An election-centric budget. With the 13th
General Election (GE) most likely to be
held within the next seven months or less it is expected to focus on winning
public support by helping lower income earners and small businesses cope with
the rising cost of living and global economic uncertainties.
Reality bites. Cognizant that the challenges faced by the economy
this year may continue in 2013, the government would continue to prime up
domestic demand to stimulate growth. More importantly managing growth
expectation is crucial to uphold confidence especially ahead of the GE.
But too high a growth projection may
deem to be unrealistic in an environment of economic uncertainty. Hence, we
expect the government to pare down its ideal 6.0% or higher GDP growth
target.
Managing fiscal balance. The need to adopt fiscal prudence would
put a damper on development spending due to potentially lower revenues from key
economic sectors like oil & gas, plantation and electronics manufacturing.
Hence, we expect the proposed allocation
for development expenditure to be capped
at RM50b for 2013 from an estimated RM52b this year.Nonetheless, the amount
remains large as the Government is expected to announce the remaining projects
under the Economic Transformation Programme (ETP); MRT, Wawasan Tower, KL-SG
high speed train, etc.
Easing fiscal pressure. Efforts to cap
development spending, savings from on-going subsidy rationalization, a more
effective tax collection, and prudent debt management may ease Malaysia’s
fiscal strain going forward. Hence, the fiscal deficit is projected to narrow
to about 4.3% of GDP in 2013 from an estimated 4.9% in 2012.
Managing rising cost of living. A second cash handout to poor
households is expected to be among the budget goodies to win the hearts of
voters ahead of the GE. While we believe there is still room to cut individual
income tax the next best option is to raise personal tax relief. In view of
rising property prices focus would be on home affordability for low income
earners. To reign on rising property prices, a hike on the RPGT is a possibility. The Government may also
introduce a national health insurance scheme to help low income earners afford
comprehensive medical care.
Squeezing the sinners. As the avenue for higher tax collection to
fill up its coffers appears to be limited and the need to win support from
conservative voters, the Government may extract additional revenue from the
“sin” sectors. The brewers have a higher probability to be the prime target
compared to tobacco or gaming as they have been spared for the past seven
years.
Reduce car prices = ↑
disposable income = ↑
public support. Though we do not
think the Government would budge on its National
Automotive Policy a move to reduce car prices starting with a gradual reduction
of its tariff and tax structure would be a major plus point to win votes. Once
the GST is implemented reduction in taxes are more feasible and cheaper cars a
reality. Full exemption of import and excise duty on hybrid or full electric
cars may likely be extended.
Source: Kenanga
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