This article first appeared in Corporate, The Edge Malaysia Weekly, on October 24 - 30, 2016.
Tan Sri Azman Mokhtar
Managing director, Khazanah Nasional Bhd
Managing director, Khazanah Nasional Bhd
BUDGET 2017 is able to balance growth, fiscal stability and improve living standards for the bottom 40% (B40) of Malaysian households.
As the strategic investment fund of the government of Malaysia, Khazanah is committed to deliver on the budget initiatives through our ongoing initiatives in, among others, Skim Latihan 1Malaysia (SL1M), affordable housing, leisure and tourism, and creative industries.
Tan Sri Abdul Wahid Omar
Group chairman, Permodalan Nasional Bhd
Group chairman, Permodalan Nasional Bhd
This must be one of the most challenging budgets ever presented by the prime minister given the limited financial resources. Although the Budget 2017 revenue of RM219.7 billion is 3.4% higher than the 2016 revised estimate of RM212.6 billion, the quantum is close to the revenue collected in 2014 and 2015 of RM220.6 billion and RM219.1 billion respectively.
Notwithstanding the limited resources, I am happy the government is optimising operating expenditure and has increased the development expenditure budget to RM46 billion. I am therefore encouraged that the prime minister has maintained our commitment towards fiscal consolidation with fiscal deficit expected to be reduced to 3% of GDP from 3.1% in 2016. This is important to ensure that we retain our international credit rating of A3 or A-.
The continued commitment to affordable housing deserves special mention. Apart from the affordable houses to be built by Perbadanan PR1MA Malaysia, Syarikat Perumahan Negara Bhd and the Ministry of Housing and Local Government, I am particularly excited about the 30,000 units that are to be built on government land and the MyBeautiful New Home initiative which will be kick-started with 5,000 new homes to be built on one’s own land or with permission from landowners. This “blue ocean” approach will inspire other parties to explore new ways to provide more affordable homes for the people.
PNB is committed to doing our part to support the government to implement the budget measures. This will include allocating more funds for investment in small and mid-cap stocks, increase the number of 1Malaysia Training Scheme participants, build more affordable homes through our various property development companies and ensure our people participate actively in the Transformasi Nasional 2050 national discourse.
Datuk Seri Tajuddin Atan
CEO, Bursa Malaysia Bhd
CEO, Bursa Malaysia Bhd
Budget 2017 sets a solid agenda that will help foster the sustainable growth of the market.
The Small and Mid-Cap PLC Research Scheme and the GLiCs RM3 billion special fund should create a sustainable ecosystem to promote the visibility and vibrancy of these 300 companies.
Both these announcements are opportune as we have a ready pool of small and mid-cap companies that could benefit from these programmes. By increasing visibility and accessibility through both research coverage and sales distribution, local institutions, retail investors as well as foreign funds will find it easier to invest in these companies.
The special fund that will be allocated by GLiCs will certainly be an added boost for these companies as there will be a greater pool of investors that they can tap into.
Mahendra Gursahani
Managing director and CEO, Standard Chartered Bank Malaysia Bhd
Managing director and CEO, Standard Chartered Bank Malaysia Bhd
Budget 2017 has indeed proved to be a people-centric budget aimed at increasing the rakyat’s disposable income. Measures tailored for various groups, such as B40, M40, fresh graduates and first-time homebuyers, would certainly ease the burden of the high cost of living amidst a slowing global economy.
Domestic consumption and private investments are needed to support GDP growth, hence we are encouraged to see the pro-business strategies announced in Budget 2017. The RM2.1 billion allocation for the five economic corridors will be a positive for financial services as we support and participate in the country’s infrastructure development. We are also pleased to see that small and mid-cap companies have been given attention in this budget, opening up participation in the capital markets to more players.
As a leading Islamic finance institution, we welcome the extension of the period of income tax exemption for entities carrying out Islamic banking and takaful businesses in foreign currencies through the International Currency Business Unit as well as stamp duty exemption on instruments of such activities.
We look forward to 2017 as the start-up and SME promotion year. SMEs are the backbone of the economy, contributing one-third to the country’s GDP and Standard Chartered will continue to help local enterprises seeking to internationalise their businesses.
Budget 2017 puts the financial system’s direct and facilitative role in encouraging Malaysian youth to make long-term investments through the Private Retirement Scheme. Such measures help them kick-start their retirement savings at a young age.
Tan Sri Leong Hoy Kum
Group managing director, Mah Sing Group Bhd
Group managing director, Mah Sing Group Bhd
Budget 2017 is inclusive, with various incentives and types of relief for small and medium enterprises, which make up 97% of businesses in the country. We believe that the high-impact incentives will drive the economy and increase the demand for commercial and residential properties.
Mah Sing lauds the government’s continuous effort in upgrading the public transport system.
We are pleased with the assurance that the Sungai Buloh-Kajang mass rapid transit (MRT) line will start operating in December.
We hope the government will continue to develop the nation’s transport infrastructure by extending either MRT 1 (from Kajang) or MRT 2 (from Putrajaya) to Bangi.
Ideally, an integrated station should be built for the two lines to meet, providing seamless travel for commuters. The extension will benefit the 1.4 million residents in Bangi and the surrounding areas as well as students studying in institutions of higher learning and workers of factories and multinational corporations there.
For those who intend to buy high-end homes, the increase in stamp duty from 3% to 4% for properties costing more than RM1 million will push them make “advance purchases” of completed properties before Jan 1, 2018.
Datuk Seri Stanley Thai
Managing director, Supermax Corp Bhd
Managing director, Supermax Corp Bhd
The allocation of RM4.6 billion for technical and vocational education and training augurs well for industries as it will help address the current shortage of skilled labour in the manufacturing sector, including the making of medical gloves and contact lenses.
Supermax has invested in advanced manufacturing of medical devices, including contact lenses. We have been hiring fresh graduates and young engineers for our new line of business and preparing them for business expansion. The double tax deduction for three years for fresh graduates on internship and training programmes will certainly motivate us to train more young engineers. With this assistance, Supermax will be able to accelerate growth in the manufacture of contact lenses for export.
Supermax exports all its medical gloves and contact lenses. The allocation of RM130 million for export promotion incentives bodes well for the group, encouraging it to continue to grow its export of made-in-Malaysia products.
Yee Wing Peng
Country tax leader, Deloitte Malaysia
Country tax leader, Deloitte Malaysia
I am delighted with the proposed reduction in corporate tax to enhance the competitiveness of our tax structure. The stamp duty exemption for first home ownership will enable the rakyat to see their dream of owning a home come true.
The establishment of the Collection Intelligence Arrangement under the Ministry of Finance, involving the Inland Revenue Board, Customs Department and Companies Commission of Malaysia, means that full compliance by taxpayers is the way forward.
The current practice of tax agencies administering tax laws fairly and being lenient on those who make genuine errors, if continued, will further encourage full compliance of tax law by taxpayers.
Foo Chek Lee
President, Master Builders Association Malaysia
President, Master Builders Association Malaysia
MBAM welcomes the priority given to people-centric projects such as affordable housing, rural housing, clean water and power facilities, hospitals and roads. It also wishes to express its appreciation for the reduction in corporate tax, which will lower the cost of doing business, and maintaining the Goods and Services Tax rate at 6%.
The announced infrastructure spending will mean that the construction industry will require sufficient manpower to complete the projects on time and within the budget. As mentioned in the Economic Report 2016/17, the current unemployment rate is at a low 3.4%. It should be realised that the construction industry needs foreign workers to close the demand-supply gap for manpower.
As such, MBAM hopes that the policy regarding the employment of foreigners would be looked at holistically so that the aspirations of both the public and private sectors can be achieved.
MBAM also welcomes the RM4.6 billion allocated for technical and vocational education and training for locals who wish to join the construction industry.
Tan Sri Saw Choo Boon
President, Federation of Malaysian Manufacturers
President, Federation of Malaysian Manufacturers
FMM welcomes the numerous programmes and incentives focused on the development of small and medium enterprises (SMEs), in particular the export promotion funds, insurance credit facilities, the 2% rebates on interest rates imposed upon SME borrowers, the reduction in the corporate tax rate from 19% to 18%, extension of incentives for vendor development and additional schemes to support start-ups. These programmes and additional funds are expected to boost the development and growth of SMEs and entrepreneurship going forward.
The emphasis on technical and vocational education and training (TVET) is also a step in the right direction. This will address the shortage of skilled labour and contribute to the nation’s aspiration to be a high-income economy by 2020.
FMM fully supports the measures to further develop human capital. We particularly welcome the allocation to improving higher education, empowerment of research activities, fostering of a research culture in universities and strengthening English proficiency through the Dual Language and Highly Immersive programmes. This will certainly contribute significantly to increasing the quality and capabilities of our human resources going forward.
The reduction in income taxes for companies will motivate businesses to increase their revenue. However, FMM hopes to see the extension of this incentive to overall chargeable income in view of competition from other regional economies that have taken steps to aggressively reduce their corporate tax rates.
While FMM is happy with the above, we hope that more funds will be allocated to develop SMEs. In addition, we look forward to the further extension of reinvestment allowances and incentives to promote innovation, R&D, productivity and accelerated capital allowances for automation. Given the importance of water supply in manufacturing activities, the development projects, including the Water Supply Fund, should also cover supply to industries.
Wellian Wiranto
Economist, OCBC Bank
Economist, OCBC Bank
The prime minister waxed poetic on the multitude of goodies for various segments of the population, from civil servants to rubber tappers. His expenditure plan looks like it is maximising whatever space that has been made available by the helpfully steadier oil price, and the fruits of his previous moves to rationalise subsidies and implement GST.
All these, while also paying attention to fiscal consolidation, a slight shrinkage of fiscal deficit to 3% of GDP can be achieved if 2017 growth is as smooth as projected.
At 3.0% of GDP, it can — technically — still count as another year of fiscal consolidation, given that this year’s fiscal deficit is projected to be 3.1% of GDP. In and of itself, that should be enough to pre-empt the rating agencies from having to look closely at any potential changes in their sovereign ratings for Malaysia.
On the revenue side, the government’s total income is expected to increase by a relatively modest 3% to RM219.7 billion in 2017. Continuing the trend established over the years, the contribution coming from the oil and gas sector is expected to decline further to just 13.8% of total revenue in 2017, from 14.6% anticipated in 2016. This marks a significant downtrend from 41.3% in 2009.
That is definitely a good thing, given that there has been a rather uncanny tendency for oil prices to decline in the months after budget have been announced. For instance, right after the prime minister announced Budget 2015 in October 2014, oil prices had declined more than 20% by the end of the year. It happened again the following year, necessitating revisions to the budget soon after.
Overall, Budget 2017 is unlikely to be seen as a budget that breaks new ground, given that major reforms such as GST and subsidy rationalisation have been pursued already. It is more likely to be regarded as a continuation of previous years’ fiscal consolidation moves given the oil price constraints.
On that note, although the prime minister has dismissed talks of it being an election budget, the emphasis on the expenditure allocations, together with how he ended his speech, saying how there will be an “ultimate victory in the 14th General Election to Barisan Nasional”, should not be missed by investors.
Chang Kim Loong
Honorary secretary-general, National House Buyers Association
Honorary secretary-general, National House Buyers Association
The HBA is grateful that the government has taken the initiative to build more affordable housing. However, proper implementation is necessary to ensure that affordable houses reach the right target market.
The prime minister also increased stamp duty, to 4%, for properties exceeding RM1 million and above. HBA supports the initiatives. At least, the rich are taxed more and should contribute more towards our country’s revenue.
First-time buyers face many barriers, including the burden of monthly payments, having sufficient savings, a stable income to qualify for housing loans.
We recommend that a homeownership education programme be launched to raise overall financial literacy to prepare first-time house buyers and encourage potential homebuyers to attend such courseas before they search for a home or sign a sale and purchase contract.
As for the maximum special loan scheme of 90% to 100% by participating banks for first-time house buyers, the proposal will assist first-time house buyers to buy a property. But the HBA urges caution as the proposal cannot be implemented across the board. This is because some first-time house buyers may have existing loan obligations and if given a 90% to 100% loan, the combined repayments could be too burdensome, and result in imminent defaults.
As such, HBA feels the decision on much financial aid to give must rest with the respective banks and that this proposal should only be a general advisory and not be made mandatory.
Employees Provident Fund
Following the Budget 2017 announcement on the PR1MA New End-Financing Scheme initiative, the EPF confirms that a facility will be introduced for members who meet PR1MA’s eligibility criteria and are making EPF housing withdrawal for the first time.
Members must be aware that upon choosing this facility, all other pre-retirement withdrawals under Account 2, namely the Medical, Education, Age 50 and Hajj withdrawals, will no longer be available until full settlement of the PR1MA loan has been made.
The EPF is working with PR1MA, Bank Negara Malaysia and the participating banks to finalise the implementation details, which will be announced in due course.
Once the details have been finalised, members are encouraged to seek advice from the EPF’s Retirement Advisory Services to assist in making an informed decision prior to choosing this facility. Members may also refer to PR1MA’s website for more information about this scheme.
RAM Ratings
The fiscal measures introduced in Budget 2017 continue to support the country’s growth while maintaining the government’s focus on fiscal consolidation. Des-pite reduced oil-related revenues, Malaysia’s gA2 and seaAAA sovereign ratings on the global and Asean-rating scales respectively, remain intact as the country’s GDP growth is envisaged to remain resilient at 4.5% in 2017 amid reforms. Despite the challenges faced in meeting its 3.1% deficit target in 2016, the budgeted fiscal deficit of 3.0% of GDP in 2017 reaffirms the government’s commitment on consolidation.
Budget 2017 has noted that fiscal expenditure will only see a modest increase of 2.3% (2010-2015 average: 7.4%) as the government intends to balance its growth supportive policies with its ongoing fiscal consolidation programme. Notably, supplies and services expenditure in 2016 was RM7 billion less than budgeted (the government has spent less than budgeted since 2014) while subsidies will decline by as much as RM2 billion in 2017 from the previous budget.
Given the mild fiscal consolidation, we do not expect much variation in the government’s debt level in 2017 (estimate 2016: 56.1% of GDP). We expect the level of contingent debt to remain relatively stable as well, given the more modest pace of infrastructure development activity in 2017.
However, Malaysia’s open economy makes it sensitive to external shocks that can impair its fiscal performance. Further, given that the pace of consolidation has slowed, we project that the government will have to employ more significant consolidation measures in the near term to meet its balance target by 2020.
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