Malaysia is set to lower income tax, widen deficit goal in 2020 budget
Malaysian leader Mahathir Mohamad has promised to step down before the next general election as agreed by the Pakatan Harapan coalition before it won last year's polls.PHOTO: REUTERS. Sketched by the Pan Pacific Agency.
KUALA LUMPUR, Oct 11, 2019, Bloomberg. Malaysian Prime Minister Mahathir Mohamad faces a choice in the 2020 state budget between keeping a pledge to reduce public debt or ramping up spending to weather the US-China trade war, reported The Straits Times.
Economists surveyed by Bloomberg expect the government to set a wider deficit target for next year than previously estimated and announce income-tax cuts, while keeping its promise not to introduce new levies.
Finance Minister Lim Guan Eng – who will be tabling the state budget on Friday (Oct 11) – has described the budget as an expansionary one that will help counter any negative impact from the trade war.
Tun Dr Mahathir, speaking Oct 5, chose the theme “Shared Prosperity,” hinting at subsidies and handouts as part of a pledge he made to lower living costs after his election last year.
Here’s a snapshot of what to expect:
BUDGET DEFICIT
Mr Lim warned in July that it would be “challenging” for the government to meet its fiscal deficit target of 3 per cent of gross domestic product next year. Analysts agree.
The country is on track to achieve the 3.4 per cent deficit goal for 2019, but is likely to relax next year’s target to 3.2 per cent, according to estimates by 10 economists surveyed by Bloomberg between Oct 7 to 9.
The government is set to continue working toward fiscal consolidation, which will help maintain the country’s credit ratings, but progressing more slowly while boosting short-term spending to bolster growth, they said.
As oil-related earnings decline amid weak crude prices, Dr Mahathir will need to find new sources of state revenue. That could come in the form of asset sales and improvements in tax collection.
SHARED PROSPERITY
The government’s 10-year “Shared Prosperity” blueprint, launched last weekend, focuses on the problem of inequality, an emphasis likely to be reflected in the 2020 budget.
The government will likely look to boost consumer spending by lowering employee contributions to the state pension fund, Malaysian Rating Corporation Bhd said.
Maybank Investment Bank Bhd expects Dr Mahathir to increase cash handouts for lower-income households or announce financial aid for farmers and pensioners.
The 2030 vision also could translate into more road projects, schools and hospitals, as well as improvements to ports and airports in rural areas, according to TA Securities Holdings Bhd.
To offset the impact of the trade war between two of the country’s main trading partners, Malaysia could announce a RM3 billion (S$985 million) stimulus package as part of its development expenditure, to be devoted to infrastructure and helping companies diversify, RHB Investment Bank Bhd said.
TAX REFORM
Despite the budget constraints, Mr Lim has pledged not to introduce new taxes in 2020.
RHB and TA Securities expect some form of corporate or personal income tax cut next year, while United Overseas Bank Ltd and CGS-CIMB see the government pushing through with a tax on e-commerce announced last year.
Maybank expects no new levies and no tax cuts, predicting the government will seek to widen the existing tax base instead.
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