Friday, 22 November 2013

DBKL and Selangor: A tale of two contrasting budgets

Last week, I wrote on Dewan Bandaraya Kuala Lumpur’s (DBKL) proposed 100% to 250% hike in property assessment tax and reasoned why it was neither right nor justified. 

My argument was that a rise in property prices should not be the justification for an increase in assessment, a reason that the politicians and authorities seem eager to harp on. 

Rather, any increase in assessment rates should be tied to an increase in DBKL’s operating costs. As a municipality, DBKL’s aim is to cover operating expenses for the provision of services to the residents, and NOT to profit from an appreciation in property prices. DBKL is already budgeting an operating surplus of more than RM200 million for 2013. 

The debate and anger continue to roil on this issue. Indeed, another piece of news this week further strengthens the reason why the rate hike is unjustified. I am referring to the tabling of Selangor’s budget on Tuesday by its Menteri Besar Tan Sri Abdul Khalid Ibrahim.

The Selangor government tabled a balanced RM1.85 billion budget for 2014, an increase of 13% in expenditure, compared with RM1.63 billion for 2013. 

In light of the DBKL assessment rate saga, the contrast between the two budgets is shocking. Before we go into the financial details, let us first look at some macro statistics. 

Kuala Lumpur covers an area of 243 sq km and has 1.6 million residents. Selangor covers 8,104 sq km and has five million residents. There are 424,324 households in Kuala Lumpur compared with 1.35 million in Selangor. 

In other words, the Selangor budget has to serve a population 3.2 times that of Kuala Lumpur, and its services spread over an area that is 33 times the size of the capital city. 

With such a vast disparity in size and population, one would logically expect the budget of Selangor to be bigger than that of Kuala Lumpur. Look again and you’ll be surprised — Selangor actually spends less in total than Kuala Lumpur and keeps a balanced budget! 
Let us take a look at the 2013 budget figures for both Selangor and DBKL. 


DBKL expects to receive revenue of RM1.69 billion, roughly similar to Selangor’s RM1.63 billion. But DBKL wants to spend RM2.19 billion in total expenditure, 34% more than Selangor’s RM1.63 billion. It spends RM1.406 billion in operational expenditure, 41% more than Selangor’s RM996.68 billion. Emoluments and overtime expenses come up to RM442.1 million for DBKL, 19% more than Selangor’s RM370.5 million. 

Analysing these figures further, it is clear that DBKL is comparatively inefficient. 

On a per capita basis, DBKL spends RM907 in operational expenditure per resident, over four times more than Selangor’s RM201. In terms of operational expenditure per household, the figure is RM3,348 for Kuala Lumpur, nearly five times the RM738 spent by Selangor. 
Looking at operational spending over gross area coverage, Selangor spends RM122,986 per sq km compared with DBKL’s RM5.79 million.   

In terms of development expenditure, Selangor spends RM633 million, less than DBKL’s RM782.6 million. Selangor has a balanced budget and in fact, its coffers have increased from RM400 million in 2008 to RM2.7 billion.  

In contrast, DBKL has an operating surplus of more than RM200 million but requires federal funding for its overall budget deficit of some RM560 million. On the argument that DBKL needs to raise this amount to balance its overall budget, I beg to differ. 

The development expenditure of DBKL should be funded by the federal development budget of the country, as residents of Kuala Lumpur also pay high corporate and personal income taxes. DBKL expects to receive RM414.7 million in federal government funding in 2013. Put into perspective, the country’s capital city receives less than 1% of the federal government’s total development expenditure budget.
  
It is clear from the above statistics that DBKL is substantially less efficient than Selangor. Instead of asking for more money, it should be looking at ways to improve efficiency and reduce costs and wastage. And it should be transparent and responsible in showing how our money is spent. 

DBKL also needs to be transparent on the higher assessment tax imposed on the residents. Are the rates the same across the board? How was the valuation done? Imposing any form of tax on the residents must not only be fair but must also be seen to be fair. 

Lastly, with the increase in assessment tax, DBKL will have a RM600 million surplus over operating expenditure. It needs to explain to the residents how this will be spent, given that in comparison with Selangor, its spending has been less than prudent in the past.

14 comments:

  1. One would argue that KL has 1729 households per sq km compared with Selangor, 167 households per sq km which is about ten-fold but it is unjustifiable for DBKL to spend 5.78 million per sq km compared with Selangor 0.122 million per sq km which is about 47 times.

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  2. Somebody should conduct a full audit on DBKL to see what sort of wastage or how does it spends the money . Having said that they probably don't have a leader as capable and honest as tan Sri Khalid . If assessment keep increasing and the service provided is top notch it's still ok .. Here I don't see what does DBKL do for kl . the walkway fill with holes and flood and garbage and rats is everywhere haha it's just doesn't sound right .. The other thing is maybe the increase is to punish the voters who didn't vote for BN as usual

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    1. Agreed...Good leader cant become Dog of bad gov.

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  3. not just ridiculous rates but ridiculous expenditure in the first place. Nobody will agree that they can spend 47 times more compared to selangor.
    If that is not wasteful spending, we rakyat dont know how else can anyone define it ? Development - c"mon dont kid us and lie through one"s teeth even when their hands are caught in the cookie jar.
    Interstingly, we rakyat challenge you to have the guts to say you have a place for god in your heart and conscience.
    There is no way that if your worship of God is real, He will agree with your wastage of a nations money because by doing that, then He is no God . The God that true religions teach is one Almighty WHO does not lie in words, deeds, certainly not in spending . Where did that unjustified spending go to ? Who is God to you ? If you cannot stand God"s holy audit, do you swear on your holy book ? Dont even think about OSA.......the least you can do is having spent so much unexplainable or unjustifiable expenditure, you should consider taxing less , not more.

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    1. The comparison here is unfair. Selangor's budget did not take into account of all the Local Authorities in Selangor and other State authorities. Yes I agree it is wrong for DBKL to suddenly imposing such a huge increase after sleeping for 21 years. It gets every household's cash flow upside down. To correct their 21 year wrongs and not to push the Nilai Tahunan to the future which will cause even a bigger disparity in future, we must have the Nilai Tahunan as stipulated in the current exercise retained. Instead we reduce the rate from 6% to 4% so that the net payable will be only say 20% over the previous amount payable. With this retain the up to date Nilai Tahunan and also do not disrupt the household cash flow.

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  4. what is the Opposition MPs doing about it in the Parliment?

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  5. Comment: I wrote before than owning properties is not a good investment. Just how many times properties increased in prices over the DBKL 20 yr period? 10x or more? DBKL is asking a fair share from these, which is a little bit of an increase (looks bigger compared to previous DBKL rates, however it is still a small percentage of the property values).

    Question to Mr. TKO:
    You stipulated that DBKL rate increase should be tied to its operational costs. Just how would you intend to calculate this? This could cause runaway increases (DBKL simply increase rates as they pleases according to a formula, regardless of property values). Also can you explain how do you intend DBKL to levy a new house bought into the market? Based on what formula if it is not based on the property value? (as you said tying to property values is wrong).

    Comment: DBKL is within its right in keeping its rates low for a long period of time (20 yrs). I am surprised some people complains that DBKL should increase its rates much earlier, as if they want their taxes to go up earlier and by a lot, which does not make sense. In fact, everyone should be thankful to DBKL for being able to keep it this low, for thing long! Now it is within its rights to increase it to normal levels.

    Final Comment: Comparing DBKL operational costs, with that of Selangor is also a weak comparison at best. Try comparing it to another city of equivalent size and one that is not a state. In fact try comparing it to an equivalent city that is also a capital of a nation. There is a pro and a con for being a capital city, and one of it is taxes.

    Final final comment: If you cannot afford your homes, sell it off and stay in a smaller one. It is that easy. If you complain because you cannot afford it, that's mean you are leveraged over your head, precisely one of the reason why properties aren't a good investment.

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    1. paying reasonable taxes is neva wrong ....but how can one deduce it is reasonable when we dont know how they spend the money from all the taXES AND INCREASED Txes COLLECETED ?
      you want to pay blindly , go ahead , pay your portion and even more amount if you are so rich , but pls do not ask the rest of us to follow you gullibly if expenditure is not transparent.
      Are you, btw on the payroll/contract of dbkl and the likes ????

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    2. Don't simply make excuses of not wanting to pay. You can go to DBKL and ask them how they spend their money last year, and every year. Try it out. Also ask them what projects they did and how many. Some more DBKL is routinely audited, you should do your own if you want.
      Don't accuse me or anyone on a payroll for DBKL or anything, in fact i am a large taxpayer, i paid 300k in last 6 yrs alone.

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  6. Mr Tong,
    It would be much appreciated if you could delve further into the operational budget of the Selangor state government and find out how much is allocated to each district for maintenance and upkeep of facilities, including parks and the like. I would like to point out that many times when my Rukun Tetangga requested for pruning of trees / resurfacing of roads to be done by MBPJ, we have been met with the same response "Tak cukup budget!". Why then does the Selangor state government's budget boasts such a healthy figure when there are things left undone in the taman taman perumahan? Your figures are a simplification of what lies deeper within. My advice to you is to look deeper and you will find what you are seeking.

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  7. DBKL is under Federal Gov, as long as the suckers n jokers in charge. They will suck the money. Some contractors told me they need to spend a lot of time n money to lobby those jokers. Once again, a corrupted authority.

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  8. Lately DBKL don't even maintaining the Lakes within KL...Taman Permaisuri lake now is full with algae and bad smell came out from the Lake.

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  9. Hello Kooi Ong,
    Someone just sent me info on your blog. Perhaps you could help to enlighten our friends a bit more. The first principle for having a budget is to ensure that there is money to pay for services provided by the local government, and there should always be a small surplus being prudent. What services need to be provided can change from year to year. The second principle is that the rich pay more and the poor pay nothing. In fact the poor should be helped to improve their economic standing. Just that those who contribute should be entitled to know where the money goes to. The use of market value is to fairly distribute the costs of providing services in local government. Since the market forces are at work, no one can dispute, with some exceptions, what is assessed to be the market value if sold or the rental value is if the rental income from property is known. This is similar to income tax as part of the national taxation system.

    With regard to your comment on the comparison of income and budgets, I too would like to know how the budgets of all the local authorities in Selangor which when combined with that of the Selangor government, could stack up in comparison with DBKL or Penang or with Johor, or with Sabah and Sarawak. Track back some 10 years and review the performance of good governance in Malaysia.

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