PETALING JAYA: Budget 2020 may see a contingency plan or mini fiscal stimulus package that could amount to RM3 billion or 0.2% of the gross domestic product (GDP), but the fiscal deficit is projected to increase to 3.2% of GDP, said RHB Research.
This is to counter the effects of a slowdown from the US-China trade war and the stimulus measure is likely in the form of higher development expenditure.
Among the possible measures in the contingency plan include an extension of the reinvestment allowance; grants and financing guarantees for small and medium enterprises; higher development expenditure to boost construction activity; higher social spending to aid the B40 group.
“We believe these measures will help counter the country’s slowing private investment and weak trade activity,” it said in a research note today.
RHB Research noted that new infrastructure projects, such as the Pan Island Link 1 highway and light rail transit under the MYR46 billion Penang Transport Master Plan may also be announced in the budget.
“All these expansionary fiscal spending may raise the total gross development expenditure to RM58 billion and, combined with tax cuts and allowances, is expected to push the fiscal deficit to RM52 billion, or -3.2% of GDP.”
Meanwhile, RHB Research estimates that total government expenditure for 2020 to be RM295.1 billion, with RM240.1 billion or 81% taken up by operating expenditure (opex), with the remainder RM55 billion being development expenditure.
“Although the total budget amount should be 6.2% lower than 2019’s expenditure, it is – however – 6.3% higher last year after excluding the one-off RM37 billion in tax refunds allocated in 2019.”
“Opex could see a higher allocation of 7.7% in 2020 – excluding the one-off items last year – while development expenditure will grow slightly by 0.5% under a normal operating environment, i.e. no contingency plan.”
The research house said opex and civil servants’ salaries/emoluments, which take up the lion’s share at 26.1% of the budget, could see a modest growth of 5% to RM86.1 billion in 2020 after taking into account some increments and bonuses for civil servants.
“This came after a drastic reduction in 2019, which involved the contract terminations of 17,000 political appointees and a 10% pay cut by ministers.”
On another note, RHB Research said the corporate income tax rates are unlikely to be lowered under the contingency measures. Malaysia’s corporate income tax rate currently stands at 24% for companies and has remained at this rate since 2014.
