United Overseas Bank (Malaysia) Bhd (UOB Malaysia) has released a macro note by its senior economist Julia Goh touching on the upcoming tabling of Budget 2019 on 2 Nov.
According to the banking organisation, Finance Minister Lim Guan Eng has said that this will be a difficult budget which entails belt-tightening measures. This infers fewer goodies given the government’s financial position.
On a positive note, it should reflect efforts to restore public finances and good governance. This will help the country find balance during volatile times, especially to adopt more cost-effective ways of spending and ensure sufficient fiscal buffers are in place.
The new government’s inaugural budget is expected to stay the course of fiscal and debt consolidation. The size of the budget deficit will depend to a large extent on the Sales and Service Tax (SST) revenues collected, size of refunds for Goods and Service Tax (GST) input tax credits, income tax and RPGT, asset monetisation, oil revenues, and degree of cuts in operating expenditure.
The cash aid and fuel subsidies are likely to be reviewed to make it more targeted. UOB Malaysia does not expect any adjustments in the corporate and individual income tax rates. New taxes such as soda or digital economy taxes are possible but the bulk of efforts would are projected to focus on trimming unproductive spending.
Given lingering risks on the global front and signs that the domestic economy is moderating, UOB Malaysia expects the new government to announce measures to spur investments and growth.
This includes initiatives to incentivise automation and modernisation, industry 4.0, and higher value-added segments. Areas of focus are likely to be affordable housing, automotive, transportation, tourism, e-commerce, and renewable energy.
In review, the bank projects the fiscal deficit at -3.0% of GDP (from an estimate of -2.8% in 2018). This is premised on real GDP growth of 4.8% in 2018-19. Measures to restructure the government’s overall debt and pare down the size of contingent liabilities will be MYR positive.