Friday 29 Mar 2024
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AS expected, Prime Minister Datuk Seri Najib Razak increased cash handouts to alleviate the burden of low-wage earners and announced new measures to help more people buy their own homes. However, most Malaysians will not escape the higher living costs next year, economists say.

While the increase in the 1Malaysia People’s Aid (BR1M) and the building of more affordable homes show that the government “has not forgotten about the suffering of the rakyat from the rising cost of living and falling housing affordability” in the words of the prime minister, the cash handouts are unlikely to fully absorb the impact of subsidy cuts and the introduction of the Goods and Services Tax (GST) next April.

“The quantum of the increase in BR1M is not a surprise. It will help to negate the impact of GST next year, but it will never be sufficient in the minds of the rakyat, I suppose. It is also not meant to fully negate the impact of the GST. Otherwise, why implement GST?” says RHB Research Institute executive chairman Lim Chee Sing, referring to the fact that the GST broadens Malaysia’s tax base.  

As it is, Malaysia has only 1.2 million individual taxpayers, who make up 9.2% of the 13 million-strong labour force and 4.1% of the population of 29 million. As individual income tax rates will be reduced by one  to three percentage points, 300,000 of the 1.2 million individual taxpayers no longer have to pay taxes on their 2015 income. However, they would still be taxpayers through the GST, which replaces the existing sales and service tax on April 1, 2015.

Being a consumption tax, the GST taxes those who are consuming more goods and services and they are likely to belong in the higher-income brackets, experts say. The fact that basic services (public transport and education) and food items such as rice, sugar, flour, cooking oil, vegetable, eggs, fruits, noodles, coffee powder and bread are not subject to GST also helps alleviates the burden of the lower-income group.

To be sure, the government is being generous in terms of putting more money into the hands of the people. Some RM4.9 billion, or 87.5% of the RM5.6 billion net increase in revenue the government will see from the implementation of GST for nine months next year, will be channelled to the rakyat in the form of BR1M. The aid has been raised by RM300, or 46.2%, to RM950 for households with a monthly income of RM3,000 and below. Households with a monthly income of between RM3,000 and RM4,000 will enjoy a 66.7% increase in their annual BR1M payment to RM750 from RM450. Single individuals aged 21 and above who earn less than RM2,000 a month will get RM350, or RM50 more than previously, “early next year”.

For younger people who are trying to buy their first homes, the Youth Housing Scheme provides RM200 monthly to help successful borrowers with their loan instalments for the first two years. Only 20,000 married couples aged between 25 and 40 earning less than RM10,000 a month are eligible for now, though economists reckon the scheme will be continued if the government’s fiscal position permits it.

Despite these cushions, GST will be “net negative” for the consumer and largely “revenue neutral” for the government in 2015, Citi Research economist Kit Wei Zheng wrote in a note following the tabling of Budget 2015.

Economists expect Malaysia’s inflation to jump from 3% this year to between 4% and 5% next year with private consumption slowing to only 5.6%.

Expecting only a moderate growth in domestic consumption, AllianceDBS Research economist Manokaran Mottain expects Malaysia’s economy to grow at only 5.2% in 2015, nearer to the lower end of the government’s official forecast of between 5% and 6% GDP growth next year.

“Domestic private consumption is challenged by cost-push inflation on the back of the recent subsidy rationalisation and impending GST implementation. Inflation will remain elevated in 2014/15 on account of the inflationary impact of the subsidy rationalisation and implementation of GST,” says Manokaran, who sees inflation at 4% in 2015.

 Some economists point out that the government’s overall subsidy bill is projected to decrease only RM2.9 billion next year. While Citi’s Kit reckons that the government’s seemingly “gradual” stance in cutting subsidies “dilutes savings” that would improve its fiscal position, the average consumer would likely welcome a softer landing on the eventual subsidy rationalisation.

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

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