KUALA LUMPUR: Budget 2016 has been a tough balancing act for the government as it juggles economic resilience, inclusiveness and fiscal sustainability goals says UOB Bank.
"It is an expansionary budget reflecting the commitment to ensure a steady economic growth amid domestic and external headwinds while still staying the course of fiscal consolidation," said economist Julia Goh.
The fiscal consolidation path remains on track with a slightly narrower fiscal deficit target of 3.1 per cent of GDP in 2016, which marks the seventh straight year of a narrower fiscal shortfall since Malaysia started recording deficits in 1998.
"We think that the government's commitment to fiscal reform measures and continued fiscal consolidation could help to assuage investor sentiment in the current period of market adjustments amid heightened perceived risks and negative sentiment."
This is particularly critical as the US Federal Reserve normalises monetary policy that would trigger further capital volatility.
According to Goh, the winners include the construction sector with higher development expenditure allocation of RM50 billion announced in the budget.
The losers were higher income earners as the highest income tax rate was raised to 26 per cent – 28 per cent (vs. current 25 per cent for income earners above RM600,000.