Home / Business / Budget 2018 Is Inclusive And Well Balanced: Economists

Budget 2018 Is Inclusive And Well Balanced: Economists

via the sun daily : PETALING JAYA: Budget 2018 is inclusive and well balanced, covering broad-based society despite no big measures being announced, say economists, calling it a “good” budget.

“We’ve not seen anything for the M40 (middle 40) in the past two years, all this while the government has been taking care of B40 (bottom 40) through BR1M payment, but it is different this time around,” Hong Leong Investment Bank Research head Sia Ket Ee told SunBiz.

The key highlight in Budget 2018 is the 2 percentage point reduction in personal income tax for the middle-income group (M40), benefiting 2.3 million tax payers.

Despite foregoing tax revenue of RM1.5 billion as a result of the income tax cut, economists are not overly concerned about the impact on the government’s coffers.

Sia said there is more room for the government to raise its revenue collection in 2018 as the current projection is quite conservative, with the oil price assumption of around US$52 per barrel.
Instead, he said, the additional spending of RM1.5 billion will boost domestic demand and create a multiplier effect.

“Eventually, it will create more income for some corporates and it will come back to the government as the form of income,” he explained.

While the government has allocated higher expenditure of RM280.25 billion for 2018, Sunway University Business School Professor of Economics Dr Yeah Kim Leng said, it is unlikely to see a “supplementary budget” at a time when more spending would be incurred for the upcoming general election.

“Unless there is a plunge in oil prices to below US$40 per barrel, we believe the government will be able to meet the targeted GST collection,” he noted.

Yeah added that as the economy is improving, the government should be able to reduce spending.

Meanwhile, an economist who declined to be named said the government tends to table a supplementary budget whenever there is higher revenue for the particular year, leading to a deceleration in the pace of narrowing the budget deficit.

“They know the revenue is coming in higher, then they table the supplementary budget to take advantage of the higher revenue.”

RAM Ratings said the 2.8% fiscal deficit of gross domestic product (GDP) projection for 2018 is laudable and reflects the government’s commitment to meeting its near-balanced target by 2020. However, the rating agency noted that more significant fiscal measures will be required to attain this goal.

It also noted that the improvement of government’s fiscal revenue following the Goods and Services Tax (GST) implementation in 2015 has rendered Malaysia fiscal position more resilient against oil price shocks in recent years and is reflected in the expected 6.4% growth in fiscal revenue in 2018 against the estimated 6.1% growth in 2017.

With the fiscal deficit reduction, RAM Ratings expects the government’s debt level to come in at 50.2% of GDP in 2018 compared with 51.3% in 2017.

The rating agency pointed out that development expenditure has been relatively flat since 2013 and remains so under Budget 2018, despite the rollout of sizeable infrastructure projects in the last few years due to off-balance sheet financing. This has then translated into a heftier government-guaranteed debt load, from 11.8% of GDP in 2011 to 16.9% in Q2 2017.

“Over the long term, we envisage the level of contingent liabilities to increase at a measured pace amid continued roll out of infrastructure projects which are essential for Malaysia’s development,” RAM head of sovereign ratings Esther Lai said in a statement last Friday.

On the expected slower pace of economic growth of 5% to 5.5% for 2018 compared with 5.2% to 5.7% for 2017, Yeah said this is mainly due to the high base effect.

“This year we’re likely to hit higher growth, so there will be some high base effect. It’s just marginally lower and the key assumption here is continuing good performance of the global economy, which has an impact on our exports,” he noted.

Sia believes there will be no major downside risk to the Malaysian economic growth, given the resilient global growth and the recovery on the domestic front.

About Editorial Team

Check Also

Big data concept 3D illustration / In a digital world

Business Outcome Orientated Big Data Deployments

via information age : Big data’s been kicking around for a lot longer than most people …