WHILE the government continues to juggle fiscal prudence with ensuring continuous economic growth, Budget 2015 has enough incentives — ranging from a reduction in personal income tax to cash handouts for the lower-income group and bonuses for civil servants — to be considered rakyat-centric.

Subsidy rationalisation maintains its course — subsidies are something the government has acknowledged it can no longer sustain. And how can it when fuel subsidy, which was only RM1.65 billion for the whole of 2002, has ballooned to RM2 billion a month this year? But at the same time, it has put in place measures to alleviate the hardship of the low and middle-income majority.

With the recent cut in fuel subsidy — for which the government will soon announce a new mechanism — and the upcoming Goods and Services Tax (GST) expected to elevate inflation to between 4% and 5%, Prime Minister Datuk Seri Najib Razak last week presented a budget for 2015 that continues the government policy of targeted subsidies and direct assistance to the lower and middle-income groups.

Bantuan Rakyat 1Malaysia (BR1M), which was recently severely criticised by former premier Tun Dr Mahathir Mohamad, who felt the government should not be handing out cash to the people, is not only continuing but also larger.

Last Friday, Najib announced that BR1M would increase from RM650 to RM950 for households with a monthly income of less than RM3,000 and from RM450 to RM750 for households with a monthly income of between RM3,000 and RM4,000.

Singles aged 21 and above with a monthly income not exceeding RM2,000 will now get RM350, up from RM300. Government servants are getting half a month’s bonus (minimum payment of RM500) and pensioners a special financial assistance of RM250.

To ease the burden of parents with children in primary and secondary school, the government is giving RM100 each to 5.4 million students. The government is also continuing the book voucher programme under which 1.3 million students will get RM250 each.

For nine months next year, GST will bring in revenue of RM23.2 billion for the government but exemptions and the abolition of the sales and service tax (SST) will result in forgone revenue of RM3.8 billion and  RM13.8 billion respectively. And out of the net gain of RM5.6 billion, RM4.9 billion is for BR1M.

While the net gain from GST will be minimal next year, it provides a platform for higher revenue collection from 2016 onwards.

To mitigate the impact of a reduction in fuel subsidy — which pushes up prices at the pump — and GST, individual income tax rates will be reduced by 1% to 3%. This means 300,000 taxpayers will no longer pay tax. The same goes for taxpayers with family and a monthly income of RM4,000.

Individual income tax will be further restructured where the chargeable income subject to the maximum rate will be increased from exceeding RM100,000 to RM400,000. The maximum tax rate of 26% will be reduced to 24%, 24.5% and 25%, which will result in taxpayers enjoying savings of at least 5.3%.

Najib also provided more details of the GST — the product exemption lists has been widened to include fruits, white and wholemeal bread, books, newspapers and almost 2,900 medicine brands that are used to fight 30 types of medical problems, including heart disease, diabetes, hypertension, cancer and fertility treatments.

Electricity consumption that is not subject to GST increases from the first 200 units to 300 units, which will benefit 70% of the country’s households. Consumers will also not have to pay GST on RON95 petrol, diesel and cooking gas.

To make houses more affordable to the working class, the government will build another 80,000 units under the 1Malaysia People’s Housing Programme (PR1MA) and has increased the eligibility ceiling of household income for this from RM8,000 to RM10,000. A rent-to-own scheme will be introduced specifically for individuals who are unable to obtain bank financing while there is a 50% stamp duty exemption on transfer and loan agreements.

Despite these concessions, Budget 2015 shows that the government is steadfast in strengthening its fiscal governance, said Najib. “Consolidating the fiscal deficit is a moral responsibility of our generation towards the future generation. In essence, we do not want Malaysia to inherit federal government finances with debt. (The challenge) is how to balance between policies that are populist in nature with policies based on economic and financial imperatives.

“Taking into account the needs of the rakyat and the realities of life, the basis for the formulation of this budget must therefore emphasise the balance between the capital economy (economic management and policies from the macro perspective) and people’s economy (covering the priorities and interests of the rakyat).”

The allocation for Budget 2015 is RM273.9 billion, of which some RM223.4 billion is for operating expenditure and RM50.5 billion for development expenditure. Government revenue stands at RM235.2 billion, putting the overall fiscal deficit at 3% of GDP — down from 3.5% this year and 6.7% in 2009.

With economic growth for next year expected to remain strong at 5% to 6%, the government aims to balance the budget by 2020.

Under operating expenditure, RM65.6 billion is for emoluments and RM38.1 billion for supplies and services. The largest portion of RM116.4 billion is for fixed charges and grants, RM1.5 billion for the purchase of assets and RM1.8 billion for other expenditure.

The economic sector receives the highest share under development expenditure at RM29.3 billion, followed by the social sector with RM12.6 billion for education and training, health, housing and the well-being of society. Some RM4.9 billion is for the security sector, RM1.7 billion for general administration and RM2 billion for contingency.

The seven main strategies of Budget 2015 are:

• Strengthening economic growth.
• Enhancing fiscal governance.
• Developing human capital and entrepreneurship.
• Advancing the bumiputera agenda.
• Upholding the role of women.
• Developing the national youth transformation programme.
• Prioritising the well-being of the rakyat.

In his speech, Najib also announced a slew of road and rail infrastructure projects amounting to nearly RM50 billion. They include the RM9 billion LRT 3, which will link Bandar Utama to Shah Alam and Klang; the RM23 billion second MRT line from Selayang to Putrajaya; the RM4.2 billion Damansara-Shah Alam Highway; and the RM5.3 billion Sungai Besi-Ulu Klang Expressway.

This article first appeared in The Edge Malaysia Weekly, on October 13 - 19, 2014.

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