Six things to watch for in Budget 2018

Among others, SMEs will likely be the focus of the upcoming budget


With less than a day before the presentation of the country’s Budget 2018, eyes are focused on some key announcements which would chart the country’s spending for next year.

Here are the six big things to expect when Finance Minister Datuk Seri Mohd Najib Razak presents his ninth budget to Malaysians, according to Malaysian Rating Corp Bhd (MARC).

Below are its insights on the key things to watch for in this budget presentation.

Lower Fiscal Deficit

Malaysia’s economy expanded at its fastest pace in more than two years in the second quarter of 2017, helped by robust domestic demand and exports.

The World Bank has forecast that the gross domestic product (GDP) would rise to 4.9% for this year, higher than the current projection range of 4.3% to 4.8%.

Revenue from the Goods and Services Tax (GST) is expected to reach RM42 billion, while the country’s fiscal deficit has been slashed by half from 6.7% in 2009 to 3.1% in 2016.

Deficits are likely to drop around 2.8% next year, helped by the higher oil-related revenue and GST, while spending is rationalised.

GST revenue would come in between RM40 billion and RM45 billion.

Seeking Other Revenues

Bread-and-butter issues will dominate the upcoming budget. MARC expects the government’s main focus will be to assist the rakyat in dealing with the rising cost of living.

Non-oil revenue has strengthened Malaysia’s fiscal position. Revenues from the oil and gas sector had dropped to around 18% compared to 40% previously.

However, the recent rise in crude oil price will not allow the government to go on a spending spree — due to the sector’s volatility.

“We anticipate the government to continue being extra cautious in its spending due to uncertainties in the global crude oil market,” MARC said.

The government would likely continue to look for other revenue sources to ensure its fiscal consolidation efforts continue in the years to come.

Taxes on foreign digital business providers and capital gains for short-term financial transactions would add to the revenue.

Measures for the People

The disparity between consumer perception and economic growth has been largely highlighted by the public.

The rising cost of living and stagnant wage hikes had impacted consumer sentiments.

MARC believes measures to tackle these issues will be addressed — including a one-off personal tax relief for the middle-income group.

Allocations for the needy, or the amount of 1Malaysia People’s Aid is projected to see a rise.

Lifestyle tax relief given in Budget 2017 could be reviewed upward, while further widening of the personal income tax band would ensure that people do not quickly fall into higher tax brackets when their incomes increase.

The government may also consider introducing a voluntary health insurance scheme in the near term to assist the people and cope with the upsurge in medical expenses.

Affordable Housing

New measures to solve Malaysia’s housing woes are expected in Budget 2018 — including affordability.

“While the growth rates of house prices have moderated in recent quarters, prices remain too high for ordinary citizens,” MARC said.

It forecast further efforts to speed up the delivery of various housing schemes such as the 1Malaysia Housing Programme, People’s Friendly Home and My First Home Scheme.

One idea may be to establish a single entity or agency to coordinate the various housing schemes, in order to speed up the progress of all affordable housing projects in a timely manner.

More incentives could also be given to private developers, such as special tax deductions or reliefs for using the Industrialised Building System tech- nology in developing affordable homes.

Small and Medium Enterprises

The small and medium enterprises (SMEs) will likely be the focus for next year’s budget.

A check on Bloomberg showed that SMEs account for 98.5% of business establishments and contribute 36.6% to the country’s GDP.

They also account for 65.3% of employment and 18.6% of total exports. Budget 2018 would see measures to ease the process of obtaining financing, as well as enhancing capability in technology, and research and development.

Digital Economy

The growing importance of digital innovation will shape the next wave of economic development in the country.

In Budget 2018, MARC anticipates the government to highlight the importance of adapting to a digital economy for Malaysia’s long-term growth potential.

“As efforts are drawn to ensure Malaysia is less dependent on a volatile exports sector, boosting other growth sources is essential in the medium and long terms.

“In addition, possible revenue that can be derived from a digital economy could also be looked into,” it said.