Budget 2014 oh Budget 2014

Budget 2014 expected to be fiscally and socially responsible
Business & Markets 2013
Written by Shalini Kumar of theedgemalaysia.com   
Thursday, 03 October 2013 10:03

KUALA LUMPUR: Budget 2014, to be tabled in the Dewan Rakyat on Oct 25, is expected to address concerns over Malaysia’s fiscal credibility while looking into the needs of the rakyat affected by subsidy cuts, said Areca Capital CEO and executive director Danny Wong.

He hopes the budget will contain policies that will maintain the country’s sovereign credit rating.  

“If its credit rating gets downgraded, it will affect the flow of foreign investments into the country. 

“Our debt level and budget deficit, which is tied to our current account surplus, have to be addressed,” he said in a telephone interview with The Edge Financial Daily.  

Currently, Standard & Poor’s has given Malaysia an A Stable rating, Moody’s an A3 Stable rating, and Fitch Ratings an A Negative rating.

Fitch revised Malaysia’s sovereign rating in July, citing rising federal government debt of 53.3% of GDP as at end-2012, and general government budget deficit of 4.7% of GDP in 2012. This compares to 51.6% and 3.8%, respectively in 2011. 

The federal government has set a 2013 fiscal deficit target of 4% of GDP, 3% in 2015 and a balanced budget by 2020.

Wong is of the view that government subsidies should be reduced further, as the recent 20 sen petrol price hike, which is estimated to rake in some RM3.3 billion in savings for the government, was not sufficient. 

“At the same time government spending has to be reduced. Capital mega projects should  be reassessed, and if they cannot be readily funded by the private sector, then they should be put off until it is determined what the medium-term impact will be on public funds and what value the projects will bring,” he said.

In a report earlier this month, Fitch Ratings said projected near-term fiscal savings from the fuel hike are RM1 billion in 2013 (0.1% of GDP) and RM3 billion (0.3% of GDP) in 2014.

TA Securities head of research, Kaladher Govindan, said Budget 2014 would have to address subsidy cuts, and an increase in government revenues through higher real property gains tax, sin tax and introduction of the Goods and Services Tax (GST).

He also expects the budget to prioritise infrastructure projects while continuing to give incentives to nourish higher value-added and knowledge intensive activities. 

“We expect two rounds of 10 sen per litre increase in fuel prices next year as well as a rise in power tariffs and sugar prices to cut the government’s subsidy burden. 

“Considering that subsidy cuts would increase the cost of living and reduce the disposable incomes of citizens, the government is expected to continue providing some of its selective incentives targeted solely at the lower income group,” he said. 

Kaladher said he expects a mere 0.3% increase to RM250.4 billion in total budget allocation for 2014 on the back of a GDP growth of 5.2%. The budget deficit, he pointed out, will reduce to 3.5% of GDP against 4% in 2013. 

Eastspring Investment Bhd chief investment officer Yvonne Tan feels the budget will not bring much “excitement” to the equity market.

“Sin taxes and excise duties will most likely go up and perhaps some measures will be taken on the property side. I don’t think there will be much positive news on the property sector,” she said. 

“Of course there will be good news for civil servants and those who are eligible for the 1Malaysia People’s Aid [BR1M] scheme because it will help consumption. But then due to possible tax rises it may cause some inflationary pressure.” 

Tan also said she did not foresee cuts in corporate or income tax, which would probably be carried out in 2015 at the same time as the proposed GST. 

CIMB Investment Bank chief economist Lee Heng Guie said he expects Budget 2014 to increase the quantum of the payouts under BR1M to RM600 to RM700 (from RM500), as part of mitigating measures to ease the financial burden of households earning less than RM3,000 per month. 

“There is a high probability that the threshold household monthly income for BR1M eligibility will be raised to RM4,000 to RM5,000 from RM3,000, which will benefit 5.5 million to 6.2 million households.” 

This article first appeared in The Edge Financial Daily, on October 03, 2013.