Budget 2017 to focus on economic growth, welfare, prudent spending

PETALING JAYA: MIDF Research expects Budget 2017 to focus on three issues namely economic growth, welfare and prudent spending.
While targeting for higher economic growth is not really in line with prudent spending, MIDF Research said there are a few strategic measures that could stimulate the economic activity in the short term with relatively low cost by the government.
Given that Malaysia's fiscal performance has been much better since July than the first half of the year, MIDF Research is of the view that the 3.1% fiscal deficit for 2016 is achievable.
"As we believe that the government is keen in keeping with the fiscal consolidation plan, we are expecting that the government will continue to aim for a lower fiscal deficit target for year 2017 at 3% to GDP," it said.
MIDF Research foresees 2017 to be a better year for Malaysia as subsiding external headwinds and stabilising commodities prices lend support to both domestic and external sectors.
"These positive developments will bode well with the anticipation of higher government revenues for 2017 as well as the smooth implementation of proposed initiatives line-up in the upcoming budget," it said.
MIDF Research said goods and services tax (GST) revenue collection is expected to be slightly higher at RM40 billon in 2017 versus the RM39 billion projection for 2016.
"Presently, our estimate for 2016 GST collection is at RM37 billion. However, we expect that GST collection will continue to grow next year in anticipation of improved domestic economic environment," it said, noting that there would not be any major changes in the GST structure in this budget.
"Slight changes can be expected from the list of exempted goods and services. Possible uplifting of some of the exempted goods and services from the list is possible," it added.
MIDF Research said it is unlikely to see any changes in the corporate tax, but incentives can be expected for certain targeted sectors like housing, tourism and agricultural.
For personal income tax, the research house said the possible positive moves for the tax payers are an increase in the amount of the tax relief and temporary measures that could lift the burden of the M40 group such as an exclusion of income tax payment for the first year of working and a slightly higher minimum income tax requirement.
"These possible measures will boost the disposable income of the targeted groups which in return will eventually translate into higher domestic consumption,"
In order to boost the government coffers, MIDF Research highlighted that the government may look at unlocking its assets, which are in the form of buildings and land.
As concerns mounted over the possibility of a twin deficit next year due to downward pressure on the ringgit as well as other external and domestic factors, MIDF Research opined that some form of measure to protect the domestic content and reduce reliance on imported products may be introduced, or at least encouraged.
MIDF Research also believes there will be more measures to address the needs of first time home buyers in this coming budget. Among the possible measures are higher percentage contribution for EPF account 2 to be used to finance house purchases.
"The measure can be implemented based on the targeted timeline of which once the contributor be able to purchase the first house, the percentage contribution will then be reverted to the previous allocation," it opined.
Furthermore, MIDF Research said a new first time car buyer scheme may also be introduced, where those who are qualified may be exempted from paying the excise duty.
"This move, if implemented, will have a positive short-term impact toward auto and banking sector barring its possible long-term shortcomings," it said.
On the foreign labour issue, MIDF Research said there are two possible approaches which can be adopted by the government to resolve the foreign labour dependency, including providing incentives such as tax rebate to companies which shift to automation and/or mechanisation and providing loans with low interest rate and longer tenure to companies seeking for financing for their automation/mechanisation.
As promised by the prime minister, MIDF Research noted that the 1Malaysia People's Aid (BR1M) will continue to increase next year until it reaches RM1,200 for the qualified households.
"At the moment, those with household income of RM3,000 and below is qualified for RM1,000 assistance a year. We believe the amount will be increased to between RM1,050 and RM1,100 for next year, in order to gradually attain the promised RM1,200 assistance," it added.