SERC: Budget 2017 must stick to deficit reduction goal

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 Socio-Economic Research Centre (SERC) executive director Lee Heng Guie.

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 sub-sectors, 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.