THE government's economic package is expected to have positive impact on the economy in the short and long term.
This is because the package provides a more conducive fiscal and monetary environment for consumers and businesses, PUBLIC BANK BHD said in its Economic Review.
In the short term, the economic package will result in higher consumer spending arising from the direct income support measures which will increase households' disposable income.
These measures include the RM1.7bil direct spending by the government, a half-month bonus for civil servants, reduction in the workers' Employees Provident Fund contribution, a cut in the intervention rate, as well as tax and non-tax incentives for purchase of property.
The review said that the extent to which these measures would affect consumer spending depended partly on the size of the consumption multiplier of the economy.
It would also depend on the speed at which consumers would be spending their additional income.
The report also noted that while the economic package to boost the domestic economy in the short run would result in higher fiscal deficit, the government still continued to maintain a strong fiscal discipline.
The increased fiscal deficit, (which by our estimation will be around 4.7% of the gross domestic product) is not expected to weaken the economy and create fiscal difficulties in the long run.
In fact, the estimate indicates that the fiscal deficit for the current year is significantly lower than the 5.6% deficit in 2002, it said.
The report said the impact of the economic package on private investment and business activity would come mainly from two major sources.
It said the first source was through greater consumer spending which would translate into higher industrial production and thus business spending, particularly by domestic-oriented industries.
The second source was through the investment promoting measures, it said.
This include the additional funds allocated for small and medium-scale enterprises (SMEs) through Bank Negara funds, loan programmes (including micro credit schemes) by the Development Financial Institutions and the liberal conditions for tax incentives for small companies.
Under this package, viable SMEs will continue to have access to capital and enjoy better incentives.
The report said that in addition to the greater accessibility to credit, business spending was expected to increase due to the lower interest rates and the tax incentives provided in the package.
It said that beyond the short-term considerations, the economic package emphasised on measures to attract domestic and foreign investments, encourage growth in new industries as well as improve the country's competitiveness. Bernama
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