While economic projections came within expectations, especially with respect to the budget deficit target of 3.2% and development expenditure of RM56bil, the projected revenue and expenditure were off by 4% each as they came in higher than expected.
Nevertheless, the projected current balance of RM3.5bil was just slightly above the forecast RM3bil.
The Budget 2020 tabled last week is looking at economic growth of 4.8%, which is within the expected range of between 4.5% and 5%. It will be challenging, given the expected growth is to be mainly driven by private consumption, smaller contraction in public investment and but dragged by a drop in net exports as imports growth is expected to surpass exports next year. On the supply side, the significant contribution from the construction sector growth is not a surprise given some of the mega projects will likely kick off next year, while the services sector too is expected to be sustained at more than 6% growth.
Budget 2020 had several hits and misses. While it raised minimum wage to RM1,200, it is still short of the RM1,500 target.
At the same time the call to widen the tax revenue base was not fulfilled. The introduction of a new tax bracket of 30% for high income earners of above RM2mil a year is insufficient as it is only an incremental increase of two percentage points. The Finance Minister failed to introduce, or at least prepare Malaysians, to accept new taxes, especially Inheritance Tax and Capital Gains Tax.
The property market got a major boost with the lowering of the threshold price to RM600,000 from RM1mil for completed high rise condominiums and apartments that can be sold to foreign buyers beginning next year for a period of one year.
Hopefully, this would help developers sitting on these types of properties and to clear the existing overhang in the market. In addition, the Rent-To-Own scheme is good for first-time home buyers while the change in the base year for the purposes of Real Property Gains Tax (RPGT) to the year 2013 from 2000 is a welcome relief, although still not widely accepted. For administrative purposes, it is always better to calculate RPGT to the year the property is purchased and not any base year as valuation of a property at a given point of time in history is very subjective.
Budget 2020 was a positive surprise for those in the technology and in the electrical and electronics (E&E) sector while the sin sectors were obviously sparred this time around, with the exception of a reduction in special draws for the number forecasting operators (NFO). The proposed merger of the four Development Financial Institutions (DFI) was another surprise and hopefully when that is done, the merged entity will be the next mega IPO to be listed on Bursa Malaysia.
For the environment as well as to promote green initiatives, the proposals made under the Budget are indeed welcome and could spur renewal energy further. With the target to achieve 20% of energy production by 2025, the introduction of a 70% income tax exemption of up to 10 years to companies undertaking solar leasing activities could spur higher demand among consumers.
But this could only happen if prices of solar panels became more attractive and the cost savings from the income tax reliefs are actually passed on to consumers. The problem among consumers is the upfront cost of putting up solar panels on their roofs as it can be as high as almost RM4,000 per KW peak or kWp.
Malaysia is also expected to see an accelerated pace of investments flowing into the country as the government’s move to establish a special channel via InvestKL to attract investments from China is seen positive. Despite a temporary truce to the US-China trade war over the weekend, nothing is certain just yet as to how the trade tariffs will pan out over the next few weeks. Placing Malaysia as a destination of choice for foreign direct investments is crucial as it signals our readiness in attracting long term investments which can create job opportunities and generate economic expansion. The setting up of the National Committee on Investment (NCI) is also a step in the right direction to spur and expedite inward investment activities.
The Budget 2020 was indeed a comprehensive document covering all Malaysians and indeed what better way than to focus on two main critical issues – cost of living and jobs.
The budget did not fail in this aspect as there were various incentives to address cost of living issues, including the newly introduced fuel subsidy mechanism, a free RM30 e-wallet deposit into accounts of entitled persons and last but not least, a 18% reduction for PLUS highway users effective New Year’s Day next year.
The toll issue has dragged on for far too long and with the tabling of the Budget 2020, we are now seeing some light at the end of the tunnel. When the Minister highlighted that the 18% reduction in toll translates to about RM1.13bil, it seems to suggest that the current shareholders of PLUS, the EPF and Khazanah, are likely to forgo any future dividends with the reduction.
With the commitment from the government that extension period for toll concessionaires is not going to be extended, it is likely the two or three proposals that are siting on the desk of the Minister or the Prime Minister will continue to collect dust.
Their proposals, while entailing even larger discounts than that proposed by the Minister, lack the commitment to end tolling in 2038. Hence, it is likely that their proposals are not going to see the light of day. Given the unspoken line, it is now likely that either Khazanah or the EPF to take the lead to buy out one or the other. Logically, as the ability to pay dividends to shareholders has now be diminished, it would make sense for Khazanah to acquire the 49% not already owned from EPF.
All in, the Budget 2020 was a comprehensive document towards the government’s new mantra towards Shared Prosperity Vision 2030. It was, for once, a budget for the people and inclusive as well as far reaching. Kudos to the Pakatan Harapan government. Well done!
Now, the tough and hard part – to implement the proposals as promised.
The views expressed here are the writer’s own.