RHB Investment: Govt expected to loosen purse strings for Budget 2023

THE government is expected to “loosen its purse strings to engender a feel-good factor” as it prepares to release the budget for the federal government with an impending general election, said a local research house.

“Expectations are for a market-friendly Budget 2023 containing ‘goodies’ for individuals and businesses, but the quantum of handouts and pump-priming initiatives will be tempered by the lack of fiscal headroom — considering the expectation of a slowing economy in 2023 forecast, with investors also looking out for additional taxes on the private sector,” RHB Investment Bank Bhd said in a market strategy note released today.

It sees the consumer sector as the biggest beneficiary.

“As is usually the case every year, some of the more predictable goodies such as cash handouts, bonuses for civil servants and income tax relief can be expected in Budget 2023 — especially in view of the rising cost of living,” it said.

These possible measures would further support private consumption in the second half of 2022 to continue driving economic growth — in line with the nation’s transition to endemicity. The research house also expects the government to continue prioritising the welfare of the bottom 40% income segment, through the provision of subsidies for necessities and monetary assistance.

It noted downside risks remained for the tobacco and brewery players, in the event of an excise duty hike, though it believes that the likelihood of such an imposition is minimal at this juncture.

“Considering the widespread illicit trade and already-high excise duty rates for both industries, a rate hike would prove counterproductive, as it may lead to the growth of the illicit market, and not translate into higher tax revenue for the government.

“A tighter regulatory framework and more enhanced clampdown enforcement may be more useful tools to improve tax collection, in our view,” it said.

On the oft-repeated question as to when the election will be held, it noted that media reports have suggested that Prime Minister Datuk Seri Ismail Sabri Yaakob (picture) was being persuaded to conduct the 15th general election (GE15) as soon as the fourth quarter of 2022 — a theory that has been reinforced by the tabling of Budget 2023 on Oct 7, three weeks earlier than previously scheduled.

“With Barisan Nasional strategists confident that the electoral winds have shifted in their favour, we think no stone will be left unturned to ensure that the budget offers every assistance to the electorate at large, and to businesses to assist their recovery from the ravages of the pandemic.

“However, with the debt-to-GDP ratios creeping higher, coupled with a rising subsidy bill that will continue to escalate the later GE15 is held, we believe the government will need to be mindful of the fiscal deficit, and we cannot rule out new revenue-raising initiatives or the postponement of planned expenditures,” it said.

In the six-page report, the research house said it expected the budget to emphasise on automation, technology and sustainability.

It said the digitalisation drive could be positive for names like CTOS Digital Bhd, GHL Systems Bhd and Revenue Group Bhd.

“Social assistance initiatives may benefit the broader consumer sector. More punitive taxes on the brewery and tobacco sectors are improbable, as they will likely prove to be counterproductive,” it said.

The research house has low expectations on any significant incentives for the property sector.

“Construction may see headlines from some pre-polls pump-priming but this is likely to be skewed towards smaller contractors. Larger projects could still be announced, but these would require private funding requirements,” it said.

It also notes that the government is unlikely to increase gaming taxes as the industry was badly affected by the pandemic, and believes the number forecast operators will get to maintain 22 special draws in 2023 to maximise tax revenues.

It said the automotive sector may receive a fillip from incentives to expedite electric vehicle production and adoption, with an outside chance of greater clarity on the forthcoming excise duty reform.

Strategy-wise, it said macroeconomic risks remained centred on the monetary policy trajectory, coupled with an evolving geopolitical environment that continues to give investors pause for thought on the prospects for risk assets.

It is advocating a core defensive stance, coupled with a trading mentality, urging investors to seek attractive entry points to nibble on weakness.

It remained ‘Overweight’ on banks, non-bank financial institutions, oil and gas, healthcare, basic materials, gaming and technology. — TMR / Pic Muhd Amin Naharul