THE 2015 Budget is likely to draw up policies to address rising cost of living, especially for the lower income group and pro-growth initiatives, said AllianceDBS Research.
Higher Bantuan Rakyat 1Malaysia (BR1M) handouts are expected this year following the RM650 to each eligible household earning less than RM3,000 a month and RM300 to eligible single individuals under 2014 Budget.
“For this year, we are already hearing expectations that the higher end of these handouts will be raised to RM950, an increase of RM300,” said chief economist Manokaran Mottain.
He also thinks that there is a likelihood of the government bringing forward the proposed one to three per cent cut in corporate and personal incomes taxes.
The move could likely shave off as much as RM4 billion of government’s direct tax revenue in the year of implementation.
“We think that the reduction in income taxes should be a welcome move as it would help to boost household disposable income and relieve some of the moderating spending growth by the private sector, which is expected to drag into 2015.”
To further alleviate the cost of living, the budget is expected to announce more tax reliefs targeted at household spending matters.
For instance, the current tax relief for individuals with children below 18 years old is RM1,000 per child. And there is a possibility of raising the tax relief to RM1,500 per child.
While tax relief for expenses on medical care for parents is currently capped at a maximum of RM5,000 per annum, the government is expected to increase it to RM6,000.
However, it does not expect any major surprises as the federal government will likely continue on its structural reform programme to widen its revenue sources, instill budgetary discipline, while at the same time, promote continued growth in the domestic economy.
Mottain described 2015 as a year of adjustment and pain with rising inflation and Goods and Services Tax (GST) implementation, although investment driven sectors, such as construction and oil and gas (O&G) will continue to be positive.
“With 2015 Budget, the last budget under the 10th Malaysia Plan (2011–2015), we expect no surprises on the expenditure front, particularly development expenditure as the government continues to invest in entry point projects under the economic transformation programme.”
Mega projects such as the Refinery and Rapid (Petrochemical Integrated Development), MRT (mass rapid transit) and WCE (West Coast Expressway) will continue to receive funding. New projects, such as Warisan Merdeka, MRT 2, and high-speed rail may soon receive the government’s nod for kick off.
“We continue to expect investment-driven sectors such as construction and O&G to continue benefit from government spending.”
AllianceDBS expects the economy to moderate slightly to 5.2 per cent from 5.8 per cent this year in light of softening domestic demand from rising inflationary pressures and the increasingly challenging external environment.
Next year will see many domestic challenges and cost-push inflation will be one as the government continues to rationalise the subsidy bill.
The research house expects Consumer price index to hit four per cent next year, from 3.5 per cent this year. It also expects domestic consumption to take a hit from the central bank’s measures, higher cost of doing business and also the GST.
“The government will likely to announce further details on how it will revamp its fuel-subsidy mechanism by switching from a blanket approach to a more targeted approach in order to ensure that subsidies are efficiently channelled to those who need it, especially the lower income group.”
It is also likely to provide further clarity on the GST, especially on the classification of zero-rated goods/services and those exempt.
Besides the negative impact from inflation-induced consumption slump, Mottain said the consumer sector may also hit by sin tax hikes on tobacco and brewery sub-sectors as the government seeks to raise revenue.
The gaming sector could be hit if the government raises gaming tax after a long hiatus.
