Live streaming Malaysia budget that present by ministry finance, YB Lim Guang Eng on 2 November 2018, 4pm.
PETALING JAYA: Finance Minister Lim Guan Eng is tabling Budget 2019 in Parliament, the first federal budget by the Pakatan Harapan government. These are the highlights, and we will continue to update this story:
In his opening remarks, Lim said the government’s real debt and liability as at June 2018 was at RM1,065bil, RM350bil higher than the amount by the previous Government.
KUALA LUMPUR (Bloomberg): Less than six months in office, Malaysian Prime Minister Tun Dr Mahathir Mohamad is staring down a possible credit rating downgrade in his government’s first budget.
Economists and market watchers are bracing for bigger deficit targets, higher debt and slower economic growth when Finance Minister Lim Guan Eng delivers his budget speech on Friday (Nov 2).
Moody’s Investors Service has already flagged threats to Malaysia’s A3 rating, while credit-default swaps have risen.
The Budget will be a tough balancing act for 93-year-old Dr Mahathir: he needs to find more revenue and keep debt under control, without angering voters and stalling the economy with higher taxes and severe spending cuts.
Dr Mahathir’s ruling Pakatan Harapan coalition, “which won only 48 percent of popular votes, must tread very carefully between competing demands between fiscal discipline and avoiding a popular backlash.”
Part of the deficit problem is due to Dr Mahathir’s own doing. Shortly after winning the May 9 election, he scrapped a consumption tax to fulfill a key campaign pledge, which Lim has said leaves a RM23bil revenue shortfall.
The government has also fixated on contingent liabilities – such as guarantees for public companies – which if included in the state’s overall debt figures would push up the ratio to above a self-imposed threshold of 55 percent of gross domestic product (GDP).
There’s progress in recouping about US$4.5bil (RM18.8bil) potentially lost through scandal-ridden 1Malaysia Development Berhad (1MDB), as the United States unveiled criminal charges against two former Goldman Sachs executives for their alleged roles in siphoning monies from the Malaysian state fund.
That may help ease the government’s burden in paying off 1MDB’s borrowings.
Here’s a snapshot of what economists are expecting:
Budget deficit
The previous government had an optimistic target of 2.8 percent of GDP for the budget deficit for this year, which it planned to slowly narrow over time.
Dr Mahathir’s move to scrap the Goods and Services Tax (GST) and replace it with a sales tax makes that goal unlikely.
The median forecast of nine economists surveyed by Bloomberg is for the deficit to reach 3.2 percent of GDP in 2018 and remain at that level next year.
The government has already abandoned a plan by the previous administration to balance the budget in two years time, forecasting instead a shortfall of three percent of GDP in 2020.
Mohamed Faiz Nagutha, an economist at Bank of America Merrill Lynch in Singapore, said a key question for investors relates to the medium-term fiscal plan.
Even though authorities may commit to reducing the deficit over time “details are going to be important in convincing investors,” he said in a note.
GDP growth
The economy was one of the growth stars in Asia last year, expanding almost six percent on the back of an export boom, strong public infrastructure spending and cash handouts by the previous government.
Growth has eased this year amid rising trade risks and after the political transition led to a slump in public spending.
Economists in a Bloomberg survey forecast growth of 4.8 percent this year and 4.5 percent next year. According to a mid-term review, the government is projecting expansion of 4.5 percent to 5.5 percent in 2018 to 2020.
Dr Mahathir’s focus in his first few months in office has been to root out corruption, reform key institutions, and reprioritise some spending.
That’s made businesses cautious to invest, and the “private sector is looking towards the coming 2019 budget for new policies, growth catalysts, and fiscal clarity,” said Julia Goh, an economist at United Overseas Bank Ltd in Kuala Lumpur.
New taxes
The government may make some key tax changes to help boost revenue. These are some of the measures it could adopt:
Digital tax: Like other South-East Asian nations, Malaysia may look to tap the fast-growing e-commerce world with new levies, according to Mohd Afzanizam Abdul Rashid, chief economist at Bank Islam Malaysia Bhd in Kuala Lumpur;
Sugar tax: To help promote healthy living, a tax on sugar or soda consumption could be imposed;
Logging and carbon tax: To improve and protect the environment, the government could consider green taxes. Neighboring Singapore plans to introduce a carbon tax from 2020; and
Others: Bloomberg Economics’ Tamara Henderson said she doesn’t expect the government to invoke a capital gains tax. A levy like that would be a disadvantage to Malaysia relative to peers, she said.
New taxes on inheritance or online transactions are unlikely to be rolled out until 2020, she added. – Bloomberg
KUALA LUMPUR: Finance Minister Lim Guan Eng has begun tabling the highly-anticipated Budget 2019 in Parliament.
He earlier arrived at 3.54pm on Friday (Nov 2), flanked by Prime Minister Tun Dr Mahathir Mohamad and Deputy Prime Minister Datuk Seri Dr Wan Azizah Wan Ismail.
Umno president Datuk Seri Dr Ahmad Zahid Hamidi said everyone was full of hope and waiting for this year’s budget.
“The question is whether the budget is achievable when even their manifesto has not been fulfilled. The people are watching,” he said in a tweet.
While expectations are high, this could turn be one of the toughest budgets with the list of alleged misappropriations, dubious spending and a ballooning debt left behind by the Barisan Nasional-led government.
Lim had said recently that the upcoming 2019 Budget would be “difficult” with the government needing to reduce the RM1tril national debt.
This means the new government would have to undertake a herculean task to clean up its balance sheet and at the same time steer the economy out of an impending economic slowdown in the coming years,” Kenanga Investment Bank said in a Research Note.
The 2019 Budget allocation would be based on average crude oil price of US$70 per barrel, but the benchmark Brent crude oil neared US$80 per barrel currently.
The Pakatan Harapan government has, however, said fixing the financial problems would not be done at the expense of the people’s well-being.
There have been speculations on possible new taxes like inheritance tax, capital gain tax, or even new taxes on soda and e-commerce.
However, Deputy Finance Minister Datuk Amiruddin Hamzah said the new taxes would not burden the people, and that their revenue would be used for the people, as well as to reduce the burden of repaying the national debt.
The government’s revenue for 2018 will decline to RM21bil following the reinstatement of the Sales and Services Tax on Sept 1, 2018 to replace the GST. The net impact is a RM17bil loss in the government’s coffers this year.