Malaysia’s Budget 2018 to see higher borrowings, popular measures

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Datuk Seri Najib Razak
Datuk Seri Najib Razak

The budget that is to be unveiled today is likely to be a people friendly budget with every segment of the Malaysian population receiving some bounties, said an economist to TISG.

“The budget is also likely to address all key concerns affecting Malaysians notably the increase in the cost of living and affordability of housing while the PM Najib Razak may provide the necessary impetus that would help bolster the economy,” said the economist.

Considering the fact that this is the last budget ahead of the general elections, it would also address all concerns and challenges facing the bottom 40% or B40 and the middle 40% or M40 class of households.

But overall, the PM will struggle to find the right solution to the acute increase in the price of goods and services – which the PM refused to attribute to the Goods and Services Tax or GST of 6% which was introduced since 2015.

While there are no sound bites that Najib will raise the bar on the GST in a bid to generate more revenues for the government, it is likely he will reduce the expenditures in some sectors while he may shuffle the balance of the money around into other prioritized sectors.

One of these sectors would be the tourism industry that may see a whopping increase in its budget allocation.

The government saw a backlash from business quarters (hotels in particular, and tourists in some cases) when it decided to impose a ‘hotel room tax’ this year.

The tax of RM10 per room was imposed on both Malaysians and foreigners, but the government backtracked on the tax by cancelling the tax imposed on locals.

In September the Straits Times reported that 5,000 hotels in Malaysia had started collecting the tourism tax of RM10 per room per night from foreigners.

It is also likely that Budget would attempt to address the issue of housing. A government agency building low-cost houses, Pr1ma may even get a bigger allocation for the supply of houses, especially for the low and middle-income group.

The government may focus on building these houses in already densely populated areas such in the Klang Valley, Johor Baharu and other major cities where prices are seen escalating to unrealistic levels beyond the reach of most Malaysians.

Given that banks have been having a good financial year, some economists have opined that a reduction of interest rates be made to first-time buyers of affordable homes.

In addition to people in the B40 group that are likely to be vulnerable to income shocks and economists have opined that it may see enhanced assistance given to them in the form of reliefs and enhanced revision of minimum wages.

Lastly, it is hoped that the Budget would also be business friendly as incentives might be given to businesses that would generate employment which will further fuel demand and consumption.

Domestic growth is one of the major cornerstones of the Najib Razak’s economic plan. Without incentives to boost local demand and consumption, the economy might see a contraction that could impact the overall GDP performance.

Hence, we should expect more funds to go in that direction, which would include handouts increases and other facilities to the general public.

In a statement published on his Facebook page, the Prime Minister said this Budget will continue to be guided by his goal to correct the problems of the past and to make Malaysia stronger, more competitive at home and abroad; to create a Malaysia that protects the vulnerable and is fair to all: a Malaysia where none of our brothers and sisters are left behind.

Budget 2017 proposed five strategies to strengthen the Malaysian economy and address structural issues that are hampering Malaysia’s long-term growth potential.

The five strategic initiatives were Rakyat first, accelerating economic growth, empowering human capital, strengthening inclusive development, and improving public service delivery.

The federal spending plan for 2018 will be tabled in Parliament on Friday, Oct 27.

Budget 2017 had the following four priorities: Strengthening economic resilience

And boosting domestic investment, invigorating the capital market, energise small and medium enterprises and the improvement of the country’s infrastructure.

As part of the improvement of the economic activities, the Budget also proposed solutions to increase productivity, innovation and green technology.

The empowering of human capital (Higher education, vocational training) were also part of the Budget proposals.

The Bumiputra Empowerment Agenda, the ease of the cost of living with improved B40 quality of life, affordable housing, quality healthcare and the welfare of the less favourable persons were also among the budget priorities.