StarBiz talked to various people in many sectors to get their views on Budget 2006. Some of their comments.
Amcham said in a statement the policies and incentives, especially relating to increased support for human resource training and skills development, were important to Malaysia, and would help make the country more competitive in the future.
Some key areas in the budget that were vital to help Malaysia become more competitive on the global front and to attract foreign investors were the emphasis on strengthening the capabilities of SMEs and SMIs, improving quality, efficiency and responsiveness of public services and government's delivery system in recent years, and continued focus to ensure that American and other foreign direct investment continue to grow in 2006 and beyond.
It said the measures allowing pioneer losses to be carried forward was positive and would make the incentive more attractive to investors.
Tan Sri Teh Hong Piow Chairman Public Bank Bhd
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Tan Sri Teh Hong Piow |
Budget 2006 will continue to support the banking industry. As the economy continues to turn in positive growth, the overall level of credit risk in Malaysia will remain low. At the same time, consumer and business balance sheets will continue to remain healthy.
Unemployment is expected to remain low as well. This, in turn, will help the banking industry to grow its loan base, particularly to households and SMEs, and manage its asset quality. We expect the industry’s loan growth is likely to sustain next year.
Any pressure on asset quality due to higher consumer prices will be mitigated by the positive economic growth. On the whole, the industry looks forward to a better performance next year in terms of higher profitability and higher asset quality.
On the GDP growth outlook, a 5.5% projection for 2006 is realistic. This GDP growth is still a very respectable performance, given that the economic fundamentals such as national savings and current account of the balance of payments are intact.
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Tan Sri Azman Hashim |
Tan Sri Azman HashimAssociation of Merchant Banks in Malaysia
We would like to thank the Government for its decision to encourage mergers and acquisitions (M&As) by exempting stamp duty and real property gain tax on companies listed on Bursa Malaysia. We note that the government has proposed to extend the group relief to be provided to all locally incorporated resident companies. Group relief allows losses of a company to be deducted against the income of another company within the same group.
We also take note of the government’s move to undertake proactive measures to develop the rural economy and elevate the standard of living of the poor in the less developed areas. This, we believe, is the first step in achieving the overall socio-economic objective of enhancing the well-being and quality of life of Malaysians.
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Datuk Amirsham A. Aziz |
Datuk Amirsham A Aziz President and CEO Malayan Banking Bhd
There is a strong message that the government is prepared to play a greater role in maintaining the current momentum in economic growth. The proposed 5% increase in government expenditure should be viewed positively by the market.
While this move will help relieve the present over-dependence on private consumption, the government remains committed to reducing the budget deficit. During the first half of this year, private consumption as a percentage of GDP already reached 50% compared with an average of 46% during the last four years. I believe we are on the right track in ensuring sustainable growth in the medium-term.
Recognising greater uncertainty in the overall business environment and rising cost of doing business, we are pleased the government has granted various incentives and tax relief, not only to strengthen the traditional sectors such as construction, but more importantly, to create new growth drivers, in particular the bio-technology industry
Morten Lundal CEO DiGi Telecommunications Sdn Bhd
THE Government is clearly presenting a budget that reflects its consistency in its commitment to make Malaysia an investment centre and create an environment for businesses to flourish.
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Morten Lundal |
We are encouraged by the continued emphasis on skills development and technical expertise.
The RM1bil allocation for trade and industrial training will help provide a ready pool of knowledge-based workforce capable of taking on new challenges in a global environment. It will certainly sharpen Malaysia’s competitive advantage.
DiGi is very focused on delivering value-added services dedicated to SMEs and we are excited by the proposal for the SME Bank to set up a RM1bil capital venture fund. It offers new opportunities for SMEs to realise their full potential.
Piyush Gupta Citibank Bhd CEO and Citigroup Country Officer
ON the whole, the Government has again demonstrated its fiscal responsibility by refusing to turn on the spigots of deficit spending.
The cost of living allowance and bonuses for government servants seem quite reasonable and, along with other measures, seem designed to help those who are most feeling the pinch from the recent run-up in prices.
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Piyush Gupta |
Those looking for fiscal goodies were probably disappointed. But again, the measures were modest, well balanced and looked more towards increasing efficiency.
On that note, the relief granted to companies in estimating provisional tax liabilities was undoubtedly good news. The SME Bank also is a welcome development and will serve as a useful partner with banks in efforts to develop the Malaysian SME and middle market.
It is also good that mergers are encouraged with tax rebates, like stamp duty and real property gains tax being abolished up to end 2007, to strengthen the capital market. The Government is also being responsive to the private sector demand for a more efficient investment climate, with prospectuses submitted to the SC should now be able to go out to the public after 14 days.
Rajah Kumar Chairman & CEO Philips Malaysia
BUDGET 2006 is a caring and purposeful budget, with the main thrust being the enhancement of government efficiency that should result in a lower cost of doing business and encouraging investment. It has also taken into consideration the rise in the oil price, possible inflation, higher interest rates and expected economical growth of over 5% for next year. Measures are in place to support activities that will strengthen national resilience and encourage a business friendly environment.
Because of global economic challenges, the budget encourages the private sector to play a more vigorous role and stay resilient, as well as supports public spending at targeted specific areas for long-term resilience and competitiveness.
For Philips Malaysia, the budget places the private sector as the key driver of growth and the public sector to play support. In our pre-budget wish list, we had indicated the importance of boosting medical tourism in the country and are pleased that the budget addresses this with incentives for knowledge workers, and further enhancing health equipment and facilities, and developing private hospitals to be internationally recognised.
The focus on education will also be helpful for Philips as we are looking at improving the lifestyles of consumers in the areas of healthcare, lifestyle and technology and this requires highly educated and skilled employees who work hard, are innovative, proactive and creative.
Datuk Ahmad Pardas Senin Managing Director/CEO UEM Group
OVERALL, the budget remains business- and rakyat-friendly, and continues to build on last year’s plan of accelerating economic growth via soft infrastructure development and agriculture.
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Datuk Ahmad Pardas Senin |
As a key partner in nation building, we will continue to support the Government’s commitment to narrow the income gap by participating in rural infrastructure development.
Increased allocation of funds for education and the creation of the Management Leadership and Directors Academy support our current human capital development initiatives.
Stamp duty and Real Property Gains Tax exemptions and the removal of S.132G will encourage business growth and expansion via mergers and acquisitions.
The introduction of group relief will encourage innovation and investment, while the lifting of the restriction on deduction of holding company expenses will benefit UEM Group.
The emphasis on maintenance culture is very much in line with ours. Further investment incentives granted to Integrated Building Systems will help sustain early initiatives set forth in the last budget.
Datuk Tay Ah Lek Chairman Association of Finance Companies of Malaysia (AFCM)
WE are very pleased that the Government will continue to reduce the financial burden of the general population due to higher inflation. While modest inflation is neutral to economic growth, high inflation could hurt private consumption, private investment and thus economic growth even in the short term. High inflation will also result in resource misallocation and lower standard of living.
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Datuk Tay Ah Lek |
Another creative aspect of this budget is that it will produce a positive crowding-in effect in the economy. We do not foresee any risk of a crowding-out effect of private investment.
In an environment in which interest rates are expected to remain low and stable, we expect high government expenditure will raise household income and spending, and this will stimulate production of consumer goods and services.
This, in turn, will induce businesses to raise their investment spending. All these activities will create a virtuous cycle for the economy to sustain its growth.
Despite the expected deficit, the Government’s financial position remains strong. The ratio of the government’s debt to GDP is expected to increase marginally from 48.9% in 2005. As a large portion of the government debt is in ringgit, the Government has a minimum exposure to global exchange rate and interest rate risks.
Also, the percentage of debt service charges of total government operating expenditure is expected to fall to 12.6% in 2006. Based on this, the Government still has room for fiscal manoeuvre if the economy grows slower than expected next year.
Datuk Dr Sheikh Awab Sheikh Abod President/Chief Executive Officer Affin Merchant Bank Bhd
OVERALL, Budget 2006 is a very pragmatic and encouraging package of measures, clearly destined to further invigorate the business climate and address the concern of SMIs.
We welcome the exemption of stamp duty and real property gains tax for merger involving PLCs.
This will spur consolidation and strategic alliances to improve on the corporate sector's competitiveness.
We support the measures to improve our capital market through further liberalisation, especially the role of the Securities Commission in expediting and simplifying approvals.
We are confident that the new Malaysian Life Sciences' RM100mil capital fund will boost bio-tech companies and provide fresh impetus for more technology listings on Bursa Malaysia.
Tan Sri Ramon Navaratnam Chairman Asian Strategy & Leadership Institute Policy Centre
BUDGET 2006 can be considered a well-balanced budget – it has managed to strike a balance between reducing the budget deficit as well as encouraging economic expansion.
The budget is on the right track by focusing on water, energy and anti-poverty measures.
However, the Government's aim to eradicate poverty could be emphasised more strongly by increasing the RM700mil allocation for its programmes.
Kamarudin Meranun Executive Director AirAsia Bhd
The Budget addresses government financial requirements and simultaneously puts in place long-term measures to mitigate the effects of rising oil prices and increasing inflationary pressures as well as creating a conducive environment to attract further investments.
The promotion of health tourism and the incentives given to SMEs augurs well for the aviation industry in general, and for low-cost carriers. The nature of AirAsia’s business and extensive route network in the region makes it a lot more affordable and convenient for people to travel to Malaysia to seek healthcare, and at the same time assist SMEs in cutting their operation costs and enjoying savings through cheaper travel with AirAsia.
Sullivan O’Carroll Managing Director Nestlé (M) Bhd
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Sullivan O’Carroll |
We welcome the Budget measures, which are aimed at accelerating economic activities, providing a more business-friendly environment, developing human capital and enhancing the well-being and quality of life of Malaysians.
The proactive measures are aimed at accelerating economic growth and we welcome the tax incentives aimed at increasing the nation’s competitiveness while encouraging more investments, as this will directly impact on companies such as Nestlé, which uses Malaysia as a base for the production of food and beverage products for the export market.
We are particularly encouraged by the move to boost the halal food industry, and believe that we are in a position to provide the technological expertise and know-how to help the relevant government agencies tasked with this.
Nestlé is in a position to share its expertise in the area of food safety and quality control and looks forward to establishing new synergies with the Health Ministry, in addition to providing additional mentoring services to local food exporters.
We look forward to a good year in 2006 with renewed growth and a higher GDP of 5.5% stepping up the pace of private consumer spending. With higher disposable incomes and changing demographics setting the tone for the food sector in Malaysia, companies like Nestlé are well poised to take advantage of these new opportunities.
Datuk Frank Steinleitner President and CEODaimlerChrysler Malaysia Sdn Bhd
Budget 2006 is a vital government effort to further stimulate and strengthen the country’s economic growth. Due to the high fuel prices, we appreciate in particular the move towards enhancing environmental quality and diversifying energy sources. The reduction of road tax for diesel vehicles will help to improve energy efficiency by encouraging more people to consider alternative energy for transportation.
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Datuk Frank Steinleitner |
DaimlerChrysler has launched numerous diesel models, natural gas cars and buses i.e. the newly introduced Mercedes-Benz E200 NGT. One of the best examples for energy efficiency is our smart car that consumes less than five litres per 100km.
Budget 2006 will also contribute to the sustainable development of the automotive sector and facilitate the continuous growth of car sales with the expected improved economy. We are confident that Malaysia’s strong macro-economic framework and cost competitiveness will continue to offer attractive investment opportunities and high returns for foreign investors.
Our activities and investment in Malaysia support the development of Malaysian automotive industry in terms of technological development, logistic, system providers, training, local content suppliers, etc. The Mercedes-Benz assembly facility also provides great opportunity to the local workforce to be exposed to the high-tech machineries and innovations.
The positive outlook of the budget will provide a very good base for our future expansion and investment plan in Malaysia. We are currently finalising our new investment plan for the assembly of our top model, the new Mercedes-Benz S-Class and introduction of other brands.
Datuk Sabri Ahmad Group Chief ExecutiveGolden Hope Plantations Bhd
The additional allocation of RM400mil under the Budget to finance government-linked companies venturing into other agriculture sectors besides their core activities is a move in the right direction.
With the additional funds, more companies will be motivated to participate effectively to ensure the success of the National Agriculture Plan.
Datuk L. Meyyappan CEO MCIS ZURICH Insurance
It is pleasant to note that the national bond market has increased almost three-fold from RM137bil in 1997 to RM363bil in 2004, with corporate bonds constituting 51% of the total.
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Datuk L. Meyyappan |
While the bond market has increased, trading in the bond market is not very active. Most of the corporate buyers of the bonds tend to acquire the bonds and lock it up to maturity. The intention to create a secondary market for the bonds has not met the objective fully.
To fulfil the Government's vision to have a vibrant capital market, the regulatory authorities responsible for the bond market should consider the following measures:
Opening the bond market to retail investors will offer retail investors another source of investing for the long term.
Michael Auyeung Director and CEO Pacific Mutual Fund Bhd
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Michael Auyeung |
Measures in the budget seek to broaden participation in what had otherwise been a very concentrated equities market. By creating incentives and tax breaks for mergers and acquisitions (M&A), and allowing for easier reorganisation of assets, the Budget is creating a conducive backdrop for M&A activities.
Hopefully, this to a certain extent creates interest in the neglected second liners in the stock market, a number of which need rescuing or are trading at discounts to net tangible asset (NTA).
This could lead to better retail participation and improved volume for the market overall. The valuations of smaller cap companies may rise on better institutional interest and value investing may yet make a comeback. Capital market intermediaries would benefit, especially if corporate bond issuances also rise to take advantage of accelerated tax deductions and the current low interest rate environment.
The (anticipated) adjustment of electricity tariffs is seen as a watershed of sorts in the GLC restructuring effort and will be closely monitored for the “when” and the quantum.
The sin taxes on alcohol and tobacco have been anticipated and are becoming somewhat repetitious year in, year out, while hope for a better REIT tax structure for investors did not materialise.
Development expenditure will rise, so that may be good for the construction and building materials companies.
Chin Kwai Fatt Managing director PricewaterhouseCoopers
Budget 2006 has been crafted to address the economic challenges of rising oil prices, higher rate of inflation and a general slowdown in global economic growth by providing a business friendly environment, accelerating economic activities, developing human capital and enhancing the quality of life of Malaysians.
Corporate Malaysia needs to be more competitive. Thus, it is not surprising that measures have been taken to create a business friendly environment to encourage entrepreneurship, risk taking and good governance.
Shayne Nelson CEO Standard Chartered Bank Malaysia Bhd
Budget 2006 is a fiscally responsible one with the reduction of the deficit of 3.8% of GDP to 3.5%. Further to this, there is a lot of good work done in terms of human capital in subsidies, and in incentives.
It is overall a very good document outlining a prudent budget given the economic reality of Malaysia.
The budget sets in the right direction with measures that fit together as a good plan in support of the growth in the Malaysian economy.
Datuk Leong Hoy Kum President and group chief executive Mah Sing Group Bhd
The budget was a fine balancing act to steer the economy through these challenging times without derailing growth. It had to deal with a host of challenges that have arisen in both the domestic and global environment due to high oil prices and weak stock market sentiment.
In exercising fiscal prudence, the government is reining in its spending as it strives to reduce its budget deficit from 3.8% in 2005 to 3.5% in 2006.
Zarir J Cama Deputy Chairman and CEO HSBC Bank Malaysia Bhd
Incentives to make the ICT sector more attractive will certainly project Malaysia as an attractive place for investors. Visas will now be made more obtainable, making Malaysia a more friendly place for ICT and financial services. In terms of group relief, this will make it more attractive for companies to invest domestically and place Malaysia on equal footing with those countries offering similar benefits.
Tan Sri Mohd Saleh Sulong Chairman DRB-HICOM Group
We welcome the tax incentives aimed at increasing the nation’s competitiveness while encouraging more investments.
Steps taken to encourage mergers and acquisitions are also very positive as these will help the process of consolidation and capitalisation; resulting in companies boosting competitiveness, accelerating growth, reducing duplication.
The amount allocated to pump-prime the economy is expected to see resurgence in the key sectors, particularly that of the property and construction. We anticipate the measures would have a direct and positive impact on our business.
We expect an overall improved level of demand as a result of the higher disposable income of civil servants.
Datuk Azman Mokhtar Managing director Khazanah Nasional Bhd
We believe there are potentially great gains to be made in efficiency and better equity and distribution in the agriculture sector and we look forward to participating through the investment in and setting up of an agricultural and food corporation (AFC).
AFC will concentrate on commercial and commercialisation aspects of the agricultural sector, especially in the supply chain management aspects and we will do this in consultation with the policy makers and planners in the Agriculture Ministry and various agencies.
The setting of faster corporate restructuring through mergers and acquisition tax incentives, group tax relief, the scrapping of S.132(g), greater enforcement powers to the Securities Commission to make our companies more competitive was very timely. We welcome the move, as it would assist our GLC transformation programme.
We aim to do our bit by helping to drive and facilitate with our companies on the training of unemployed graduates. This programme is most effective when driven by the industries themselves.
Gan Kim Khoon Executive Director and Research Head AmResearch Sdn Bhd
THE budget is very good in terms of new incentives and tax relief for the corporate sector, as they address most of the issues that companies have been pressing for.
It is one of the better budgets in recent years. There are goodies all around, especially for businesses, such as incentives to encourage property developers to build more low-cost houses, group relief and tax treatment on losses, and unabsorbed capital allowances.
The group tax relief, for example, would mean lower tax liabilities and this would increase earnings for companies. For individuals, on the other hand, the budget may be a slight disappointment since there are few new areas of relief.
Dr Yeah Kim Leng Chief Economist RAM Consultancy Services Sdn Bhd
THERE were no major surprises in the budget.
The gradual approach of fiscal consolidation is maintained and this will ensure the continuity of foreign investor confidence.
The Government's GDP forecast for next year is within our estimated level.
Our projected growth is 6% on expectation that the global economy growth would maintain at the current level.
Although oil prices are a concern, we don't expect prices to remain at the present high level, based on the global push for alternative energy.
Chie K. Ngu Head of Research TA Securities Holdings Bhd
THE budget is reasonable and it goes to show that we are in a transition period with more focus on human capital, and emphasis on education and training. The country, being a net exporter, has benefited from the higher crude oil prices and is able to spend more.
The introduction of group relief is likely to result in higher revenue for companies due to the lower tax rate, but I don't see companies' earnings to be boosted significantly.
While the incentive for M&As is positive, it doesn't mean companies will look at acquisition specifically. They would have to find a suitable candidate that would create synergy and complement their businesses.
Saifuddin Morat Economist Mayban Securities Sdn Bhd
THE market could see more mergers and acquisitions, following the Government's initiative to exempt stamp duty and real property gains tax.
The increase in excise duties for sin sectors like liquor and tobacco was within expectations. However, the impact on cigarette prices remains unseen as higher excise duty could be partially offset by the reduction in sales tax.
The Government's projection of 5.5% GDP growth next year could be achievable, but external factors like the state of the US economy and escalating oil prices could provide potential downside risks.
Wee Kim Hong Head of Research SJ Securities Sdn Bhd
THE more interesting part of the budget would be the incentive to spur M&A activities. The banking sector is expected to benefit the most compared with other industries. This provides a direction as to where the banking sector is heading, and hopefully this will spur the stock market.
Higher taxes on sin sectors are going to hurt the companies' bottom line although they are likely to pass on the increased cost to consumers.
The GDP growth estimate for this year is realistic, but the forecast for next year may be too optimistic, based on the current level of oil prices.
Wong Chee Seng Chief Economist ECM Libra
AFTER reducing spending over the last three years, next year's budget is expansionary. This includes the generous remuneration package for civil servants such as bonuses and incentive allowances.
The agricultural sector, being one of the new engines of growth, could benefit from the incentives for M&As.
On higher taxes for sin sectors, I am sure tobacco company like BAT (British American Tobacco) is prepared for it. We are likely to see another round of price war as companies would have to gain more market share to survive and the best way to do so would be via a price war.
The Government's estimate of 5.5% growth next year reflects the positive growth momentum although it may be underestimating the strength of exports, which we believe could drive expansion higher. Our GDP forecast is 6.4% for 2006.
Tengku Zafrul Tengku Aziz Managing Director Avenue Capital Bhd
Overall, the budget is within our house's expectations. On the capital market side, we believe that the stamp duty and real property gain tax exemption for listed companies undertaking merger and acquisition (M&A) activities should spur more M&As, especially transactions involving property-related assets.
Also, the Government's decision to abolish Section 132G will definitely allow companies more flexibility to undertake M&As.
It is also in line with the industry's call and this is good timing, given that there are enough adequate measures (checks and balances) to “control” transactions involving shareholders and directors.
In short, we view these two measures positively as they will facilitate the expeditious implementation of M&A activities in the country.
This should be good for the market as it will hopefully bring more interest into our capital market, and, with the stronger GDP growth projected for 2006 at 5.5% versus 5% for 2005, it could be a signal for positive earnings momentum ahead for corporates; and perhaps providing us with the fundamental catalyst for re-rating of our stock market.
The tax incentive for the development and introduction of new courses will encourage our institutions such as UNITAR and AKAL to diversify course offerings and will decrease our cost of doing business. – KUB (M) Bhd CEO Izham Yusoff
Corporate America has been practising this for years resulting many global corporate giants are from the US and they are able to compete globally, efficiently and effectively. – Supermax Corp Bhd group managing director Datuk Stanley Thai
Therefore, we laud the Government’s efforts for making it more convenient for the public to interact with key Government agencies by facilitating the use of e-payment transactions, thus moving towards a more cashless society. - MBF Cards (M’sia) Sdn Bhd President John Ding
The PM “walks” and “talks” about agriculture and plantation.
This is very encouraging for the industry.
Overall, the budget is consistent and a good follow-up to the previous years.
The budget was meticulously planned and all levels of society were given due attention. – Malaysian Palm Oil Association Chief Executive Azizi Meor Ngah
For the full text of the Budget 2006 speech to Parliament click here.
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