Malaysia Budget 2017 Preview
Fiscal thrust to boost growth and win electoral support
KEY POINTS
Fiscal
thrust. The government is expected to tilt towards employing more fiscal
measures to support the economy amid growing global uncertainties
Mildly
expansionary. Along with the expectation of a General Election next
year the Government is expected to design the 2017 Budget to be slightly
expansionary while retaining its grip on consolidation.
Striking a balance. Such would require objective fiscal discipline of cutting unnecessary spending while reallocating funds towards targeted social and infrastructure development. Hence, the Government is expected to project a fiscal deficit of 3.0% of GDP in 2017 slightly better than its target of 3.1% in 2016.
Cautiously optimistic. Official growth projection is expected to be slightly higher in 2017 (4.5% -5.0%) in line with IMF prediction of growth improvement in the ASEAN region on the back of better domestic demand growth and a gradual recovery in commodity prices.
Striking a balance. Such would require objective fiscal discipline of cutting unnecessary spending while reallocating funds towards targeted social and infrastructure development. Hence, the Government is expected to project a fiscal deficit of 3.0% of GDP in 2017 slightly better than its target of 3.1% in 2016.
Cautiously optimistic. Official growth projection is expected to be slightly higher in 2017 (4.5% -5.0%) in line with IMF prediction of growth improvement in the ASEAN region on the back of better domestic demand growth and a gradual recovery in commodity prices.
Expect big giveaways to
benefit the targeted general public in order to win electoral support by
addressing issues regarding high cost of living, housing affordability
and reducing inequality.
A bigger allocation
towards development expenditure of at least RM50.0b to be channelled
towards rural development e.g. building roads, highways, bridges,
schools, as well as on growth areas like public transport, logistics,
ports, digital economy, value-added exports, tourism.
Consolidating
Opex. Reducing emoluments, cutting discretionary spending and
reallocating funds to growth areas and social welfare to be top priority
to avoid risk of sovereign rating downgrade
To
address the higher cost of living we expect more BR1M cash hand outs,
tax relief for middle income earners, as well as affordable housing
targeting the bottom 40% (B40) and middle 40% (M40) households as well
as civil servants.
Corporate tax cut can wait.
Unlikely as more funds needed to repair fiscal account following
election year. If improvement in commodity exports continues along with
steady rise in GST, a corporate tax cut of one percentage point to a
standard rate of 23.0% a possibility from 2018 onwards.
Overview
Let's get fiscal.
The three main objectives in the upcoming 2017 Budget under the theme
of “Accelerating Growth, Ensuring Fiscal Prudence, Enhancing Well-being
of Rakyat” suggests that while the budget will continue to be slightly
expansionary it will still commit to fiscal prudence. As in previous
years, major sections of the budget will address concerns over the cost
of living, inequality and housing affordability. More importantly as
central banks the world over are facing limitations to deal with the
current global financial and economic issues mainly dominated by low
interest rate, weak growth and low inflation environment we expect the
government to give more emphasis on fiscal policy over monetary policy
as a tool to deal with the current economic malaise. All in, the
budget’s main focus will be regaining investor and consumer confidence
while striking a balance between the need to consolidate and, if need
be, raise development spending to ensure the economy becomes more
resilient to face growing instability in the global economy.
Source: Kenanga Research – 18/10/16
