Prime Minister Datuk Seri Najib Tun Razak’s inaugural budget speech contained populist measures such as additional personal tax relief and a cut in the maximum personal tax rate to offset a reduction in subsidies, and the reintroduction of a milder form of RPGT. The latter 2 initiatives should still be viewed positively in the long run as the Government moves to wean Malaysians off subsidies and broaden its revenue base via the eventual introduction of GST. While there was no major market moving news, we believe the positive sentiment should be sufficient to keep the broader market on a general uptrend in the mid-term.
Within expectations. With the Government revising its GDP forecasts to a 3% contraction for 2009 and 2% to 3% growth for 2010, the new forecasts are directly aligned with our previous house view of a 3% GDP contraction and 2.5% GDP growth for 2009 and 2010 respectively. As such, Budget 2010 was largely within our expectations. As highlighted in our recent reports as well, there was no further sin tax increase for cigarettes and alcohol. There were some surprises, which came in the form of increased personal tax relief while the general trend towards reducing subsidies and the potential implementation of the Goods and Services Tax was not unexpected.
Balancing the budget. With a targeted 5.6% budget deficit to GDP for 2010 against 2009’s 7.4%, we see the Government as being determined to balance its books. As such, an anticipated drop in petroleum revenue will be somewhat offset by a 13.7% cut in operating expenditure involving lower allocation to Defense and reduced subsidies. Even development expenditure will be cut by 4.5%, but we believe the slack in Government infrastructure spending will be taken up by Private Finance Initiatives (PFIs).
Goodies for the middle class. While the poor, disabled and retirees are not forgotten with the various incentives announced, we believe it is the Middle Class which has the most to cheer about given the RM1000 increase in personal tax relief to RM9000, an additional RM1000 in tax relief for EPF and life insurance premiums to RM7000, and the 1%-pt reduction in maximum individual tax rate to 26%.
Property and Construction most affected. On an industry basis, the reintroduction of a Real Property Gains Tax (RPGT) of 5% is mildly negative to the Property sector, with the most impacted being the luxury condo segment. On the flip side, the proposed disposal of Government land to be jointly developed with GLCs and the introduction of Green Building stamp duty exemptions should be good for property developers such as MRCB and Putrajaya Perdana. Construction players in Sarawak such as Naim should benefit the most from the focus on East Malaysia in Budget 2010.
Other than that, banks with potential growth in Islamic Banking such as CIMB should derive tax benefits and all telco players should gain from the RM500 a year tax relief on broadband subscription fees. Insurance players such as Kurnia Asia also stand to gain from a potential revamp in motor insurance premiums.
Within expectations. With the Government revising its GDP forecasts to a 3% contraction for 2009 and 2% to 3% growth for 2010, the new forecasts are directly aligned with our previous house view of a 3% GDP contraction and 2.5% GDP growth for 2009 and 2010 respectively. As such, Budget 2010 was largely within our expectations. As highlighted in our recent reports as well, there was no further sin tax increase for cigarettes and alcohol. There were some surprises, which came in the form of increased personal tax relief while the general trend towards reducing subsidies and the potential implementation of the Goods and Services Tax was not unexpected.
Balancing the budget. With a targeted 5.6% budget deficit to GDP for 2010 against 2009’s 7.4%, we see the Government as being determined to balance its books. As such, an anticipated drop in petroleum revenue will be somewhat offset by a 13.7% cut in operating expenditure involving lower allocation to Defense and reduced subsidies. Even development expenditure will be cut by 4.5%, but we believe the slack in Government infrastructure spending will be taken up by Private Finance Initiatives (PFIs).
Goodies for the middle class. While the poor, disabled and retirees are not forgotten with the various incentives announced, we believe it is the Middle Class which has the most to cheer about given the RM1000 increase in personal tax relief to RM9000, an additional RM1000 in tax relief for EPF and life insurance premiums to RM7000, and the 1%-pt reduction in maximum individual tax rate to 26%.
Property and Construction most affected. On an industry basis, the reintroduction of a Real Property Gains Tax (RPGT) of 5% is mildly negative to the Property sector, with the most impacted being the luxury condo segment. On the flip side, the proposed disposal of Government land to be jointly developed with GLCs and the introduction of Green Building stamp duty exemptions should be good for property developers such as MRCB and Putrajaya Perdana. Construction players in Sarawak such as Naim should benefit the most from the focus on East Malaysia in Budget 2010.
Other than that, banks with potential growth in Islamic Banking such as CIMB should derive tax benefits and all telco players should gain from the RM500 a year tax relief on broadband subscription fees. Insurance players such as Kurnia Asia also stand to gain from a potential revamp in motor insurance premiums.