SERC: Stick to the deficit re­duc­tion path

> Bud­get 2017 must be growth-ori­ented yet fis­cally pru­dent, says think tank


KUALA LUMPUR: The up­com­ing Bud­get 2017, which is widely ex­pected to be an “elec­tion bud­get”, should be a pru­dent, growth-ori­ented bud­get with­out stray­ing from the fis­cal deficit re­duc­tion roadmap, ac­cord­ing to So­cioE­co­nomic Re­search Cen­tre (SERC) ex­ec­u­tive di­rec­tor Lee Heng Guie ( pix). Speak­ing at a me­dia brief­ing on SERC’s quar­terly econ­omy tracker (July-Septem­ber) re­port here yes­ter­day, he said as the coun­try is still on a mod­er­ate growth path, the need to re­lax the deficit tar­get on fis­cal stim­u­lus grounds is not con­vinc­ing. “The fis­cal deficit tar­get for 2017 is ex­pected to be around 3% to 3.1% of GDP (gross do­mes­tic prod­uct) com­pared with 3.1% in 2016,” Lee said. How­ever, look­ing at the cur­rent fis­cal deficit level, he opined that it will be a chal­leng­ing task to achieve a bal­anced bud­get by 2020.

While it is ex­pected to be a pru­dent and yet sup­port­ive bud­get, he said this will be another tough bal­anc­ing act for the gov­ern­ment as rev­enue from oil is still low.

“Hope­fully we’ll get a de­cent amount of GST (Goods and Ser­vices Tax). But most im­por­tant is that gov­ern­ment spend­ing must be im­pact­ful,” he stressed.

SERC is an in­de­pen­dent think thank on so­cio-eco­nomic is­sues that im­pact the Malaysian busi­ness com­mu­nity and the gen­eral pop­u­la­tion at large.

Lee ex­pects de­vel­op­ment ex­pen­di­ture for Bud­get 2017 to be in the range of RM45 bil­lion to RM48 bil­lion against RM46 bil­lion for 2016.

Fine-tun­ing the prop­erty cool­ing mea­sures is also a pri­or­ity in the bud­get, ac­cord­ing to him.

“The prop­erty mar­ket can­not be over-ad­justed as it will im­pact 140 sub­sec­tors, that’s why the gov­ern­ment must make sure that they con­sol­i­date the in­dus­try on a healthy ba­sis,” he said.

Among the pro­pos­als made to the gov­ern­ment are tweak­ing the cur­rent 70% loan-to-value ra­tio for the pur­chase of the third or more prop­er­ties; flex­i­bil­ity in the net in­come com­pu­ta­tion for first-time home buy­ers for prop­erty cost­ing less than RM500,000; rein­tro­duc­tion of the De­vel­op­ers’ In­ter­est-Bear­ing Scheme for first-time home buy­ers for prop­er­ties cost­ing less than RM500,000; and stamp duty cut for such prop­er­ties.

Apart from that, to help home own­er­ship, he said, the gov­ern­ment and banks can con­sider “eq­uity loan” schemes which pro­vide some in­ter­est rate sub­sidy or in­ter­est-free loans on 20% to 30% of the mort­gage for prop­er­ties be­low RM500,000.

Lee ex­pects Bud­get 2017 to fo­cus on the bot­tom 40% house­holds (B40) and the mid­dle 40% house­holds (M40) with higher BR1M pay­ments and se­lected per­sonal in­come tax re­liefs (such as per­sonal re­lief, chil­dren’s ed­u­ca­tion, med­i­cal ex­penses); spe­cial re­lief of RM2,000 for those earn­ing RM8,000 and be­low be­ing ex­tended for another year; and ex­cise duty ex­emp­tion for first-time buy­ers of low-en­gine ca­pac­ity cars.

To sus­tain pri­vate in­vest­ment, he said, the gov­ern­ment should in­tro­duce for­ward-look­ing ini­tia­tives such as low­er­ing the cor­po­rate tax rate from the cur­rent 24% to be­tween 18% and 20% over a pe­riod of three to five years; pro­vid­ing pref­er­en­tial tax rate for SMEs; ICT grants and tax cred­its; in­cen­tives for au­to­ma­tion and in­no­va­tion; and, an amnesty pro­gramme for undis­closed funds, as­sets and cap­i­tal held abroad by Malaysian tax res­i­dents.

On eco­nomic growth, Lee es­ti­mates that Malaysia will achieve a slightly bet­ter per­for­mance of 4.2% to 4.3% in the sec­ond half of 2016 ver­sus 4.1% in the first half, on the back of the ac­cel­er­a­tion of con­sumer spend­ing and pri­vate in­vest­ment. Full-year growth for the year is es­ti­mated at 4.2%.

He is of the view that Bank Ne­gara Malaysia will as­sess the im­pact of mea­sures in the bud­get be­fore mak­ing any de­ci­sion on the Overnight Pol­icy Rate but ex­pects another re­duc­tion only in 2017.

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