BUDGET 2017 went according to script, at least following the hints that there would be a tight lid on spending. The announcement of the proposed budget at Parliament yesterday showed that spending was largely sticking to what was indicated, with the deficit forecast at 3% of gross domestic product (GDP) for 2017.
The Government did increase its operating and development expenditure to help support growth.
The higher spending was premised on higher Government revenue, which is forecast to rise by 3.4% to nearly RM218bil next year.
The growth forecast of between 4% and 5% for 2017 will be anchored on what domestic demand will deliver, which will be helped by a higher payment of the 1Malaysia People’s Aid or BR1M, which will hit RM6.8bil next year and benefit seven million Malaysians. With the budget touching so many segments of business and society, there were a few standouts that grabbed the attention of budget watchers.
There was an expectation that the Government would do something to help property developers. With so much literature on what that group of businessmen wanted the Government to do, Budget 2017 delivered for the disenfranchised segment of the property market – affordable housing.
The Government gave out money for the bottom 40 and to repair the People’s Housing Programme in urban and suburban areas.
Vacant government land will be provided to build affordable houses under the 1Malaysia People’s Housing Programme or PR1MA and by government-linked companies.
The second concept is to build houses that will be rented out to the youth at below market rates. That will allow the youth with jobs to save money for a downpayment for their own houses after five years of renting.
Furthermore, a complete exemption on stamp duty for first-time buyers of affordable houses of up to RM300,000 for the next two years will help, as buyers are the ones who will have to pay the stamp duty when they buy a house. As a chilling reminder, the Government increased the stamp duty by 1% on houses that cost more than RM1mil. While that is a small sum of money for people who can afford to buy a house costing more than RM1mil, it does serve as a reminder of the direction the Government is taking when it comes to housing.
That was emphasised when the budget spoke of an end-financing scheme for PR1MA houses where between 90% and 100% financing can be given with much reduced loan rejection rates.
In each budget, there has come to be somewhat an expectation of some measure for the capital markets. In the past, announcements of money being poured into Valuecap, a fund that is backed by the country’s largest Government funds, has sent the stock market rocketing upwards.
But this time, the focus is on the much neglected small and medium-cap stocks.
By investing RM3bil into a special fund that will invest in such stocks, it is hoped that the liquidity that will go into such counters will lift interest in that segment of the market.
But don’t expect the riff-raff stocks to start shooting up. Fund managers say with government-backed funds being invested in such companies in the stock market, only companies with a profitable track record, or at least with potential, will see buying interest.
The need to look at the under-invested segment of the market is important as it will breathe life into the performance of some deserving companies. For years, companies have lamented that regardless of how well they do, rarely do they find investor interest of note. Most of the large funds are prohibited from investing in small-cap and even some medium-cap stocks because of the limitations on market capitalisation and liquidity.
To churn interest in those stocks, the Capital Market Research Institute will be established with an initial funding of RM75mil, provided through the Capital Market Development Fund. The purpose is to conduct research on 300 small and mid-cap companies on the stock exchange. A similar scheme has existed but funding was an issue. With money now being channelled towards research of such companies, retailers and even fund managers might be able to unearth some gems among such stocks.
The budget’s proposals in dishing out money to the bottom 40 and government servants will boost consumption. The 1.6 million civil servants will benefit from increased loan limits for housing and motorcycles, along with a bonus payment of RM500. The higher BR1M payments amounting to RM7bil will help boost consumption.
But not only is BR1M about spending the cash on perishables. There was a proposal for recipients of the BR1M money to become ride-sharing drivers by using that money to make a down payment on a Proton Iriz. Those working part-time, especially the bottom 40, will be able to work part time and earn extra money, which will help to boost consumption and more importantly deal with cost of living pressure.
For the middle class, or the middle 40, they also benefit from tax relief if they buy goods and services from a number of categories, such as newspapers, smartphones, Internet subscription and a gym membership. This is above and beyond the amount of tax relief they can claim for buying a computer or books which will help lessen their tax bill.
By buying such goods and services, it will help those industries. The other good news is with broadband services. The speed will double and costs will be halved in two years and with the digital economy accounting for 16% of GDP and rising, not to mention the productivity gains digital services bring, that will be an incentive for more people to subscribe to faster broadband.
There was no broad-based cut in business income taxes but what the Government did was to incentivise businesses to earn more money. The more profits businesses make, the bigger the savings they will get. The tax rate discounts on a graduating scale, meaning the more chargeable income tax they are assessed, the bigger the savings they will receive. SMEs are also helped with a subsidy of 2% on interest rates charged for those under the Syarikat Jaminan Pembiayaan Perniagaan scheme to boost export-oriented SMEs.
The other new addition is the help the Government is giving to startups. A total of RM200mil in Government funding will be given specifically to startups to encourage more tech companies. To help with staffing, foreign knowledge workers will be entitled to a new category which will help bridge any talent shortfall.