Thursday 28 Mar 2024
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KUALA LUMPUR (June 16): Fiscal sustainability and private sector growth are the focus of Budget 2016 to be tabled on 23rd October 2015, Affin Hwang Capital Research said in an economic report today.

The research house said it  expects the government to propose policy measures to support private consumption and domestic demand amid slowing exports, while accelerating private investment and growth in the productive and services sector.

It said challenges to these objectives that stem from uncertainties in the external sector include volatile capital flows, low commodity prices, slower than anticipated growth in China, and geopolitical tensions, citing Prime Minister (PM) Datuk Seri Najib Razak as saying at this year’s Budget Consultation (BC) council meeting.

It said he add that high household debt of 87.6% of GDP at home, soft commodity prices particularly for crude oil, liquid natural gas and palm oil, and more moderate consumption due to the one-off inflationary pressure from the Goods and Services Tax (GST) were also headwinds to the country’s economic growth.

The Prime Minister acknowledged that the private sector should remain the engine of growth, given its significant contribution at 68.5% of economic activity.

The Government will focus on the productive sector as identified through the national key growth areas (NKRA), the services sector which contributes 53.5% of GDP, and investment in tourism infrastructure.

Affin Hwang suggested that a further reduction in the corporate income tax (CIT) beyond the 1% for 2016 will be effective to improve on Malaysia’s tax competitiveness relative to other ASEAN nations, thus encouraging FDIs.

However, the research house opined that this will be unlikely so as to preserve the Government's revenue base in 2016 and reduce the risk of a larger budget deficit.

The 2016 Budget titled ‘Strengthening Growth, Enhancing Inclusiveness, Ensuring Fiscal Sustainability’ will be the first budget under the Eleventh Malaysia Plan (11MP).

Under the 11MP, the Government targets a balanced budget by 2020 with a reduction in its deficit to 3.2% in 2015.

“The PM is confident that the per capita income of US$15,000 will be achieved by 2020, but also noted that it is important to manage the distribution of these wealth in an equitable manner,”Affin Hwang added.

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