Con­sump­tion boost

Bud­get 2018 un­veils mea­sures to boost do­mes­tic de­mand and pri­vate in­vest­ments.

The Star Malaysia - StarBiz - - Front Page - STO­RIES by FIN­TAN NG, TEE LIN SAY, CE­CILIA KOK and INTAN FARHANA ZAINUL starbiz@thes­tar.com.my

THE do­mes­tic econ­omy will re­ceive a boost from sev­eral mea­sures and in­cen­tives an­nounced in Bud­get 2018 ben­e­fit­ing the mid­dle- and low-in­come earn­ers known as the M40 and B40 re­spec­tively.

An­a­lysts be­lieve that con­sumer stocks will also ben­e­fit, es­pe­cially those cater­ing to the mass mar­ket given the ex­tra cash, through new and con­tin­u­ing mea­sures that the Gov­ern­ment has an­nounced.

For the M40, there will be a 2% cut to in­di­vid­ual in­come tax for the tax bands be­tween RM20,000 and RM70,000. This move will free up money for cash-strapped mid­dle-class Malaysians, es­pe­cially those in the lower pay bands of the M40 that have felt the ris­ing cost of liv­ing as much as the B40 in­come earn­ers.

A sig­nif­i­cant por­tion of the 2.3 mil­lion peo­ple who pay tax earn less than RM9,000 monthly. This tax cut will in­crease the dis­pos­able in­come of earn­ers in these tax brack­ets to be­tween RM300 and RM1,000. The Gov­ern­ment es­ti­mates that this will bring an ad­di­tional RM1.5bil in dis­pos­able in­come that can be spent on the do­mes­tic econ­omy. This mea­sure also means that more than 261,000 in­di­vid­u­als will no longer be sub­ject to in­come tax.

Econ­o­mists who spoke to StarBizWeek say that the tax re­duc­tion will help sup­port pri­vate con­sump­tion. “It’s not just about rais­ing the goods and ser­vices tax (GST) col­lec­tion, but when con­sumers spend, many com­pa­nies will ben­e­fit, which will mean higher cor­po­rate tax col­lec­tion,” Al­lianceDBS Re­search chief econ­o­mist Manokaran Mot­tain ex­plains. The Gov­ern­ment is es­ti­mat­ing cor­po­rate tax to grow 6.9% to RM72.47bil next year com­pared with the 6.6% rise to RM67.82bil this year.

Manokaran does not ex­pect the GST col­lec­tion to be re­vised higher in the com­ing year com­pared with this year, when the GST col­lec­tion was re­vised to RM41.50bil, from the RM40­bil es­ti­mated in Bud­get 2017. For this year, the Gov­ern­ment ex­pects 5.5% higher rev­enue from GST col­lec­tion amount­ing to RM43.80bil.

Mean­while, So­cio Eco­nomic Re­search Cen­tre ex­ec­u­tive di­rec­tor Lee Heng Guie says the tax cut should help the do­mes­tic econ­omy “quite a bit”. He adds that this will help sup­port pri­vate con­sump­tion, which is es­ti­mated to grow 6.8% next year com­pared with 6.9% this year.

Be­sides the re­duc­tion in in­di­vid­ual in­come tax, the other two sig­nif­i­cant mea­sures that will help sup­port the do­mes­tic econ­omy in­clude the 1Malaysia Peo­ple’s Aid scheme or pop­u­larly known as BR1M, and a spe­cial pay­ment of RM1,500 to the 1.6 mil­lion civil ser­vants, of which the first pay­ment of RM1,000 will be made in early Jan­uary and the bal­ance dur­ing Hari Raya Aidil­fitri.

The BR1M al­lo­ca­tion for the com­ing fis­cal year will be main­tained at RM6.8bil, the same amount that was al­lo­cated un­der Bud­get 2017, which will mean re­cip­i­ents can get a cash trans­fer of up to RM1,200. To put things in per­spec­tive, un­der Bud­get 2017, BR1M ben­e­fited seven mil­lion peo­ple.

Moody’s In­vestors Ser­vice sov­er­eign risk an­a­lyst Anushka Shah says in a state­ment that while Bud­get 2018 is credit-sup­port­ive and pre­serves the deficit-re­duc­tion trend that has been un­der­way since 2009, it lacks ma­jor fis­cal and in par­tic­u­lar rev­enue re­forms. The agency has an A3 rat­ing with a sta­ble out­look for Malaysia’s sov­er­eign credit.

“Mean­while, ex­pen­di­ture mea­sures are tar­geted at in­clu­sive growth and high-mul­ti­plier spend­ing, sim­i­lar to what other gov­ern­ments are im­ple­ment­ing in re­sponse to de­mands from pop­u­la­tions and elec­torates. The full credit im­pli­ca­tions of the bud­get will de­pend on whether the pro­jected in­crease in rev­enues – the fastest since 2012 – is achiev­able since tar­gets rest pri­mar­ily on a rise in GST col­lec­tions, which, in turn, rely on rel­a­tively op­ti­mistic growth pro­jec­tions go­ing into 2018,” Anushka says.

The Gov­ern­ment is es­ti­mat­ing to­tal rev­enue to grow 6.4% to RM239.86bil in 2018 com­pared with the RM225.33bil or 6.1% rise this year mostly on the back of bet­ter in­di­vid­ual and cor­po­rate in­come taxes, while an oil price as­sump­tion of US$52 per bar­rel for next year will also help boost in­come.

Sin­ga­pore-based No­mura Hold­ings Inc econ­o­mist Euben Paracuelles ex­pects a sharp cut in

spend­ing in the sec­ond-half of 2018 as con­sis­tent with the house view of sim­i­lar cuts in the same pe­riod this year in order for the bud­get deficit target of 2.8% of gross do­mes­tic prod­uct (GDP) to be met. He says the Gov­ern­ment will front-load spend­ing to the start of the year ahead of the loom­ing gen­eral elec­tion. No­mura fore­casts GDP to grow be­tween 5% and 5.5% next year.

— Ber­nama

Prime Min­is­ter and Fi­nance Min­is­ter Datuk Seri Na­jib Tun Razak ar­riv­ing at Par­lia­ment to present Bud­get 2018. With him are Sec­ond Fi­nance Min­is­ter Datuk Jo­hari Ab­dul Ghani (sec­ond from right) and Trea­sury sec­re­tary-gen­eral Tan Sri Dr Mohd Ir­wan Seri­gar Ab­dul­lah (mid­dle).

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