Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily, on September 26, 2016.

 

KUALA LUMPUR: Although market expectations for a “people-friendly” Budget 2017 has been mounting amid speculation about an early general election, some economists say there won’t be “big election giveaways”, as the government also needs to ensure fiscal prudence.

Dr Yeah Kim Leng, professor of economics at Sunway University Business School, said while there is still room for the government to dish out goodies due to the collection of the goods and services tax (GST), it will still be subject to the constraints of maintaining a prudent budget.

The government aims to achieve a budget deficit of around 3% next year and a balanced budget by 2020.

“The upcoming budget is likely to be an election budget as the next general election is due in 2018, two years from now. There is incentive to create a positive feeling among voters,” he told The Edge Financial Daily when contacted.

“The budget will be people-centric again, focusing on measures to ease concerns of voters like easing the rising cost of living and raising income level,” the economist said.

Yeah opined that the bottom 40% of households (B40) and the middle 40% (M40) will be the targeted group in Budget 2017 which will be tabled on Oct 21.

He said for the B40, the cash handout 1Malaysia People’s Aid (BR1M) will continue. As for the M40, the government will continue to look at affordable housing plans.

“With or without the election coming, the government should also provide incentives to increase the ability of property developers to provide affordable houses,” he noted.

While there is almost no possibility of the GST rate being lowered, Yeah said if the GST collection exceeds its target, there might be room for the government to lower income and corporate tax rates. The Royal Malaysian Customs Department had said the GST collection could reach RM39 billion this year.

“A lower income tax was one of the attractions when the government introduced GST,” he explained.

UOB Global economics and market research economist Julia Goh, however, said it is “tough” for the government to lower corporate or individual income tax rates as government revenue fell 9.8% to RM96.3 billion in the first half of 2016 amid lower individual and company income tax.

“Interest and contributions from government-linked companies and agencies fell 44% to RM9.6 billion in the first half of 2016 largely due to the drop in Petronas dividends,” she wrote in a note dated Sept 21.

On another matter, Yeah said the government is still expected to allocate about RM50 billion for development expenditure and he expects the allocation for infrastructure for Sabah and Sarawak to be increased.

Former senior economic analyst at think-tank Centre for Public Policy Studies Lau Zheng Zhou said while he does not anticipate an election budget, he expects a higher BR1M for Budget 2017.

“BR1M is expected to be higher, in order to match inflation,” he noted.

He said more allocation for infrastructure projects will be expected for Sabah and Sarawak, not because of pure political reasons but the fact that these states are among the poorest in Malaysia.

Instead of focusing on goodies, he opined that it is more important that the government continues on its budget consolidation path (including through subsidy rationalisation) with the aim of reducing the deficit, maintaining the planned transformation programme as well as promoting public-private partnerships (PPP) to further enhance private sector participation in economic development.

Independent economist Dr Chung Tin Fah said given the low crude oil prices, slower global economic growth and uncertainties due to Brexit and negative interest rate policy, he opined that the government may not be able to afford more goodies.

“Government debt as a percentage of gross domestic product is quite high. The government is committed to maintaining deficit reduction. Where else can they give you more goodies?” he said via telephone.

“The election may be coming. But the world economy is not favourable for more goodies. There are also problems such as the overhang in the local property market and high household debts,” he noted.

According to Bank Negara Malaysia, household debt-to-gross domestic product (GDP) ratio increased to 89.1% as of 2015 from 86.8% in 2014.

Chung opined that focusing on infrastructure such as building a better transportation system and improving Internet speed to increase productivity of the country is more important than goodies such as cash handouts and tax relief which may only be beneficial in the short run.

While Goh is of the view that the fiscal deficit target of 3.1% of GDP can still be achieved this year, the ability to sustain this trend is proving more challenging going forward as revenues tighten and growth slows.

“The budget’s aim should be macro stability which infers any expansionary plans should be done with fiscal discipline. This infers striking a balance between spending priorities and resource constraints. This is important as rating agencies have sounded that wavering on fiscal discipline and broader public finances that lend to higher debt ratios could prompt negative rating action on Malaysia’s credit profile that would push up the costs of tapping bond markets and borrowing,” she wrote in the note.

She opined the government’s higher spending will be focused on growth areas such as transportation, logistics, digital economy, value-added exports, tourism, higher BR1M cash handouts, tax relief for the middle income earners, property and affordable housing.

Meanwhile, CIMB Investment Bank Research said proposals have been put forth to help first-time homebuyers. A higher cap on the withdrawal for savings from the Employees Provident Fund (EPF) holds the most promise.

“However, we believe the cap needs to be raised to 60% to 80% (from 30% currently) for the impact to be significant. Also, other safeguards must be introduced to protect EPF members’ retirement savings and curb the use of withdrawals for speculative purchases,” its analyst Saw Xiao Jun said in the note last Thursday.

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