Budget 2019 – the good, the bad and the ugly
AFTER a week since the Budget 2019 was tabled by Finance Minister Lim Guan Eng, it is perhaps a better time to reflect and review measures that were announced and its implications.
Judging by the FBM KLCI’s gains of about 7.5 points between Monday and Thursday, despite the fall in the share prices of Genting, Genting Malaysia and Malaysia Airports, which blew off almost 12 index points on the FBM KLCI, the market can be said to be generally receptive of the Budget 2019.
What was good about the budget? Well, firstly, in an unsurprised move, there was no capital gains tax and neither was there inheritance tax – the two taxes feared by the market that would jeopardise investors’ interest on Bursa Malaysia and along with it, potential capital flight.
The much taunted hike in current personal and corporate taxes were visibly absent while some new taxes were introduced and selectively, others were raised.
Personally, I like the idea of the new airport real estate investment trusts (REITs) that is going to be established. With a potential fund raise of RM4bil to the government’s coffers based on a 30% equity interest to be sold, the REITs could have a market capitalisation of about RM13.3bil.
This will also allow investors to have another liquid, high dividend and growth stock in their books, which will gain significant interest among institutional investors.
The proposal to introduce departure tax is not expected to hurt travellers to Asean countries or outside the region while at the same time allowing the government to widen its revenue base.
The hike in gaming taxes was indeed a surprise and an ugly move, especially in the quantum of the hike for casino duties, casino licence fees and gaming machine duties.
While this is steep for Genting as also reflected on market’s reaction to its share price, the budget should have gone a step further to raise taxes on number forecasting operators, brewers and tobacco companies, as sin taxes are the easiest to be targeted to raise the government’s revenue.
At the same time, the efforts to curb illegal activities should be stepped up to ensure that the legal and licensed operators have a greater reach for their respective target markets.
A lot of measures in the budget were related to the property sector. Firstly, the rise in stamp duty for transfer of properties worth RM1mil and above to 4% from 3% previously is nothing new, as it was also proposed in the previous budget but was withdrawn due to market softness.
What the stamp duty hike failed to take into account was distinguishing a Malaysian or resident buyer against foreign buyers. Perhaps a higher stamp duty should have been imposed on foreign buyers of 5% for properties above RM1mil as well as the introduction of a seller stamp duty instead of a hike in real property gains tax (RPGT).
The introduction of a 5% RPGT for properties held beyond five years for individuals and 10% for companies is an ugly move by the government as it does not differentiate at all very-long-term owners of properties although there remains the once-in-a-lifetime exemption from this duty upon disposal of a property by a resident and a Malaysian citizen.
The higher taxes can be said to be bad for the property sector and potential buyers/sellers, depending on the value of the property and the period of holding the asset.
On a positive note, a potential reduction of 10% in prices for new homes is indeed positive but, of course, implementation is key as we obviously do not want new homes’ gross price to be raised before the 10% reduction kicks-in, as it has to be a genuine reduction to benefit all buyers, especially first-time home buyers, and to clear the inventory of unsold homes.
As for the people in general, the introduction of a monthly pass for RM100 per month to travel on public transportation is most welcome. Hopefully, with this, we will see MRT ridership increase significantly as the current total ridership is barely enough to cover operating cost let alone service the financing cost to build the infrastructure.
The freeze on toll hikes, slightly higher minimum wages by a further RM50, an increase in tax reliefs for deposits made in the National Higher Education Fund Corp account and split in tax reliefs and a higher threshold for Employees Provident Fund and life insurance contributions are all positive for consumers in general and could add to higher disposal income. A positive move for consumers from the budget.
Budget 2019 was less burdensome to the people or corporates mainly due to the government’s move to tap into Petroliam Nasional Bhd (Petronas) with a one-off special dividend of RM30bil to the government. This is indeed heartening to note as Petronas has again come to the rescue to the government in time of need.
After all, Petronas belongs to all Malaysians and what better way to help the nation than providing the much needed financial support next year, especially in the repayment of Goods and Services Tax and tax refunds, which amounts to RM37bil.
These refunds will help the economy to register the expected 4.9% GDP growth in 2019 as it is likely that monies distributed by the refund mechanism will help in driving private consumption. Another positive from Budget 2019.
Another interesting revelation is that the government now recognises what is its actual debt and liability instead of lumping all of them together as one.
We now see that the actual gov- ernment debt is at RM725bil as at end-June 2018 and it accounts for 50.7% of GDP. Governmentguaranteed debt now stands at RM258.4bil or about 18.1% of GDP while public-private partnership (PPP)-related liabilities is now at RM82.3bil or 5.8% of GDP.
Combining all, the total debt and liability is now at RM1,065.9bil, equivalent to 74.5% of GDP as at end-June 2018.
This is an important measure now as credit agencies will be watching like hawks for changes in the components of debt and liabilities, which may result in a change in our credit rating.
Interestingly, Malaysia is also going to Japan to get assistance from the Land of the Rising Sun to raise some Samurai bonds, which are meant to lower our overall funding cost.
However, we need to be careful as this could also jeopardise our long-term commitment due to currency risks.
Lastly, the best part of the budget and a surprise to many – an amnesty programme for tax dodgers.
The Special Voluntary Disclosure Programme for taxpayers to declare unreported income, including those in offshore accounts, is seen as a way to not only generate additional revenue for the government but to increase tax compliance.
As can be seen, Budget 2019 is indeed a budget for all – whether the good, the bad or the ugly – but at the same time, it had been carefully crafted by the Pakatan Harapan government to give us hope and believe that Malaysia remains a land of opportunity, of growth and of inclusiveness, and a nation that takes care of its people.
Despite the fall in the share prices of Genting, Genting Malaysia and Malaysia Airports, the market can be said to be generally receptive of Budget 2019.