Experts believe Budget will boos economy’s growth momentum
But economists upbeat increased spending will provide significant upside to growth
THE expansionary 2018 Budget announced on Friday, dubbed “mother of all budgets”, will require a delicate balancing act by the government, considering the generous allocation given to both operating and development expenditures, said economists.
Nevertheless, they are optimistic that the spending will provide a significant upside to growth next year on the back of an improving global economy.
Malaysian Rating Corp economic research division associate director Nor Zahidi Alias said it would be a delicate balancing act with the increased allocation versus continued relief to needy groups.
At the same time, fiscal consolidation efforts will continue with the aim of achieving a smaller deficit of 2.8 per cent of gross domestic product (GDP).
He found the proposed reduction in personal income tax rate for the middle-income group a pleasant surprise.
“With higher revenue anticipated from the Goods and Services Tax (GST) and firmer economic growth on the back of a stronger global economy, the tax reduction does make sense,” said Zahidi.
This was positive from two angles, he added.
It helps the people face higher living costs and increases their disposable income, which will eventually translate into stronger consumer spending.
Zahidi thinks development expenditure needs to be given a boost, along with the proposed operating expenditure growth next year, to keep growth pace at a respectable level.
“The government may need to strengthen spending on development once revenue flows improve,” he said.
OCBC Bank economist Barnabas Goh said the budget, with a generous allocation of RM280.25 billion, was the largest-ever and surpassed the previous pre-election budget of RM252 billion in 2013. It was also RM20 billion higher than the RM260.8 billion for the 2017 Budget.
The government’s income for next year is expected to reach RM239.86 billion.
“With the many incentives, the budget is likely to be seen as expansionary for the economy, both in promoting investment and trade as well as from concrete fiscal spending plans in infrastructure.”
With strong growth prospects, he said this would aid in lifting domes- tic and international confidence levels.
But he was cautious about Malaysia’s ability to achieve a lower budget deficit of 2.8 per cent of GDP based on the lack of details over revenue collection plans next year.
“Higher revenue receipts must stem from economic-led sources, including that of corporate tax receipts, petroleum tax receipts and stamp duties, as well as export and import duties,” he said, adding that these receipts would invariably increase given the uptick in growth prospect.
On revenue, UOB Bank economist Julia Goh said major contributors included direct taxes from corporate tax (6.9 per cent), petroleum income tax (4.6 per cent), individual income tax (7.1 per cent) and withholding tax (7.5 per cent).
Indirect tax revenue is projected to expand 5.6 per cent owing to higher GST receipts (5.5 per cent), export duties (14.6 per cent) and excise duties (4.5 per cent).
Non-tax revenue is budgeted to rise amid higher collections from licences and permits and investment income, supported by stable investment income primarily from Petroliam Nasional Bhd and Bank Negara Malaysia.
Government coffers had been aided by rigorous tax auditing and compliance efforts, too, she said.
The external debt was lower at RM877.5 billion, or 65.2 per cent of GDP, as at June.
For AmBank Group, the economy has been resilient over the past two years even as it adjusted to a number of challenges, including lower oil prices and volatile capital flows.
Its chief economist, Anthony Dass, expects the contribution from private expenditure to remain strong.
“Aside from domestic private investment, there is also a continuous emphasis on small and medium enterprises (SMEs) to further boost their contribution to the GDP as well as emphasis on digital economy, which is expected to serve as a platform for SMEs to gain access to global markets.”
Dass also said the scenario of the government debt-to-GDP ratio hovering around 50 per cent seemed achievable and well within the self-imposed limit of 55 per cent of GDP.
The government may need to strengthen spending on development once revenue flows improve.