On job prospects and disruptions caused by technology, the following thrusts are vital to ensure quality job creation, raise workforce adaptability, enhance inclusiveness and complementarity between local and foreign workers, and build fair and progressive workplaces.
WITH more flashing signs of less propitious global economic backdrop and the risk of a global recession is “high and rising” going into 2020, Malaysia’s real GDP growth is likely to decelerate to 4.5% in 2020 from an estimated 4.7% in 2019.
After making some sacrifice in Budget 2019, the nation is expecting a public cum business-friendly and pro-growth Budget 2020 against the backdrop of rising global recession risks, the trade tensions’ disruption on exports, lack of private investment especially domestic direct investment, income distress for B40 households, graduates’ unemployment and the lack of policy direction.
Focusing on the appropriate budgetary stance and being prepared to be more expansionary is especially crucial during rising global economic uncertainties. We advocate pragmatic fiscal policy, which focuses on economic stabilisation amid domestic challenges and global uncertainties. The budget must contain short-and medium-term strategic measures to provide a genuine counter-cyclical stimulus if the downside risks to the global economy do transpire.
The government should not be too fixated on achieving the targeted fiscal deficit while finding a balance in turbulent times. The budget must manage trade-offs between supporting domestic demand, protecting social spending, and ensuring the optimal mix of spending depending on sector-specific requirements.
The budget deficit for 2020 is estimated to be around 3.2% of GDP, a slight improvement from estimated 3.4% of GDP in 2019. Gross development expenditure is estimated to rise by 4.6% to RM56bil in 2020 (estimated RM53.5bil in 2019).
We expect the budget to balance priority and gives direction to the economy, focusing on high impact sectors, quick gains initiatives and measures that would protect growth-enhancing spending and investment. The key thrusts, which amongst others to strengthen economic resilience, sustain domestic spending and investment, save jobs, create jobs and help viable companies staying afloat. It also prepares Malaysia to emerge stronger and enhance our enterprise and worker capabilities and competitiveness for the long term.
A. Sectoral allocation
Allocate more budget for development expenditure, focusing on education, utilities, ports, healthcare, housing, digital infrastructure, tourism, industrial development and SMEs.
Smart and green technology projects and climate change, including flood mitigation, renewable energy, public infrastructure, airports upgrading and ports projects. Development of suburban nodes, roads and rail networks, drainage and sewerage networks, and public housing community, especially the low-cost flats and apartments rejuvenation.
Allocation for the maintenance and repairs, including renovation and restoration of government buildings and complexes.
Continuation of existing and potential new projects include LRT3, MRT2, highways, airport, power plants, Johor Baru-Singapore Rail Transit System Link (RTS), and Pan Borneo Highway Sabah. Some of the delayed implementation of 121 projects valued at RM13.93 billion earmarked for 2019 due to the adoption of open tender as well as implementation capacity constraint, will be carried forward into 2020 and beyond.
B. Jobs preservation and creation
On job prospects and disruptions caused by technology, the following thrusts are vital to ensure quality job creation, raise workforce adaptability, enhance inclusiveness and complementarity between local and foreign workers, and build fair and progressive workplaces.
Provide jobs credit for the training and employment of graduates and diploma students; skills upgrading program; and the freezing of foreign workers’ levy hikes in 2020 and also defer the implementation of a tiered foreign levy till 2021;
Establish a one-stop jobs bank and non-stop online marketplace that are user-friendly to provide better search functions for job seekers. The online marketplace is to be equipped with individual learning portfolio portal to upskill their capabilities;
Expand the channels of job-matching services through closer collaboration between academia, industry and private-sector employment agencies through focus on active job seekers, not passive job seekers;
Introduce the “Attach-Train-Employ” programme by giving some form of incentives and tax rebates to incentivize private sector in providing job opportunities for fresh graduates; and
Introduce New Enterprise incentive scheme to support eligible job seeker, who is interested in starting and running a small business, and will get practical small business training, business mentoring and financial assistance from the scheme.
C. Uplifting productivity and manpower development
Provide allocation for Skill and Productivity Enhancement through the revamping of Technical and Vocational Education and Training (TVET). Tax deductible training expenses should be given to private sector in manpower training and development, including a revamp of Human Resource Development Fund (HRDF);
Introduce various measures such as SkillsFuture and Workforce Skills Qualifications Fund to ensure that Malaysians remain employable in the face of automation and digital disruption; and
Introduce the skills for education and employment program for fresh graduates and college students to improve soft skill such as speaking, reading, writing or communication in the workplace.
D. Reinvigorate private investment
Private investment’s momentum had moderated from 12.1% pa in 2011-15 to 5.9% pa in 2016-18. Though private investment printed a higher growth of 1.8% yoy in 2Q19 (0.4% in 1Q), uncertainty surrounding global trade tensions and prevailing weaknesses in the broad property segment continued to weigh on the investment growth performance.
Approved domestic direct investment (DDI), which had declined by 8.8% per annum from RM175.1bil in 2014 to RM121.2bil in 2018, continued to contract by 29.6% to RM42.5bil in the first half-year of 2019.
Increase the grant for technology, industrial deepening and R&D as well as automation to facilitate SME in the adoption of IR 4.0;
Extend Reinvestment Allowance (RA) indefinitely from the current qualifying period of 15 years of assessment, focusing on companies investing in information, communication and technology (ICT), digital, high technology equipment and automation;
Enhance Accelerated Capital Allowance (ACA) for machinery and equipment;
A moratorium on hikes in foreign worker levy for next three years till 2021 to ease manpower cost of SMEs. In efforts to increase labour productivity and production efficiency, the levies should be ploughed back into a Designated Industrial Revolution/Adjustment Fund that provides financial support or technical assistance to firms to facilitate automation, mechanisation and technological development;
Enhancement of bank lending guarantee, especially to SMEs through enhancing existing schemes on risk-sharing initiative; and
Enhancing business cash-flow and cost of doing business via a rebate in quick rent and assessment for industrial and commercial properties, business fees and licences; road tax rebate for taxi, buses and lorries.
E. Enhancing domestic consumption
Supporting households, especially B40 and targeted vulnerable group via direct cash assistance;
Special cash assistance of RM500-RM1,000 for 1.6 million civil servants;
Review personal income tax rate so that the middle- and high-income earners do not hit the highest tax rate bracket so quickly. This is to reward productivity and boost consumption;
House rental payments to be given a personal tax relief of up to RM4,000 annually, mainly for M40 households. In the 2018 Budget, a 50% income tax exemption was given on rental income not exceeding RM2,000 per month for each residential home. This is to encourage landlords to reduce their rents but intrinsically rents are market driven based on the supply and demand;
Personal tax relief on tuition fees (primary & secondary) up to RM2,000 annually;
“Buy Malaysian Products” campaign;
Re-introduce tax relief for interest payments on housing loan up to RM10,000 per year. The interest relief is only entitled for one unit of residential property for owner-occupied and not renting out;
To increase lifestyle tax relief from RM2,500 to RM3,000 annually;
To revise personal tax relief from current RM9,000 to RM10,000. The last revision was in 2010; and
Increase the tax relief for EPF’s contribution and life insurance premium to RM6,000 each.
F. Easing property overhang pressure
The persistent overhang in residential and commercial properties require urgent attention and prompt policy intervention. Since 2012, growth of the construction sector had continued its downward trend, with the annual growth rate decelerating sharply to 4.2% in 2018 and 0.4% in the first half-year of 2019 from an average annual growth of 11.4% per annum in 2014-2018. Both residential and non-residential subsector had contracted in 2018 and in 1H 2019 amid the oversupply of residential and commercial properties.
In 2Q 2019, total overhang of residential properties remained high to increase by 12.3% y-o-y to 32,810 units valued at RM19.7 billion. For commercial properties, the number of overhangs increased by 25.5% from 4,361 units in 1Q 2018 to 5,472 units in 1Q 2019, with the value jumped 42.9% to RM4.5 billion from RM3.2 billion 1Q 2018.
Growth in Malaysia’s House Price Index (HPI) has slowed for six consecutive years, from 13.4% in 2012 to 3.1% in 2018 (6.5% in 2017). In 1Q 2019, house price index eased further to 1.3%.
With the construction sector supporting the growth of around 140 other downstream industries, a sustained weak growth would have ripple effects on the economy.
The government must be pragmatic and flexible, recalibrating the Real Property Gains Tax (RPGT) in times of lackluster property market condition against the backdrop of weakening economic and business environment.
Review the threshold for the foreign purchase of properties. Between 2012-2016, foreign purchases of properties only accounted for 0.3% (706 units) -1.0% (2,406 units) of total properties transacted;
Review of RPGT, including the abolishment of 5% RPGT on the disposal of property after the fifth year; and
Extend the National Home Ownership Campaign (HOC) until 31 December 2020, together with the stamp duty exemption.
Lee Heng Guie is the Socio-Economic Research Centre executive director. The views here are the writer’s own.
