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This article first appeared in The Edge Malaysia Weekly on November 5, 2018 - November 11, 2018

IN the run-up to the tabling of Budget 2019, there was a lot of talk about the likelihood of new taxes and the need to make sacrifices, given the dismal state of the government’s finances.

There was, not surprisingly, some apprehension but at the same time, anticipation that the budget, this time around, would be a departure from the norm.

This being the Pakatan Harapan government’s first budget, many were viewing it as an indication of its ability to steer the economy and the people through the current challenging times, both at home and in the external environment.

As it turned out, Budget 2019 wasn’t that painful for the rakyat after all. Those who will feel some level of pain will be the high-income group and some businesses.

The long-term goal is clearly to get back on a stronger fiscal footing and to enable sustainable growth, but it is about biting the bullet in the shorter term. While it does seek to address the sorry state of goverment finances, among other things, the budget is especially targeted at the bottom 40% of salary earners, the B40 group.

A slew of measures, some of them groundbreaking, have been announced to help ease their financial burden amid stagnating income growth and rising cost of living. Cut to the bone, what is significant are the steps taken to raise disposal income and bring about some form of income redistribution.

What the new budget seeks to do is tackle the main areas that eat up the bulk of every household’s income — food, transport, housing and, increasingly, healhcare.

Interestingly, in some of the schemes, the government, constrained by its lack of financial muscle, has cleverly brought in the private sector to provide the bulk of the funds.

In housing, the government is looking to enable private sector-driven “property crowdfunding” platforms, which will serve as an alternative source f financing for first-time homebuyers. These exchange platforms will be regulated by the Securities Commission Malaysia (SC) under the peer-to-peer financing framework.

Put simply, this financial innovation, said to be the first in the world, will enable more people to own homes without being exposed to heavy mortgage burdens and at the same time, allow investors in invest in the property sector in smaller amounts. The first exchange is expected to go live in the first quarter of 2019.

While peer-to-peer financing for property purchases is not something new, it is understood that the mechanics of the framework, and how it enables a house buyer to own a home with just 20% downpayment, is something that has not been seen anywhere before.

How well these exchange platforms will go down with the market remains to be seen as it is has never been done before. If successful, it may well be the solution to the problem of affordable home ownership.

Additionally, Bank Negara Malaysia will be setting up a RM1 billion fund to help the lower-income group earning not more than RM2,300 per month. What the fund does is to give first-time housebuyers financing for homes not exceeding RM150,000 at a special rate of 3.5% per annum.

Another area that is given a boost is healthcare. Today, many Malaysians are still under-insured. Going by some statistics, only about 4 in 10 Malaysians are insured today; by any yardstick, that is a low penetration rate. In fact, some market observers note that the penetration rate hasn’t risen significantly from, say, 30 years ago.

To address this, the government has proposed to set up set up a national B40 Health Protection Fund, which aims to provide free protection against the top four critical illnesses for up to RM8,000 and up to 14 days of hospitalisation income cover, at RM50 per day starting Jan 1 next year. For the first time, the government is putting in place a comprehensive social welfare protection coverage scheme, especially for the middle and lower income groups.

Great Eastern Life Insurance has agreed to contribute the initial seed funding of RM2 billion. More insurance companies are expected to contribute to this fund, bringing the amount to some RM10 billion, going forward.

In an effort to encourage higher insurance take-up rate, Budget 2019 has proposed that the combined tax relief for Employees Provident Fund (EPF) contribution and life insurance or takaful deduction be separated into RM4,000 for EPF contribution and RM3,000 for takaful or life insurance premiums. For civil servants under the pension scheme, the tax deduction will be up to RM7,000.

Other measures to help the lower-income group include cash handouts as well as raising the minimum wage rate to RM1,100.

So, there you have it. A good effort by the new government to juggle its very difficult balance sheet, get in more private sector participation and not having to compromise the welfare of the people, especially the middle and lower-income groups.

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