“The government will also likely signal its commitment (in the 2018 Budget) to spend on major infrastructure projects to spur economic growth.”

KUALA LUMPUR: The 2018 Budget is expected to place more emphasis on economic development that uses technology in part to promote the digital economy and at the same time provide the needed environment for improved labour productivity in the coming year, said OCBC Research.

The research firm opined that the budget should include tax incentives for industries that pioneer in emerging technologies such as automation, robotic development, fintech and cloud services, as well as potentially giving extended incentives for the small and medium enterprises (SMEs) to stimulate growth.

Furthermore, a rather more ambitious (but plausible) move may also take form in encouraging SME startups in these targeted industries to direct the growth of digital economy.

“The government will also likely signal its commitment to spend on major infrastructure projects to spur economic growth.

“These projects include the East Coast Rail Link, the GemasJohor Baru double-tracking project, the Malaysia Vision Valley and the Pan-Borneo Highway,” said the OCBC report.

The move to promote infrastructure spending into next year would definitely have a positive impact on the construction sector and in turn provide the needed support for the overall economy, said the research house.

The firm also highlighted that infrastructure spending in Malaysia is expected to be among the fastest in the world, estimated to average 15.5 per cent in nominal terms out to 2021, referring to Timetric’s Infrastructure Intelligence Centre.

“Note that Malaysia’s construction industry grew rapidly at 7.4 per cent, or RM 166.4 billion in 2016, where infrastructure plans accounted for 34 per cent out of the total construction output,” said the firm.

Given the rosier economic environment into next year as well as higher oil prices, OCBC opines that the bulk of the higher expenditure may be cushioned by higher individual and corporate tax revenues as well as a bigger intake in the Goods and Services Tax (GST) revenue.

Moreover, higher oil prices into the next year would also provide more petroleum tax intake as well.

“Our estimates suggest that corporate, petroleum and personnel tax receipts could rise by between one and two per cent next year, while GST intake could rise by one per cent to RM47.6 billion, up from our 2016 estimate of RM47.1 billion.

“All-in-all, we pencil Malaysia’s budget deficit decline slightly to 2.9 per cent of the gross domestic product from three per cent in 2017. Higher tax receipts from both income and GST components, as well as a potentially stronger growth, will definitely aid Malaysia in narrowing its budget deficit further into 2018.”

The research firm kept its growth and inflation estimate for next year at 4.9 per cent with an upside risk and 2.9 per cent, respectively.