals and the increasing role tourism is playing in the economy.

According to official figures, Brunei hosted 178,000 foreign tourists last year, a 12% increase on the 2006 results, with the sector contributing $233m to Gross Domestic Product (GDP).

However, the budget deliberations highlighted a problem faced by the state, that of collecting fees and taxes owed by the public and businesses. Pehin Rahman said $160m in revenue was still outstanding, with more than two thirds of this being unpaid electricity and water charges.

The minister added that there needed to be a change of the public mindset from expecting the government to be society's main provider to one where people are contributors to the state.

"We need to create awareness among the public so that they will abide by the law. The ministry has gone after several companies who have shied away from paying taxes and this would be extended to the public," he said.

One issue that the government did not approve was a proposal, raised at the 2007-08 budgetary hearings and discussed this year, to lift the retirement age from 55 to 65.

Though Pehin Dato Awang Haji Yahya, the minister of energy, said the proposal was still being reviewed by the government, the issue of youth unemployment also had to be taken into consideration in looking at retaining older employees in the workplace.

While the government spends around $212m on pensions annually, any benefit from raising the retirement age would have to be balanced against the pressing need to provide jobs for new entrants into the workforce.

The allocation for non-flexible expenditure such as staff wages and other recurrent expenses still represents the major part of the planned state spending for the coming financial year. The 2008-09 allocation was 72% of the total up from 69% last year. With state spending now accounting for 29% of GDP, Brunei needs to see a higher share of the budget channeled into investment and the development of new sectors.

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