The highly-anticipated Budget 2019 is due to be announced by Finance Minister Lim Guan Eng this Friday (Nov 2), a little over five months since the new Pakatan Harapan government took power following a surprise election result. With news and revelations about the state of our country’s economy being reported on a daily basis, it can be said that this Budget announcement is of particular concern to many, especially in the banking, investment and property sectors. Below are some items that it could feature, according to analysts’ research notes and Malaysian media reports.
The Malaysian Rating Corporation (MARC) expects the government to trim operating expenditure, with possible cuts in emoluments, pensions and gratuities and in debt service charges. Prime Minister Mahathir Mohamad announced two weeks ago that the government will slash its total development budget by 15% to a RM220 million ceiling under its five-year development plan ending in 2020.
RHB Bank expects the new government to introduce sector specific taxes that would cover e-commerce and soda or sugar consumption, and possibly carbon tax, to increase government revenue. Despite reports in the media, new taxes such as digital tax, inheritance tax, and increase in real capital gains tax (RPGT) are unlikely to be announced. Several banks expect the government to raise several existing taxes – notably on gambling, tobacco and alcohol – to boost revenues.
Welfare Aid Revision
Prime Minister Mahathir Mohamad has told local media that the government will eventually end an annual cash aid programme started by his predecessor, Najib Razak. The programme, which has been renamed as cost of living assistance, will be replaced with a more targeted system to keep public spending in check.
Analysts expect an affordable housing policy aimed at boosting homeownership among the country’s lowest wage earners, and easing of policies to encourage more buying to jumpstart the property market. Banks are encouraged to provide higher financing for first-time homebuyers. Afforts will be made to increase the usage of IBS for affordable housing projects.
The government will likely maintain a blanket fuel subsidy scheme in 2019, as it works on a more targeted scheme, according to Nomura.
UOB expects a higher budget deficit of between 3.5%-4% of GDP in 2018, before settling at 3.0%-3.5% next year, as the government works on settling outstanding tax refunds owed by the previous administration. When tabling the mid-term review of the 11th Malaysia Plan two weeks ago, Mahathir said the government will not be able to meet its fiscal deficit target, and that the deficit will be at 3.0% by the end of the five-year plan in 2020.
The government will give incentives for companies to embrace automation and information technology innovations under Budget 2019, International Trade and Industry deputy Minister Ong Kian Ming told local media, as part of the country’s push towards digital transformation of the manufacturing sector.