UOB: Budget 2018 will remain expansionary

PETALING JAYA: Budget 2018, which will be announced on Oct 27, is expected to be an expansionary budget with focus on the lower and middle income segments, addressing cost of living, affordable housing issues and new technology to spur growth.

“We anticipate the coming budget will remain expansionary, yet in keeping with fiscal consolidation as further revenue enhancement measures will be introduced. The government is likely to maintain fiscal prudence with more targeted spending on the lower and middle income segments,” said UOB Bank economist Julia Goh in her Budget 2018 preview flash notes today.

Goh expects higher operating expenditure and development expenditure for 2018. Under the 11th Malaysia Plan for 2016-2020, the development expenditure ceiling is RM260 billion or RM52 billion per year.

Based on 2016-17 development expenditure allocation, only RM88 billion or 34% has been utilised, which leaves room to increase development expenditure allocation next year.

Goh expects a broadening in the tax base and an increase in tax compliance and enforcement efforts. Although the goods and services tax (GST) rate will remain at 6%, the government is studying ways to tax companies with business in Malaysia but book their revenues abroad.

In view of higher oil prices and stronger flow of GST revenues, Goh said there could be room to lower personal income tax rates for the middle-income brackets to ease the burden of high cost of living and enhance competitiveness.

On BR1M cash aid, under Barisan Nasional’s 2013 election manifesto, the target is RM1,200 for those with incomes below RM3,000 and the target has been met. Goh said it is reasonable that the government will maintain BR1M in the coming budget.

Meanwhile, the Employees Provident Fund (EPF) contribution cuts are not expected to be extended given robust private consumption growth and the issue of insufficient retirement savings. Note that the 3% cut in EPF contribution will expire at end-2017.

The government is expected to introduce measures to expand exports and improve the current account balance. Measures include promoting tourism, further extension of e-visas and encouraging companies especially SMEs to internationalise.

In terms of housing affordability, Goh expects more measures to address supply shortage of affordable homes and bridging the affordable housing gap, including savings programmes and rental support, rent-to-own and partial ownership programmes.