KUALA LUMPUR: The upcoming 2017 Budget will unlikely have ‘big giveaways’ as the government seeks to maintain fiscal prudence to avoid any risk of sovereign outlook or ratings downgrade, according to United Overseas Bank (Malaysia) Bhd (UOB Malaysia).
UOB Malaysia economist Julia Goh said key giveaways in the budget will be targeted to the bottom 40 per cent of households (B40), middle 40 per cent of households (M40), and civil servants.
“These segments have a higher propensity to spend with positive impact on consumption and growth,” she said in a report released today. UOB Malaysia expects the government to continue the BR1M payments, sustain tax relief measures for the middle-income groups such as personal relief, children’s education, medical expenses, child care assistance, and care of aged parents.
“The government has reaffirmed there will be no change to the GST rate of 6 per cent. We do not expect GST to be imposed on RON95 petrol, diesel, and LPG to provide relief to consumers though the revenue foregone from this measure is estimated at RM2-3 billion,” Goh said.
The theme of Budget 2017 is “Accelerating Growth, Ensuring Fiscal Prudence, Enhancing Well-being of Rakyat” to be tabled in Parliament on 21 October.
UOB Malaysia expects fiscal deficit of 3.1 per cent of GDP in 2017 (est. -3.1 per cent in 2016). This follows seven years of deficit reduction.
“Market expects an Election budget with big giveaways. Given tight government revenues amid low oil prices and slower growth, any expansionary plans have to be done with fiscal discipline to avoid the risk of sovereign outlook or ratings downgrade.
“We think government’s higher spending will be focused on growth areas like transportation, logistics, digital economy, value-added exports, tourism, higher BR1M cash handouts, tax relief for middle-income earners, property and affordable housing,” the report said.
UOB Malaysia expects the government to target real GDP growth between 4-5 per cent (versus 4-4.5 per cent in 2016) though sluggish global growth and multiple event risks could tilt growth towards the lower end of the range.
“Our GDP forecast is 4.5 per cent for 2017 (vs. estimate 4.2% in 2016),” she added.