Commentaries on Malaysia Budget 2015

Malaysia’s Budget 2015 shows a responsive government with measures and incentives directed at alleviating the pressures from the rising cost of living and ensuring that the economic momentum is sustained in 2015. Yet, the government emphasises fiscal sustainability as the country pushes forward with critical fiscal reform measures such as GST implementation and subsidy rationalisation as outlined in the previous budget. The budget’s expenditure and growth supportive measures are expected to have a positive impact on the economy. Notable beneficiaries include the deserving low-income groups and middle-class, SMEs and corporates, construction, agriculture, education, health and service sectors.

Commentary on specific measures : -

Strengthening Economic Growth

•The budget continues to prioritise new areas growth to sustain the investment momentum.

•RM48.3bn worth of infrastructure projects will be implemented in 2015.

•Will continue to increase capacity of high-speed broadband with RM2.7bn investment over the next three years.

•Provided capital allowance to increase automation in labour-intensive industries and offered financial assistance for SMEs to enhance use of new technology, automation and innovation.

•The 11th Malaysia Plan (11MP) will be launched in May 2015. At the same time a new approach known as the Malaysian National Development Strateg (MyNDS) is being formulated.

•The emphasis is on using limited resources optimally, with special focus on high-impact projects and programmes at low cost as well as efficient and rapid implementation.

Enhancing Fiscal Governance

•The government reiterated its efforts to strengthen fiscal sustainability and yet ensure that the people’s well-being was not compromised as part of achieving a balanced budget.

•The government announced a wider scope of items that will be exempted from GST including foods, electrical appliances, household goods and etc.

•To alleviate the burden of rising cost and GST, the government will reduce personal income tax rates by 1-3% for year of assessment 2015 (YA 2015).

•The cooperative income tax rate will also be reduced by 1-2% for YA 2015 and corporate income tax reduced by 1% from 25% to 24% for YA 2016. SMEs‘ income tax rate will also be reduced by 1% from 20% to 19% for YA 2016.

•Incentives and assistance have been provided to businesses in preparing to implement GST, including training grants, purchase of accounting software, ICT equipment and software and training in accounting and ICT related to GST be given additional tax deductions.

 Developing Human Capital and Entrepreneurship

•In general, conditional direct cash transfers are not sustainable, especially if they are not accompanied by higher productivity. As such the government’s efforts to improving the quality of human capital are critical to enhance worker productivity and allow them to earn higher wages.

•For this, measures were announced to build new schools and expand the Trust Schools programme, upskilling in technical and vocational qualifications, development and maintenance of education facilities, sponsoring of education, and expanding the MyBrain15 programme, and enhance the graduate employability scheme.

•The government announced that the Employment Act 1955 and related labour acts will be reviewed including better terms and conditions of employment, appointment and dismissal, flexible working arrangements and termination benefits. The government will also introduce an Employment Insurance System aimed at assisting retrenched workers by giving temporary financial assistance and provide opportunities for reskilling and upskilling.

Advancing the Bumiputera Agenda

•The government will allocate RM600m to EKUINAS to increase Bumiputera ownership in private companies and GLCs.

•To date, EKUINAS has cumulative investments of RM2.3bn in various sectors. Measures are also announced to strengthen Bumiputera entrepreneurship and human capital as well as financial assistance for Bumiputera SMEs.

Upholding role of women

•To increase female workforce participation (which is currently only at 38%), the government will embark on efforts to strengthen the Women Directors Programme to achieve the targeted 30% participation of women in decision-making positions.

Developing National Youth Transformation Programme

•The government will establish 1Malaysia Youth City that provides a comprehensive ecosystem for the youth to increase their capabilities and progress in work, business and entrepreneurship as well as to gain access to housing, recreational and sports facilities.

•The government is also providing a 10% loan guarantee to enable borrowers to obtain full financing that includes the cost of insurance.

Prioritising Well-being of Rakyat

• To improve the quality of life and well-being of the people, the government will increase the BR1M cash assistance to those who are lower income and civil servants.

• The government also allocating RM1bn in order to strengthen the food supply chain.

• The government will continue to implement various price uniformity schemes, transport subsidy and establishing more Kedai Rakyat 1Malaysia (KR1M). The GST Enforcement Unit will also be strengthened with higher headcount.

• To improve the public transport system, the government will introduce intercity bus services with a discounted monthly fare of 30%, provide Electric Train Service (ETS) and upgrade stage bus services.

• To address the issue of affordable home ownership, the government will build 80,000 units under the 1Malaysia People’s Housing Programme (PR1MA) with an allocation of RM1.3bn.

• To enable more people to own their first home and reduce the cost of buying a house, the government has agreed to extend the 50% stamp-duty exemption on instruments of transfer and loan agreements as well as increase the purchase price limit from RM400,000 to RM500,000. The exemption will last until 31 Dec 2016.

Source: CIMB Economic Research, Oct 2014