Budget 2019 should reflect efforts to restore finances
KUCHING: With Malaysia to announce its Budget 2019 on November 2 – its first under the regime of Pakatan Harapan – this budget is expected to stay the course of fiscal and debt consolidation in its efforts to restore public finances and good governance.
To note, Finance Minister Lim Guan Eng has said that this will be a difficult budget which entails belt tightening measures.
According to United Overseas Bank ( Malaysia) Bhd ( UOB Malaysia) senior economist Julia Goh, this infers fewer goodies given the government’s financial position.
“On a positive note, it should reflect efforts to restore public finances and good governance,” she said in a flash note yesterday. “This will help the country find balance during volatile times, especially to adopt more costeffective ways of spending and ensure sufficient fiscal buffers are in place.”
Goh said the new government’s inaugural budget is expected to stay the course of fiscal and debt consolidation.
The size of the budget deficit will depend to a large extent on the Sales and Service Tax (SST) revenues collected, size of refunds for Goods and Service Tax (GST) input tax credits, income tax and RPGT, asset monetisation, oil revenues, and degree of cuts in operating expenditure. The cash aid and fuel subsidies are likely to be reviewed to make it more targeted.
“We do not expect any adjustments in the corporate and individual income tax rates,” Goh added. “New taxes such as soda or digital economy taxes are possible but we think bulk of efforts would focus on trimming unproductive spending.
“Given lingering risks on the global front and signs that the domestic economy is moderating, we expect the new government to announce measures to spur investments and growth. This includes initiatives to incentivise automation and modernisation, industry 4.0, and higher value added segments.
“Areas of focus are likely to be affordable housing, automotive, transportation, tourism, e- commerce, and renewable energy.”
Goh opined that it would be more productive to trim unnecessary expenditure as opposed to introducing new taxes which are deemed unpopular and likely to raise the cost of doing business at this juncture.
“The introduction of zero-based budgeting across the ministries and government could help yield savings of up to RM20 billion or nine per cent of total revenue,” she said. “However the savings are more likely to materialise over a few years given that certain components that the government spends on particularly supplies and services are quite rigid.”
Since the change in government in May, the Pakatan- led administration has made a series of reforms including goods and services tax (GST) replaced with sales and services tax (SST), petrol prices stabilised, mega projects are under review, the probe into 1MDB continues, judiciary and institutional reforms are underway.
As fiscal discipline is pursued, the government will have to continue balancing the challenges of restructuring policies and ensuring stable growth. Public development expenditure contracted in June due to the government transition and review of projects.
Businesses also stay cautious as trade and financial risks rise. Markets are looking forward to new policies, growth catalysts, and fiscal clarity in the mid-term review of the 11th Malaysia Plan ( October 18) and Budget 2019 (November 2).
Fiscal concerns raised that have a bearing on businesses and individuals include outstanding income tax refunds amounting to RM16 billion owed in 1,653,786 cases involving companies, individuals, societies and foundations.
This follows RM19.4 billion of outstanding GST refunds owed in input tax credits to companies over a period of six years. The government has also reported that there are insufficient funds in the Consolidated Revenue Account to fund operating expenditures.
Other noteworthy issues on the agenda are government plans for broader tax reforms and revenue enhancements, subsidy review, concession agreements, divestment of assets, and debt restructuring which takes into account refinancing 1MDB debt and reducing contingent liabilities.
“We think the government will continue to deliberate the fate of mega projects involving China and Singapore, in order to manage bilateral relations as well as minimise compensation for cancelled projects,” the UOB senior economist said, noting that so far, the projects involved include a US$20 billion East Coast Rail Link and US$2.5 billion gas pipeline jointly developed with China, and the USD25bn highspeed rail with Singapore.
On a positive note, it should reflect efforts to restore public finances and good governanc. Julia Goh, UOB Malaysia senior economist
Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Mohd Yunus said the central bank is also seeking feedback via public consultations.
“I look forward to receiving constructive feedback from the industry and interested parties, and to further strengthen these frameworks to drive a renewed focus on sustainable financial solutions,” she said in her speech at the Global Islamic Finance Forum 2018 yesterday.
The two- day forum, themed “Value- Based Intermediation – Beyond Profit” is taking place at Sasana Kijang.
Nor Shamsiah said the world economy has expanded six-fold despite experiencing the worst and most expensive financial crisis.
“Average per capita income has more than doubled to about US$11,000, compared to only about