‘Development spending may be capped at RM50b’
PETALING JAYA: Kenanga Research believes that the government will maintain fiscal prudence in Budget 2018 by putting a cap of RM50 billion on development spending, in case of an economic crisis or external shocks.
The last time development expenditure exceeded RM50 billion was in 2010, the research house said in its 2018 Budget preview report last Friday.
This year, Kenanga said the government is expected to cap its development spending at about 90%-95% of its original development allocation of RM46 billion.
“While we expect that operating expenditure (opex) will be adjusted accordingly in favour of a higher allocation for development expenditure, we do not see the total allocation exceeding RM50 billion.”
Based on the allocation of RM260 billion for development spending over the course of the next five-years (2016-2020) under the 11th Malaysia Plan (11MP), it said the average annual allocation would be RM52 billion.
Meanwhile, Kenanga said although the government had utilised 44% of the allocated RM46 billion in 1H’2017, the opex exceeded 51.7% of the full year target of RM214.8 billion.
“The underspent development spending and the overspent opex in the 1H’2017 would traditionally reverse in the 2H’2017.”
However, Kenanga said although it expects that government’s commitment to fiscal consolidation would generally put a cap on development spending in the 2H’2017, there is no guarantee that opex would taper off in the 2H’2017.
On another note, Kenanga said any decision to cut corporate tax will likely be postponed after 2018, on the expectation that the 14th general election would be held next year.
It said this is to ensure adequate amount of tax collected to achieve a minimum collection target in case of a shortfall in indirect tax or non-tax revenue in view of higher spending during an election year.
“However, as goods and services tax (GST) collection reaches a sustainable level (more than RM40 billion annually), we believe that there will be a greater fiscal space for the government to reduce both the corporate and personal income tax.”
On the other hand, Kenanga said the government can raise the individual income tax relief to anywhere between RM10,000 to RM15,000 from the current RM9,000.