Malaysia: Budget Preview–Election Budget Part Deux

This Friday’s budget for 2013 is unlikely to have the same wow factor as it did in the 2013 budget.  The primary focus of  Budget 2013 is likely to prime the ground ahead of the general elections that must be called the latest within two months of the government’s end of term in Apr 2013 (however, expectations is that the elections will be called before that).  This budget will be election-friendly with something for everyone.  It will attempt to convince the people of the government’s steady stewardship of the economy amid global uncertainties and its ability to share the fruits of economic growth with the people, especially with the lower income population.

With the elections looming, we could expect:

• another round of generous “give-aways” like cash handouts to low income households (up to RM500 for households with income of RM3,000/month or less), special bonuses to civil servants (another half to three-quarters month) and assistance to school children/university students and elderly, but this time under the guise of cost of living assistance;
  
• the postponement of the GST and its concomitant lowering of personal and corporate income taxes, but there could be an one-off income tax reliefs/deductions for both corporate and individuals to help ease costs of doing business/living on income earned, spousal/child support etc.;
  
• no further tightening of the property market like the increase in the Real Property Gains Tax (RPGT) last year but there could be more incentives and reliefs for first time home buyers as well as allocation of more land for affordable housing and other supply-side measures;
  
• business-friendly fiscal policies and incentives to help with the rising cost of doing business, to increase productivity and to raise competitiveness such as an emphasis on training and education, and also support for SMEs to help them in this uncertain environment;
  
• limited fiscal consolidation and more subsidy allocation instead to help with cost of living concerns with subsidies likely to come in around RM36 b in 2013 (up from the original 2012 budget allocation of RM33.2 b but a drop from 2012 likely total allocation of RM41.1 b).  We do not expect any cuts, particularly to fuel subsidies, or the resumption of the subsidy rationalization programme to take place until after the elections.
  
• a rise in sin taxes on alcohol and tobacco products to help boost the government’s financial coffers;
  
• a deficit of 4.3% of GDP for 2013, which is lower than 2012’s expected deficit of 4.7%, on the assumption the economy grows by 4.9% and despite the lack of significant progress on fiscal consolidation as gains are likely to come from continued efficient revenue collection.

Concerns about the budget deficit, and hence the public debt, would likely continue but fiscal consolidation is likely to take place only after the election is over.  Only then would we likely see tough decisions made, including cuts to subsidies (particularly fuel subsidy) and the introduction of the GST.

Source: OSK