This article first appeared in The Edge Financial Daily on October 25, 2017
KUALA LUMPUR: Prime Minister Datuk Seri Najib Razak is expected to announce a 2018 budget featuring handouts to assist the rakyat in coping with rising costs of living, said Malaysian Rating Corp Bhd (MARC).
“As Budget 2018 will be the last budget before the 14th general election, some ‘rakyat-friendly’ measures are to be expected. Measures to tackle the thorny issue of rising costs of living will be further enhanced,” the rating agency said in its report “Pre-Budget 2018: Negaraku — Shaping the Future”, prepared by its economic research team led by chief economist Nor Zahidi Alias.
This could include a one-off personal tax relief for the middle-income group, albeit in a smaller quantum than the reliefs provided in Budget 2014 and the recalibrated Budget 2016, it added.
MARC also sees civil servants receiving special handouts from the government as their contributions bring progress to the nation. Previously, civil servants had benefitted from salary increases of 7% to 13% in 2012 and minimum salary increases in 2016.
It expects allocations for the needy as well; for instance, the 1Malaysia People’s Aid (BR1M) to be raised albeit by a smaller amount.
“For the middle-income group, the lifestyle tax relief given in Budget 2017 could be reviewed upwards as its total amount is currently capped at RM2,500, lower than the combined amount of reliefs given in prior years,” it said.
However, the agency does not foresee any outright reduction in personal income tax for 2018 as the government remains cautious about its revenue growth for the year despite a slight recovery in crude oil prices in the past one year.
It expects budget deficits to slip marginally to 2.8% of gross domestic product (GDP) in 2018 as higher oil-related revenue and the goods and services tax (GST) add to the government’s coffers while spending is rationalised.
“With private consumption likely to grow 6.7% in 2018, GST revenue, in our view, will be within RM40 billion to RM45 billion, constituting about 20% of total revenue,” said MARC, anticipating another year of positive growth in revenue after two consecutive years of contraction in 2015 and 2016.
On concerns about home affordability, MARC is of the view that it would be helpful to establish a single entity or agency to coordinate the various housing schemes available to speed up the progress of all affordable housing projects in a timely manner.
More incentives can also be given to private developers, such as special tax deductions or reliefs for using the industrialised building system technology in developing affordable homes, especially in urban centres, it said.
MARC anticipates the government to highlight the importance of adapting to a digital economy for Malaysia’s long-term growth potential, and the possible revenue that can be derived could be looked into. Such sources of income would supplement the revenue already generated from the GST which helped offset the decline in oil-related revenue since 2015. Revenue from the GST, amounting to roughly 20% of total revenue, will likely be boosted by better enforcement measures.
Meanwhile, MARC reckons a voluntary health insurance scheme’s introduction is timely as this would lessen the burden of those who incur high medical costs. “In the past, we have argued for withdrawals from the Employees Provident Fund (EPF) to be allowed to pay for private medical insurance. If a voluntary national insurance scheme is introduced, MARC feels that EPF withdrawals should be allowed to pay for this health insurance scheme.”
MARC added that it continues to believe a need to encourage investments in investment-grade bonds rated below AA. “To develop a credible benchmark bond index, liquidity conditions in the secondary market must be improved. The availability of such an index may help attract foreign investors to have greater exposure in the ringgit corporate bond market as an alternative to their existing exposure in the ringgit sovereign bond market.”