CONSIDERED as largely neutral, the 2016 “Robin Hood” budget is likely to see the construction sector as the main beneficiary on the stock market.
Continued investments in projects such as the Refinery and Petrochemicals Integrated Development (Rapid) in Pengerang, Johor, the Pan Borneo Highway, mass rapid transit 2 (MRT2), light rail transit 3 (LRT3) and flood mitigation will provide a further boost.
In construction, projects at Rapid are likely to benefit oil and gas maintenance sector; companies with existing projects such as Muhibbah as the main and not sub-contractor is likely to get more projects, Ho Hup with potentially more construction jobs and Dialog which already has Phase One projects at Pengerang, is likely to see more shipments for the uploading and downloading of oil for storage, said Danny Wong, chief executive officer at Areca Capital.
Increased investments at Pengerang are also likely to attract more operators to conduct business there.
More details are awaited on how construction contracts will be given out. Consortiums that are awarded contracts will usually give these contracts to project delivery partners, many of which are listed companies, said Wong.
“We are neutral but one thing for sure is the construction pie is increasing where big companies like Gamuda, IJM, WCT and Sunway Construction are the expected beneficiaries,’’ said Vincent Khoo, head of research at UOBKayhian.
In east Malaysia, the construction of the Pan Borneo Highway is likely to benefit Hock Seng Lee and west Malaysian construction companies as there is not enough capacity among present players there, added Khoo.
Meanwhile, Telekom Malaysia is likely to be entrusted to improve broadband speed while in technology and education, the potential beneficiaries are the advanced technology providers, said Wong.
The lifting of the minimum wage will have a bit of negative impact. In the case of labour intensive sectors such as in upstream plantations, the setting of a minimum wage of RM1,000 may be mitigated by a cut in corporate tax next year.
“But those who earn slightly above RM1,000 may also ask for higher wages. We need to know how much of labour cost is involved for those earning around RM1,000?” said Wong.
The increase in minimum wage is likely to have an impact of 2% on auto companies, and 5%-7% on plantation companies. However, in the case of plantations, this is offset by rising crude palm oil prices, said Khoo.
Glove manufacturers may also be impacted but they are expected to pass on the costs.
Will there be any impact on the ringgit?
“The expected reduction in the current account balance to 1% of gross domestic product (GDP) in 2016 does not augur well for the ringgit. The 65% decline in petroleum income tax expected for this year will raise concerns among investors as they assess its possible impact on the Government’s financial position,” said Nor Zahidi Alias, associate director and chief economist at Malaysian Rating Corp.
However, the negative sentiment on the ringgit will be partially mitigated as goods and services tax (GST) revenue will be more than double the amount of sales and service tax in previous years, thus easing the pressure on government coffers and making it possible for the deficit target to be achieved, especially if nominal GDP growth remains respectable, added Zahidi.
Hor Kwok Wai, chief operating officer, global markets at Hong Leong Bank, is positive on the ringgit.
“The current account remains in the surplus and the fiscal deficit continues to be reduced although it is slightly slower than expected. That is to ensure that growth targets are met and with inflation at 2%-3%, interest rates are likely to remain steady next year,” said Hor.
GST proceeds is very encouraging and augurs well for future fiscal deficit management.
There should be continued improvement in the sentiment for the ringgit from the Budget as well as further stimulus from Europe and China, said Hor.
In an earlier column, various views had surfaced on the notion of taxing the rich instead of raising the GST rate, should the Government require more revenue.
Tan Eng Yew, executive director, country leader for GST (tax) at Deloitte Malaysia, had said there was a need to rebalance the sources of taxation – between income tax, GST and other taxes.
There is a view that wealth is also derived from investments in high-yielding asset classes such as stocks, bonds, real estate and properties.
On the move to tax the rich, Tan said: “This seems to be a more targeted way of collecting revenue. If the Government was to increase the GST rate, it would increase the overall cost of living and inflation.”
Dr Veerinderjit Singh, chairman at Taxand Malaysia, had opined that it may deter investments as expatriates having high income jobs here would be affected.
“Of course, if we have the investments we need and other attractions such as improved connectivity and good education, then the tax rate may not be a focus,’’ he had said.
On the present move, he said: “This appears to be a balancing act to offset the increase in personal reliefs which will result in loss of personal tax revenue.
“This can be a problem as the trend is that rates are going down and here, without any hesitation, we have raised the tax rate. Is that a sign that increase in tax rates can happen anytime?’’ he asked.
Of course, the pros and cons will affect a small segment of individuals but Dr Veerinderjit views it as not being a good precedent.
Columnist Yap Leng Kuen reckons the Government could seek out more taxpayers as tax-to-GDP ratio is still low.