BUDGET 2018 may be disciplined in keeping focus on deficit reduction and the lower-income groups, but it lacks major revenue reforms, analysts said.
 
Moody’s Investors Service analyst Anushka Shah said Putrajaya’s expenditure measures were targeted at inclusive growth and high-multiplier spending which was similar to what other governments were implementing.

“However, the budget lacks any major fiscal and revenue reform,” said Anushka. She said the budget depended on the projected increase in revenue, namely collection from the goods and services tax (GST).

“The full credit implications of the budget will depend on whether the projected increase in revenues – the fastest since 2012 – is achievable since targets rest primarily on a rise in GST collection, which in turn rely on relatively optimistic growth projections going into 2018,” she said.

Prime Minister Najib Razak in his budget speech yesterday projected GDP growth for 2017 to be in the range of 5.2% to 5.7%. He said the government was committed to reducing its deficit to 2.8% in 2018 from 3% this year. 

The government has been on a deficit reduction trend since 2009.

It introduced the GST at 6% in 2015 and has maintained the rate under Budget 2018 but introduced exemptions for “big ticket” purchases such as aircraft and ships for airlines and shipping companies and for imports of oil and gas-related equipment under lease agreements.

Alliance Bank chief economist Manokaran Mottain said the bulk of revenue would continue to be supported by tax collection (30% of total revenue) and GST collection (18% of total revenue) while oil revenue would contribute about 16%.

“The expansion in revenue was widely expected as the rebound in Brent crude oil prices and the robust performance of the Malaysian economy would directly lead to higher corporate earnings and increased spending,” said Manokaran.
 
“However, it is clear that the government is constrained with expenditure as most of the measures were a continuation from previous years, in order to achieve their fiscal deficit target of 2.8% in 2018,” said Manokaran.
 
Manokaran in his report also pointed out that the government’s contingent liability level remained steady at slightly over 15% to GDP since 2013 (2016: 15.2%).
 
“Despite an increase in the infrastructure bill to finance projects such as the MRT and LRT line extensions, the contingent liability levels have stayed steady, which could indicate a reduction in contingent liabilities in other areas.
 
“Nevertheless, we continue to see limited scope for government to accelerate its spending in the coming years,” he said.
 
Practical budget

Nomura Research also said Budget 2018 showed the government’s commitment to fiscal consolidation agenda despite the general election which must be held by next August.
 
“For this year, the government’s maintenance of its 2017 fiscal deficit target is also consistent with our view of a sharp fiscal tightening in the second half of 2017, with the strong export sector boosting growth and offsetting the fiscal drag.
 
“We expect a similar pattern in 2018, with government spending disbursements being front-loaded to the start of the year (ahead of the elections) before running a tight fiscal policy in H2 2018 to achieve its fiscal deficit target of 2.8% of GDP,” said Nomura.
 
It added that it expected Najib and Barisan Nasional to remain in power after the election to continue on the path of fiscal consolidation over the medium turn which would in turn support Malaysia’s sovereign credit ratings.

CIMB Group chief executive Tengku Zafrul Aziz said the budget reflected the government’s caring yet practical policies for the B40 and M40 groups.
 
“Focus on bread-and-butter issues, like reducing income tax for the lower income group, increasing assistance for basic food and transportation items and providing more allocation for affordable homes will go a long way towards ensuring the rakyat’s short- and long-term interests,’ said Tengku Zafrul.
 
He also said the government was taking a head-on approach to address home ownership issue by building more than 385,000 affordable homes.
 
He added that extending PR1MA’s step-up financing scheme to private housing developers was also a laudable move to facilitate home ownership.  
 
“The policies for GLC operations, particularly in ensuring the wellbeing of staff, reflect the people-focused vision of the government. Indeed, quite a few of them, like flexi-work arrangements and childcare centres at work, have already been implemented by CIMB,” said Tengku Zafrul.
 
RHB Banking Group managing director Khairussaleh Ramli said Budget 2018 is tailored to address the rising cost of living.
 
“The 2018 Budget is largely built on addressing the rising cost of living while maintaining a commitment to fiscal discipline. It has taken measures to address the bottom 40% (B40) income group, middle 40% (M40) income group, and the rural population.  
 
“One clear focus of this budget is to ‘shape the future’ for all Malaysians, with emphasis on investments in infrastructure, education, and skills and talent development; measures that will boost growth and make the economy more inclusive,” said Khairussaleh. – October 28, 2017.