Reactions to Budget 2016

By KINIBIZ

Today Prime Minister Najib Abdul Razak tabled the 2016 Budget amounting to RM267.22 billion, focusing on striking a balance between fiscal responsibility and safeguarding the welfare of the people as he balances plunging oil revenue with ensuring that economic growth is not stunted.

The budget’s theme this year was ‘Strengthening Growth, Enhancing Inclusiveness, Ensuring Fiscal Sustainability’.

KINIBIZ talks to economists, industry players and the man on the street for their immediate reaction to Budget 2016.

Wellian Wiranto, economist, OCBC Bank economist

“The Budget banked on the idea that those who are better off would not mind paying higher income taxes to help the poor. Previously, anyone earning more than RM400,000 would pay a flat tax rate of 25%. Now, anyone earning between RM600,000 to RM1 million, is going to be hit with 26% rate and those clocking more than RM1 million will pay a whopping 28%.

“The government feels it is necessary without resorting to an even more costly blanket tax increase for everyone. Indeed, if there is any overarching theme in today’s budget, it is about being seen to be taking care of the people, the common folk.”

Mohd Najib Abdullah, group managing, MIDF Group

“MIDF Group is confident that the budget will form an effective and potent fiscal policy to steer the economy next year as the country’s monetary policy direction remains uncertain amid the US Federal Reserve’s interest rate stance, China’s economic slowdown and globally depressed price inflation.

“The well-constructed budget proposed concrete fiscal measures that would keep the growth momentum and economic transformation. The budget has the optimal mix of stimulus, incentives as well as safeguards needed to navigate another challenging year ahead.

“Although the gross domestic product (GDP) growth is expected to be slightly slower next year, it should be reasonably healthy amid external headwinds. The government’s commitment towards fiscal probity by budgeting a smaller deficit of 3.1% of GDP next year was a necessary stabiliser for the ringgit and should be positively welcomed by financial markets.”

Azman Mokhtar, managing director, Khazanah Nasional Bhd

“Given challenging external and domestic conditions, a tough balancing act was addressed through proactive budgetary and redistribution measures. As the nation’s strategic investment fund, Khazanah and our companies will support these fiscal efforts by intensifying the execution of catalytic and transformational investments in the Malaysian economy.

“These investments include the RM6.77 billion worth of nine high economic multiplier projects announced by Khazanah on Sept 14, 2015, and the RM500 million venture and private equity investments for domestic sectors announced today in the Budget 2016 speech.”

Azmi Abdul Aziz, president/group chief executive officer, Prasarana Malaysia Bhd

“The Ampang-Kelana Jaya Line LRT extension project will have a big impact in raising the percentage of public transport users.

“The government’s move to construct BRT, particularly BRT Kuala Lumpur-Klang is appropriate as it will have a big impact in reducing traffic congestion in the Klang Valley and improving the public transport system.”

Badlisham Ghazali, managing director, Malaysia Airports Holdings Bhd

“We estimate that both foreign and domestic direct investments will come up to RM7 billion over the next five years, commencing in 2016. These development clusters were perfectly aligned with the national agenda, namely the National Logistics and Trade Facilitation Master Plan, by the Transport Ministry and the National Aerospace Blueprint 2015-2030 anchored by the International Trade and Industry Ministry.

“The clusters are also in sync with the various National Key Economic Area tourism initiatives, of which, the recently opened Mitsui Outlet Park KLIA was a key catalyst to the KLIA Aeropolis.”

Cheah Kok Hoong, group chief executive officer, Hitachi Sunway Information Systems

“Budget 2016 is very much a people-centric budget that focuses on pertinent bread-and-butter issues. This is particularly important amidst falling oil and commodity prices, the depreciation of the Malaysian ringgit, the implementation of the goods and services tax (GST), coupled with political instability that has impacted the economy considerably.

In the realm of enterprise ICT, raising Internet speeds from an average of 5Mbps (megabits per second) to 20Mbps is a welcome measure which we hope will encourage more enterprises to move into Cloud services. Also it is commendable that there have been allocations to spur digital innovation amongst the young.

However, all in all, Budget 2016 still falls short in addressing the challenges faced by the enterprise ICT industry. The reality is that the current economic landscape has set off a series of chain reactions which is seriously affecting spending decisions. In this sense, we were hopeful that immediate measures such as tax allowances, zero-rated GST and even re-investment allowance incentives for companies with export capabilities would be introduced. These would not only encourage continuous investment in technology and increase productivity, it would also provide an opportunity for businesses to compete meaningfully in the domestic as well as international market.

Yeo Eng Ping, partner and tax leader, EY Malaysia

“For corporates, Budget 2016 does not try to introduce a plethora of incentives. Instead, there are a few select measures in specific areas or sectors, such as innovation and commercialization of R&D (to stimulate private sector investments and reinvestments), tourism (which ties in nicely with the cheap Ringgit), food production and manufacturing.

There are also consistent measures to ensure the country continues to develop its infrastructure and promote connectivity to support economic expansion. The corporate sector has been lobbying for an extension of the reinvestment allowance (RA) incentive, and hence, the special RA incentive is a much welcomed proposal.

This Budget takes care of the middle and low-income groups, through initiatives such as the enhancement of various personal reliefs, the expansion of the GST zero-rated list to include more essential food items, controlled medicines and “over the counter” medication, as well as specific measures to raise the income and wealth of the “below 40” (B40) households.

Not surprisingly, high-income earners have been called to pay more tax. We have observed similar developments in other countries such as Singapore and Japan. However, this is a rather bold move, considering this comes immediately after the decrease in personal income tax rates in last year’s Budget together with the introduction of GST.”

Soh Lian Seng, KPMG tax director

Overall the theme of prospering the rakyat was clear in the government’s measure. They tried to strike a balance between the capital economy and the people’s economy. And they tried to use tax as a tool to increase revenue, there were quite a number of changes to the tax code.

I noticed that the government started with GST revenue, it is clear GST helped the government increased its income. And the government even said it is willing to forgo some the GST revenue and this was seen by them expanding the zero-rated and exempt lists.

I think that the new zero-rated medicines list is timely as the prices of medicines has really increased. I also see that they added some essential food items.

There was also a changes to benefit small scale farmers. And GST relief for the re-importation of goods exported for promotion, research or exhibition; among others.

I am also happy to note that prepaid users were included and that the prepaid consumers will be returned the amount of GST they paid to their prepaid accounts. However, I would like to see more clarity on how this will be implemented by businesses. Furthermore, it was mentioned this rebate is only for Malaysian consumers and this raises some questions of how this will be determined.

Looking at the income tax changes to the two top income brackets, I objectively think it is good. Any increase in taxes which goes for the development of the country should ideally come from these tax brackets as it will have less of an impact on them as compared to the lower and middle income earners. Any increase to the low to mid brackets’ tax rate will result in a loss of disposable income for these earners. But for the higher income earners it will have less of an impact on their income and should not affect income available for their essential items .

The tax reliefs are to assist the rakyat with the high cost of living. And the doubling of the relief for children and increase for non-working spouses are good.

I am also glad to see an increase in the relief for parental care but I believe that the quantum is not a lot and could have been more than RM1,500 per parent . Furthermore, I also noted that there are several conditions which have to be met in order to claim this relief.

This might mean that tax authorities have to follow up on those claiming this relief to ensure that they are eligible.

And for the taxpayer the question is how extensive does my record keeping have to be? For example parents must be above 60 years of age, does this mean I have to have records of their identity cards? And how can I prove that they have been residing in Malaysia during the assessment year? So I would like to see some clarity here.

Hanifah Hashim, executive director/head Malaysia Fixed Income & Sukuk of Franklin Templeton Investments.

Malaysia’s 2016 Budget shows continuous discipline to keep the country’s economic fundamentals in check with a focus on diversifying the country’s sources of revenue with less dependency on oil and strengthening fiscal balance sheet.

But the market still views the Malaysian cautiously, as negative news floods the domestic front and continues to drive down sentiment and obscure rational analysis of the country’s economic position. Therefore, it is crucial to look beyond the noise and concentrate on the economic fundamentals that may otherwise be missed:

1. Malaysia continues to be viewed through a prism of being a commodity exporter, primarily oil, which is why the country has been indiscriminately affected by the fall in crude oil price. In fact the country has a well-balanced export composition: although commodity exports have been declining, electronics exports have been rising. This is key, as electronic exports are likely to be supported by the strengthening US economy.

2. Private consumption, which is seen as an indicator of emerging market economic development is set to remain healthy and create more demand in the economy. Coupled with the government’s support for domestic infrastructure development, we believe it will likely lead to job creation, increased quality of life and economic efficiency, which can be sustained over the long-term.

3. We believe investors have been overly negative as they may have been anticipating a solvency crisis in Malaysia from the negative news headlines, which is not the case here. Over the last decade, Malaysia has relied heavily on domestic sources of financing, hence mitigating the risk of foreign liability especially during periods of local currency decline.

Malaysia now has access to deep capital market tools, which was developed over time as a source of funding, especially in the local bond and Sukuk markets. Malaysia’s market size has grown; there is a dynamic issuance and trading of government and corporate bonds, which positions Malaysia at the third largest bond market in Asia.

4. From a macroeconomic perspective, the government has shown fiscal discipline in narrowing the deficit from 7% in 2009 to 3.5% in 2014. The government continues to make progress by implementing prudent economic policy reforms such as the removal of the fuel subsidy, implementation of GST and other spending cuts to achieve the deficit target of 3.2% of GDP by end-2015 and to reduce it further to 3.1% in 2016 as announced during the budget.

Jeffrey Chew, group CEO, Paramount Corporation Bhd

“Budget 2016 continues to focus on extending the operational expenditure to a wider group of the middle class and B40 segment through the expansion of BR1M and the increasing of personal tax reliefs.

However, there is a noticeable shift to tax the higher income group to narrow the income gap within the country. This is commendable as we know that 50% of the savings in EPF belong to the top 10% of contributors. Many senior executives and business owners with income levels of RM600,000 and above will see a higher income tax rate by 1%-3%, from the highest bracket of 25% to 26% and 28%, respectively. To further provide relief from the higher cost of living from GST, the lower income group will also benefit from the higher minimum income of RM1,000.

Although the Budget 2016 incorporated a few of the recommendations from the property sector, it is not sufficient. The best approach for young families to hedge against inflation from subsidy removal and GST is for them to own a home.

This is especially critical in the perspective of a developing country where the inflation rate is expected to be higher than developed countries, but growth would be even higher, resulting in higher taxes for the government to manage its budget deficit faster. We hope the government will reconsider relaxing the lending requirement for first-time home buyers, as well as lowering RPGT rates for foreign buyers and the restriction threshold on this category of buyer for properties in the Klang Valley.

As property players, we will have to absorb the increased input cost, but we appreciate that some of the GST cost increase is cushioned by the abolishment of the SST. While some sectors view inflation negatively, it can have a positive effect on the value of properties as the replacement cost will increase, and it will provide a strong support for current property prices.

In fact, we are more concerned with the declining trend in private consumption and investment in the first half of 2015, even before the GST kicked in. Together with the sharp weakening of the ringgit and the recent toll increases, this trend will further deteriorate in the second half of the year.

We have seen the effects of purchasers holding back on the purchase of big-ticket items such as property for own use and investments over the last four months (this was similarly experienced by the automobile sector). If this consumption behaviour continues, not only will the property and construction sectors contract, other supporting and ancillary industries like cement, steel bar, wholesale and broad services sectors will have further spillover effects into the retail segment.

In the education sector, the allocation for scholarship programmes is a positive step as it will make tertiary education more accessible to young Malaysians, which in turn will help in the push for a more knowledge-driven economy. This also augurs well for KDU as we have government-sponsored students in some of our programmes. In the case of the maximum tuition fee relief, we do not expect any significant impact because the effective savings from the tax rate is minimal.

Federation of Malaysian Manufacturers (FMM)

“Although the budget addressed the concerns faced by the rakyat, we had expected a more significant reduction in the operating expenditure and a higher development expenditure that would spur higher economic activities.

While the budget allocations have been provided for many areas of need, the maximum impact of such expenditure would be realised through greater efficiency, transparency and accountability.

FMM is pleased to note the following items: reinvestment allowance, double deduction for R&D, development of human capital, export promotion, promotion of industrialised building system (IBS), high speed broadband, and the allocation of funds to MIDA for development of specific sectors.

However, FMM would like to highlight manufacturers concerns about the following:

1. Increase in national minimum wage

The increase in the national minimum wage effective 1 July, 2016, will impact small businesses. While we acknowledge this is a step towards achieving a higher income economy, the timing of such a move is important given the current economic environment. As such, the decision to raise the minimum wage should be deferred until the economy stabilises.  

2. Increasing the SOCSO wage ceiling to RM4,000

The increase in mandatory contribution from a monthly salary of RM3,000 to RM4,000 is yet another increase in the cost of doing business to industry particularly to the SMEs.

3. Increase in personal income tax rate

The industry is surprised with the move to increase personal income tax. When the goods and services tax (GST) was introduced, it was with the understanding that direct taxes such as corporate and personal income tax rates would be gradually reduced.

FMM is of the view that more should have been done in this budget to spur the manufacturing sector as it is a major sector in the economy contributing to the growth of GDP and exports. We had hoped for more incentives to accelerate the move towards high value and high-tech manufacturing activities. The last time the sector benefited from a major incentive was in 2008.”

Azman Hashim, chairman, AmBank Group

“We appreciate the government’s efforts to strengthen the financial service industry in a move to support and facilitate the economic activities. The government has encouraged the need to diversify the use of foreign currency in trade transactions.

Hence, Bank Negara Malaysia will provide the Ringgit-Renminbi credit swap facility for local banks. It will provide opportunities to customers to leverage on the various trade financing and hedging instruments available in ringgit which included letters of credit, financing of imports, exports, currency swaps and other services.

The Budget 2016 has also proposed to further invigorate the Capital Market by including tax deduction on issuance costs of Sustainable and Responsible Investments (SRI) sukuk and 20% stamp duty exemption on Shariah-compliant loan instruments to finance the purchase of houses.

We believe these measures will help promote the Islamic instruments as we will be able to leverage on our robust and comprehensive Islamic finance ecosystem as well as pro-business environment.”

Abdul Farid Alias, president and CEO, Maybank

“The Budget rightfully addressed the escalating cost of living that directly affects the middle and low income groups, by adding more basic food and medicines to be zero-rated and exempted under GST, raising BR1M, Minimum Wage and civil service starting pay and minimum pension, increasing several personal income tax allowances that have not changed for many years, and building affordable housing.  Measures are also not about “giving” but also “empowering” to improve their livelihoods and prospects via entrepreneurships and access to education and training.

Although there isn’t much for the financial services and banking industry in Budget 2016, we look forward to more initiatives for the sector that the prime minister promised in his budget speech.

In Budget 2016 we are confronted with a challenging environment as the global economy struggles to find growth while anticipating an escalating interest rate regime, volatile financial and commodities markets and a changing demographic.

To top it off, the government has to stay committed to budgetary discipline. It is absolutely critical to ensure the country’s current investment grade sovereign credit rating, and the accompanying “stable” outlook can be sustained to avoid further negative impacts on sentiment.

The slight reduction in budget deficit to -3.1% of GDP this year from -3.2% this year is understandable, given the macro background as the government has to balance the needs of various “stakeholders”.

All in all, it is a relatively defensive budget, and one that is required to deal with the challenges that we are facing. Because we don’t have much room to play, it is important that every ringgit we spend, must be allocated efficiently and spent effectively for results.”

FD Iskandar, president, Real Estate and Housing Developers Association (Rehda)

Themed “Strengthening Growth, Enhancing Inclusiveness, Ensuring Fiscal Sustainability”, this first Budget under the 11th Malaysia Plan proves to be a people friendly budget through the various incentives provided. The Real Estate and Housing Developers’ Association Malaysia (Rehda) views the Budget as positive and helpful for homeownership for the nation especially for the low and middle income group.

The allocation of RM200 million for deposit for first time house buyers is definitely good news to the industry especially in this current trying times. Payment for deposit has always been the biggest barrier to house entries and we fervently hope that the deposit will help spur homeownership amongst the rakyat.

Rehda also strongly lauds the government’s move in providing special fund to encourage adoption of Industrialised Building System (IBS) in Malaysia. The RM500 million “Promotion Fund” provided to developers and contractors will not only help to accelerate project delivery but also reduce development cost as well dependency on foreign workers. We hope such incentive will encourage more developers and contractors to adopt IBS in their projects.

The provision of stamp duty exemption on financing instruments for contractors rescuing abandoned projects and original purchasers is also a positive move in the effort to revive abandoned projects. This will hopefully encourage more developers to come in as white knights and assist in the delivery of completed homes to those who have faced hardships.

Rehda welcomes the government’s move in making affordable housing a priority. The 10 programmes for affordable housing announced by the Prime Minister is indeed a step in the right direction towards encouraging the rakyat to own properties. We hope the agencies assigned to undertake these various affordable housing programmes will help the government in fulfilling the national home agenda while Rehda stands ready to work together with the government in assisting the delivery of the programmes, if needed. These programmes under PR1MA, SPNB, PPA1M and KPKT which is expected to bring in more units of affordable homes into the market is also hoped to stabilize market price and ultimately will benefit the rakyat.

Lastly, we wish to thank the government for taking a more proactive role in providing affordable housing for the rakyat. In concert with the government’s agenda to promote the provision of more affordable housing, the association looks forward to a level playing field and is keen to engage the government more in days to come for the benefit of the rakyat as well as the industry.

Jeffrey Tan, regional telecommunications analyst with RHB Investment Bank:

“The investment in the NFB would offer greater redundancy and resilience for the telco sector in addition to meeting the rising demand for mobile backhaul. I believe the allocations for HSBB and under-sea cables are part of the earlier PPP initiatives with TM (Telekom Malaysia) and TDC (Time dotCom Bhd). HSBB2 and SUBB are combined investments of RM3.4bn although these projects have not been officially awarded.

Prepaid subscribers should rejoice over the rebate (effectively an indulgence for 12 months) although it is not immediately clear if the telcos are to ‘subsidise’ the rebate. This would allow more time for the industry to work towards a mechanism that is palatable to all stakeholders. We expect further clarity on the rebate in the coming weeks.”

Lee Ching Wei, co-founder and chief executive officer, iMoney

“In summary, the budget did not address the needs of the middle-income nor the concerns over GST. While the increase in zero-rated medications is great, the issue of GST on treatment costs still remains, along with the overall high GST rate of 6%

The Budget did address the needs of the B40 through many necessary rural development allocations and it also maintained the stance on BR1M – with an increased allocation of RM5.9 billion. In our iMoney National Budget 2016 Sentiment Survey, we’ve seen that 95% of BR1M recipients said that it wasn’t enough, and an increase of RM50-RM100 will not be sufficient. This money could have been better allocated by increasing their initiatives to aid in up-skilling Malaysians.

The government allocations for PR1MA are good but it still does not help the middle-income as they do not qualify. Disappointingly, other initiatives focused on easing cost of living are focused solely on civil servants. The only silver lining we saw in this allocation is the increased tax relief for those with non-working spouses, children, and elderly family members to care for.

In a budget that was supposed to be for the rakyat, it seems like it only benefits a specific group of people. Those who fall into the middle-income group will have to improve their own finances through smart saving and investing, and not rely too heavily on the government for additional aid or support.”

Mano Govindaraju, area vice president for Gartner Malaysia, Research and Advisory:

“Malaysia’s Budget 2016 sees IT playing an increasingly important role in the nation’s business transformation efforts and will spur Malaysia’s aim to become an innovation hub in the region and around the world.

The allocation of RM1.5 billion to the Ministry of Science, Technology and Innovation will encourage companies in Malaysia to become more relevant and effective, as they move towards the digital space.

Malaysia’s efforts to improve broadband connectivity and infrastructure particularly in rural areas will no doubt accelerate Malaysia’s digitisation process as technology services and solutions become more accessible and democratised. This is in line with Gartner’s prediction that, within the next 10 years, every industry and business will be transformed by digital business that will be driven by the adoption of cloud services, breakthrough innovations and stronger economic models for services and growth.

With a five-year allocation for the development of Cyberjaya as Malaysia’s leading smart city, Gartner foresees opportunities for Malaysian innovators and technopreneurs to innovate and introduce a range of enabling technologies and solutions, such as real-time parking, the Internet of Things (IoT) and intelligent lighting, to make Cyberjaya and more cities in Malaysia even smarter.

In light of this, Gartner lauds the government’s focus to make the nation an innovation hub, as this will be the driver of citizen-centric smart services that optimise city operations and enhance the lives of the people.

Budget 2016 is a testament to Malaysia’s ambition to build a progressive digital economy.  We are confident that Malaysia will reach a developed nation status with greater participation of entrepreneurs, SMEs, individuals and across all sector regardless of current and future economic challenges.”

Mahendra Gursahani, chief executive officer and managing director of Standard Chartered Bank Malaysia Berhad:

“Malaysia’s Islamic capital market has been growing at an average of 12% per annum over the last 5 years, accounting for 58% of the local capital market. As a leading Islamic Banking provider, we laud the initiatives to invigorate the Islamic capital market, further establishing Malaysia as an attractive international centre for Islamic finance. We believe that the tax deduction on issuance costs of Sustainable and Responsible Investments sukuk and the 20% stamp duty exemption on Shariah-compliant loans will be conducive to growth and strengthens Malaysia’s leadership in the Islamic Finance market.

The continuation of high-impact major infrastructure and investment projects is positive for the banking industry and the capital market in terms of continuing to supporting fund raising and market activities.

The high volatility in the US dollar seen recently has adversely affected exporters and importers. As a leading force in RMB-denominated trade finance, we are encouraged by the introduction of the Ringgit-Renminbi credit swap facility as it diversifies the use of foreign currency in trade transactions. It is a powerful indicator of the great expectations in the Renminbi as the currency continues on its irreversible path towards internationalisation.

The budget, above all, demonstrates that Malaysia’s future growth should be driven by moving up the global value chain in an inclusive manner. The Government should continue its fiscal consolidation efforts put in place since 2009.”

Chang Kim Loong, honorary secretary-general, National House Buyers Association (HBA)

We are grateful that our PM did not heed the advice from business groups with vested interests to relax some of the cooling measures announced previously to stem excessive speculation such as lowering the Real Property Gains Tax or re-introducing the Developer Interest Bearing Scheme (DIBS). We are indeed glad that a ‘status quo’ (an existing state of affair) was retained through the wisdom of our PM.

There are positives to take from Budget 2016 in relation to property, in particular affordable property. The government will build more PR1MA homes, SPNB, PPA1M houses and also PPR homes. A sum of RM200 million will be allocated for First Home Deposit Financing Scheme to assist first time home owners to pay deposits when purchasing affordable housing.

However, HBA cautions that the right implementation to ensure that the said affordable housing reaches the right target market.

Affordable housing must be build at the right place and priced reasonably (between RM150,000 to RM300,00 and not more than RM400,000 for prime locations) and only for first time house buyers and not to be made available for second time house buyers which PR1MA is allowing with certain conditions.

PR1MA must also ensure that all the allocated land is used to build affordable housing and not to partner with private developers whereby only 40% of the lands (from what we understand from the market) is for affordable properties with the balance used for lifestyle properties to build commercial and high-end properties.

HBA further opines that the best agent of delivery for private affordable housing is private developers. The government can boost the delivery of affordable housing by giving incentives and rebates to private developer to build affordable housing such as lower corporate tax rates,     lower land conversion premiums and fast track release of unsold Bumiputera units.

Whilst the  First Home Deposit Scheme is laudable as it aims to assist our rakyat to own their property, HBA urges some caution as providing the initial deposit of 10% down-payment may send a wrong message.

HBA has always cautioned against so-called “zero entry cost” properties whereby the buyer does not need to make any down payment as it encourages unnecessary speculation. House buyers are advised to rent instead of own if they cannot raise the initial down payment / commitment fee for an affordable housing unit.

Lim Chee Meng, deputy chairman, Malaysia Internet Exchange

“MyIX welcomes the RM1.2 billion budget allocation from MCMC to boost the Internet infrastructure in rural areas. This is in line with the government’s aim to increase the internet penetration level amongst Malaysians. The broadband penetration rate of Malaysian households currently stands at 67.2%, according to MCMC’s 2013 Annual Report.

We should see a significant increase in Internet subscription and usage within these areas, especially in East Malaysia where the the infrastructure and operating cost is not comparable to Peninsula’s.

Besides increasing internet exposure, the allocation will play a part in boosting the e-commerce sector. More SMEs in rural areas will be able to benefit from going online.

Although it was not mentioned, we believe that efforts to develop better Internet infrastructure in urban areas will continue.”

Tengku Zafrul Aziz, group chief executive officer, CIMB Group:

“Budget 2016 is moderately expansionary with the Government continuing with its agenda of balancing ‘capital’ and ‘people needs’ against a challenging external and domestic economic backdrop.

The macroeconomic assumptions of Budget 2016 are realistic, and therefore achievable. The Malaysian economy is projected to post more moderate growth in 2016 than 2015 but highly respectable with GDP growth projected at the 4% to 5% range. Exports are seen picking up in 2016, though imports will also rise in line with a projected improved performance in investment. Trade and current account surpluses, however, will narrow in 2016, and inflation is seen little changed in year-average terms.

The 2016 Budget is well-crafted within the financial constraints that the Government faces. The Government has demonstrated commitment to focus spending on Development Expenditure without compromising on its fiscal consolidation objective by raising revenue from higher tax collections and capping operating expenditures.”

With the decline in oil revenue, the Government must continue with the right economic structural reforms and ensure the well-being of the Rakyat. Hence, we are very pleased to see that the targeted spending plan and proposed fiscal measures detailed in the Budget 2016 are expected to provide additional measures to support domestic demand and the overall well-being of the Rakyat, ensuring that the country is on track to meet the development targets set out in 11 Malaysia Plan (2016–2020), and to balance the budget and cut public debt by 2020.

Overall, we think the budget is a realistic and would act as a near-term catalyst on our path towards achieving the Vision 2020 goals.

Chan Quan Min, Economist, Kenanga Investment Bank

“This is a progressive Budget, in terms of the income tax increases. The increases affect those with an income of RM600,000 or higher, which in itself is one of the highest income levels. This fits with the theme of the Budget this year.The benefits are also concentrated on the B40, as well as underdeveloped areas in Sabah and Sarawak.

There was also a reduction in the operating budget from 2014’s budget, and it can be challenging to keep operating expenditures down. They have also confirmed a hiring freeze, so they are taking steps towards keeping expenditures down.

In terms of the goods and services tax (GST), the collection amount has actually been surprising. We have the second quarter numbers, and the number looks promising. As such, the increase in exempted items is actually standard, and would not affect collections too much.

From the fiscal side, the Budget looks fine and balanced, with the government bringing in measures to appeal to other spectrums of society. However, an interesting note is the Budget’s Gross Domestic Product (GDP) growth estimate. It is actually rather pessimistic, which is unexpected. It seems they anticipate GDP growth to be facing a lesser, prolonged slowdown.”

Siva Shanker, PPC International Sdn Bhd and for former president of Malaysian Institute of Estate Agents.

“Basically, what’s happening now is that the market is facing a perception problem. People feel that the economy and political situation is bad. There seems to be no end in sight. People slow down and are hesitant in their buying because things could get worse. If they do, prices could come down. We are still fundamentally ok. We just have a growth problem.

The budget hasn’t addressed much of these problems. The property market is still facing escalating prices. There are measures to curb abandoned housing, which is good for those affected. But in my opinion, the problem of abandoned housing currently is not that great that it is dragging the market down.

Measures to address affordable housing are virtually non-existent. There are too many agencies tasked to build affordable housing, which creates a coordination problem. We need to create a single agency. We can’t build 10,000 units here, and 10,000 units there. We need hundred and thousands of units.

The inability of buyers to get housing loans is a painful problem. Based on my own experience, I feel that around 50% of loan applications are being rejected. Sometimes the quantum of the loan approved was much less than what they needed. This is because they are forced to buy properties at a higher price than they can afford.

There are measures that the government could have implemented in the budget to spur the market.

First,  they could have relaxed lending guidelines to first time home buyers. Give more opportunities for the middle class, that are struggling to buy homes. Banks need to relax loan approvals. I think giving even a 100% loan to first time homebuyers is a good idea.

I also agree with Rehda (Real Estate and Housing Developers’ Association) that first time homebuyers should be allowed access to DIBS (Developers Interest Bearing Scheme).That would help a lot of people, especially the middle and lower middle class to own homes. But DIBS should not be across the board. It makes the market speculative.

Ramon Navaratnam, corporate advisor to the Sunway Group and former deputy secretary-general of Finance Ministry:

“It is a tight budget which was very challenging to design!

Keeping the deficit down and the economic growth up at 4 to 5% for 2016 could be optimistic, given the international uneconomic uncertainties. Our own domestic unsettled public concerns regarding 1MDB and political squabbles could erode public confidence. This would erode the Budget assumption that the private sector will take the lead in economic growth

The estimated inflation rate of only 2 to 3 % may be too low growths point of consumers on the ground.

With the weakening ringgit,the pressure on prices will rise.

The sprinkling of goodies will be welcome,but the threshold for the new higher income tax could have been higher.”

Matthew Tee Kai Woon, president, Master Builders Association Malaysia (MBAM)

MBAM would like to thank the Government for the bigger development budget in Budget 2016. The budget of RM267.2 billion ringgit is an increase from a revised allocation of RM260.7 billion for 2015. The nudge in public spending will definitely help the construction industry especially to set the pace for the 11th Malaysia Plan (11MP) and in 2016 where construction is expected to grow at 8.4%.

MBAM also welcomes the following construction projects namely:

1. A total of more than 351,500 houses will be built under the various schemes such as PR1MA, Mesra Rakyat, Felda, Risda and PPAIM to meet housing needs of the rakyat and 66 new primary/secondary schools and colleges to be built inclusive of urbanization of small towns and rural areas;
2. Implementation of Cyber City Centre in Cyberjaya with a development cost of almost RM11 billion for a period of five years;
3. Development of an airport township or KLIA Aeropolis in an area covering 1,300 acres which is expected to attract an investment of RM7 billion;
4. Development of the Malaysian Vision Valley covering an area of 108,000 hectares from Nilai to Port Dickson, as announced in the 11 MP, with an initial investment forecast of RM5 billion in 2016;
5. The development of Rubber City, Kedah with an allocation of RM320 million, Samalaju Industrial Park, Sarawak RM142 million and Palm Oil Jetty in Sandakan, Sabah worth RM20 million;
6. RM200 mil allocated to improve roads in Felda settlements;
7. RM1.4 bil to be spent to improve 700 km of road all around the country;
8. Bus Rapid Transit in Kota Kinabalu, Sabah worth RM1 billion;
9. RM42 million is provided for the construction of Mukah Airport, Sarawak as well as the upgrading of airports in Kuantan and Kota Bharu. A feasibility study will be undertaken for the extension of the runway in Batu Berendam Airport in Melaka;

MBAM notes that the Government is providing a special RM500 million fund under SME Bank to promote Industrialised Building System (IBS) for G5 contractors and below. MBAM however is disappointed as the Association had hoped to see more reduction of import duties for heavy construction machineries and more incentives to be given to industry players who adopt and implement the use of IBS such as equipment tax reduction and tax holidays incentives as mechanisation is a way forward for us to reduce our dependency on the use of foreign labour and to increase productivity in the industry. The present the duties for construction machineries such as hydraulic truck mobile cranes amount up to 30%. This results in high cost of construction machinery and overall cost of running a business in Malaysia.

MBAM had also harboured hope that the Government can consider to provide subsidy for the implementation of Building information Modeling (BIM) as the cost of the software is currently very expensive. BIM will enable an integration of process and technology to enable the efficient life-cycle management of facilities. MBAM is also disappointed that our wish list to have a reduction of corporate tax from 24% remains a wish.

Yasmin Mahmood, chief executive officer, Multimedia Development Corporation (MDeC):

“We truly believe that the power of technology can be used in our continued efforts to improve the Rakyat’s standard of living. With this, we are happy with the allocation of RM100 million for two initiatives under the Digital Malaysia national agenda which will benefit some 100,000 people from the Bottom 40 group (lower 40% of the income pyramid):

1.    eRezeki initiative, which MDeC launched in June this year to advance the B40 group with opportunities to earn additional income using technology. We are pleased with the continued support from the government to further extend the benefits of eRezeki to more B40 communities across the nation. We hope to double the number of Pusat and Wakil eRezeki (eRezeki centres and representatives) from 33 to 66 centres next year.
2.       The eUsahawan initiative will expose students who are enrolled in Technical and Vocational Education and Training (TVET) institutions and micro entrepreneurs to digital tools and business models, practical experiences and advanced entrepreneur development conventions in the market. We are keen to work closely with the Government to grow and nurture future digital entrepreneurs who can create wealth for the nation by capitalising on the continuous demand for digital products and services.

We are encouraged by the announcement of the high speed broadband increment from 5mbps to 20mbps to expand coverage and internet speeds in rural areas, as this will serve to drive Internet usage and higher productivity. This is a big boost for Digital Malaysia and will serve as a very important catalyst to drive us towards a digital economy. The more people and businesses get online, the quicker we as a country can drive our levels of production, efficiency and ultimately improve the quality of life of the rakyat.

The continuous pursuit of digital inclusion across the nation and constant supply of high-quality ICT human capital are two pertinent components in increasing productivity, enhancing national competitiveness and wealth creation. We look forward to a winning collaboration with both the Government and the private sector in realising winning projects and implementation.

Additionally, the RM11 billion allocation for the Cyber City Centre in Cyberjaya for the next 5 years will attract further investments from multinational companies and put Malaysia on the global map as a business and technology hub in the region.

Such efforts with the support of Budget 2016 will certainly bring us a step closer to achieving the vision of a fully sustainable developed digital economy by 2020.”

Khairussaleh Ramli, Group Managing Director for RHB Banking Group:

“The budget is comprehensive and shows the Government’s commitment to fiscal reform as well as striking a balance between fiscal sustainability and the need to support economic growth amidst a challenging global and local economic environment.  It is also commendable that Budget 2016 sets the priorities and direction for the country to achieve a high-income advanced economy by 2020. The fiscal deficit target of 3.1% of GDP, down from the revised Budget 2015 figure of 3.2% will not only take the country closer towards fiscal consolidation but will also strengthen its sovereign ratings.

“We believe that the various measures and incentives tabled reflect the focus of the 11th Malaysian Plan in sustaining quality growth for the country’s economy over the medium term, including addressing the rising cost of living especially for the low and middle-income households. I am particularly pleased the Government has provided additional funding to boost SME participation as such efforts bode well for the growth and development of the financial services sector.”

Mustapa Mohamed, Minister of International Trade and Industry

The Prime Minister presented a prudent, balanced, “mesra rakyat” budget focused on addressing  the people’s concerns such as rising cost of living, enhanced competitiveness of SMEs and nurturing the well-being of the rakyat.

The 2016 Budget continues to introduce new measures to ensure Malaysia remains attractive to investors. A total of RM 1.914 billion has been allocated to MITI to implement the programmes under this Budget. Of this, RM 539.2 million for operating expenditure and RM1.37 billion for development expenditure.

The incentive for Incentive for Independent Conformity Assessment Bodies is intended to strengthen the ecosystem of testing, inspection, validation and certification processes led by SIRIM in which the proposed activities are critical to the industry but may not available in Malaysia.

The incentive will complement Government’s effort to transform manufacturing sector towards becoming more high-value, diverse and (producing) complex products.

The Government has also agreed to provide a special Reinvestment Allowance (RA) for three years to companies in selected manufacturing and agricultural sectors, whose RA has expired.

Budget 2016 has been very positive in supporting the long- term development of small and medium enterprises (SMEs).  A total of RM 10.5 billion has been allocated for SMEs, including RM107 million under the SME Masterplan to continue in implementing the High Impact Programmes.

The Budget has also emphasised on commercialisation of R&D products particularly benefiting SMEs and to encourage innovation activity among the youth and the bottom 40% of the pyramid.

SMEs have also been granted various tax incentives to encourage R&D activity (double tax deduction) and to promote exports (tax exempt on 10-15% of export receipts).  Overall, the initiatives under Budget 2016 are in line with the direction of the 11th Malaysia Plan and in meeting the SME Masterplan goals as well as in reducing the burden of SMEs in the current economic situation.

Leong Hoy Kum, group managing director Mah Sing Group Berhad 

Mah Sing lauds the various initiatives in Budget 2016, which has several initiatives including a reiteration of commitments to major infrastructure projects and various measures to create more affordable housing.

Infrastructure projects to directly benefit Mah Sing

We are heartened to see the Government’s continuous commitment towards improving the nation’s public transport network.

The Government’s continued efforts to make the High Speed Rail a reality and their commitment to improve highways, MRT and LRT will directly benefit Mah Sing as our focus is in Greater KL which makes up 61% of our landbank in terms of gross development value.

84% of our planned residential launches are priced below RM1 million, with 71% priced below RM700,000 and this will again benefit the middle income group in the Klang Valley.

We believe that the better connectivity will provide convenience for our residents and will also result in property appreciation especially in the vicinity of MRT stations.

In Sabah, the Bus Rapid Transit Kota Kinabalu to be implemented at a cost of almost RM1 billion is likely to benefit our Sutera Avenue and KKCC projects.

IBS RM500 million fund via SME Bank

This fund will definitely benefit the housing and construction industry, and will allow us to explore further usage of this technology for time savings as well as reduction of material wastage during construction.

RAPID Project in Pengerang, Johor

The investment of RM18 billion estimated in 2016 for the RAPID project in Pengerang will drive demand for housing in the vicinity, directly benefiting our township of Bandar Meridin East in Plentong.

Cybercity Center in Cyberjaya

The proposed implementation of the Cybercity in Cyberjaya will increase demand for both commercial, retail and residential units, within our Garden Residence@Cyberjaya and Garden Plaza@Cyberjaya.

Mah Sing supports drive for Affordable Housing

Mah Sing supported the market’s needs for affordable housing by our attractive pricing points, with 44% of 2015 planned residential launches priced below RM500,000.

20% stamp duty exemption on Shariah-Compliant loan instruments

We appreciate that the government will be providing a 20% stamp duty exemption on Shariah-compliant loan instruments to finance the purchase of houses as this will help reduce the transaction cost of home ownership.

Wellian Wiranto, Economist, OCBC Bank Singapore

“This year he is still projecting a deficit of 3.2% of GDP. Next year, he is now projecting 3.1%.  Technically, it will be still continuing to improve.

“He did not mention specifically how much Petronas will be  paying in terms of dividend. But some reports suggest basically we are looking at lower oil related revenues.

“Trying to find money to fund all the good stuff he is trying to do, it increased income tax.”

Tan Yuh Woei, Senior Director, Asean, Symantec

It is encouraging to see that the National Budget 2016 has a strong focus on improving our telecommunications infrastructure, with an allocation of RM1.2 billion to improve internet speeds from 5mbps to 20mbps. Symantec also lauds the government’s effort to elevate the B40 group with initiatives such as eUsahawan and eRezeki which will be expanded countrywide through the RM100 million injections from the Ministry of Communications and Multimedia (MCMC).

The Symantec Internet Security Threat Report 20 shows that cybersecurity in Malaysia continues to be a concern. With advanced tech and adoption of internet, a lot of security problems are starting to grow in Malaysia. With the influx of Malaysians coming online, increased Internet speeds and initiatives such as eRezeki and eUsahawan, there needs to be an increased awareness on cyber security to further protect Malaysians from the rising threats around the world. Cybersecurity should be everyone’s concern – not just government and businesses. By educating themselves about security risks, and following basic best practices, Malaysians can do a great deal to improve the digital threat landscape.  

Symantec looks forward to participating in Malaysia’s journey in fighting cybercrime and playing our part in the nation’s on-going development.

Esther Lai, head of sovereign ratings, RAM Rating Services Bhd:

“I think it is the right focus being a domestic demand push budget and that’s the right way to go. We like that development expenditure is 8% higher than last year, we expected 10% but 8% is still good.

And we like the fact that key infrastructure projects such as LRT3, MRT and high-speed rail are going through. This shows that the government has reaffirmed its commitment towards these projects. There a lot of benefits for rural development, especially East Malaysia, which is good.

BR1M is bigger and there is now a higher minimum wage, this is good towards increasing disposable income and shoring up private consumption. Concerning the tax rate adjustment, the tax was more aggressive but a flip-flop from last year. Last year the tax for the top bracket was reduced—this time the tax adjustment is targeted at high income earners.

For the country’s young and growing population, housing is an issue. The government has done the right thing on focusing a lot more on providing affordable housing.

However, there was not much said on fiscal sustainability, other than the fact that the GST is a good system and GST revenue in fact came in higher than our sensitivity analysis. There was not much discussion on the government debt levels and contingent liabilities. The government has given a realistic deficit target, it is still on a consolidation path and it is clear that the government is committed to getting its finances in order.”

Yeah Kim Leng, Dean of MSU Business School

“I think it was a nicely balanced budget. It could have been more aggressive in dealing with the deficit, but I think given the tough economic environment, the government decided to take the gradual approach.

At this stage, as long we keep on the track of fiscal responsibility, that is important. Because it is also important that we are fiscally flexible and responsive in order to react to the economic environment.

I think the more than expected GST collection and the now larger estimation for next year boosted the government’s revenue (and mitigated the shortfall from oil related revenue) and that is why it did not need to cut its operating expenditure as had been expected.

And I think the expansion of the zero rated and exempt list is the government giving back some of the GST to the public. And it will be helpful to those in the lower income groups.

The income tax hikes at the top brackets were unexpected, but I guess this is because of the growing gap between the poor and the rich. I do not think there will be too much of an outcry about this, because the rich taxpayers are being asked to contribute more to the coffers and help the poor. This has been tried in other places like the United States, but there was an outcry. In a way, we are quite progressive!

Also the creation of a middle income bracket (M40) covering RM3860 to RM8320 was also a good move. This group are the ones that often bear the biggest brunt of the rising cost of living. To that end, the increase in personal tax relief for children. non-working spouses and for taking care of parents is a welcome measure. Again I think that the government is returning some of the GST to the people, which is good. This will increase disposable income which is good.

1Malaysia People’s Housing Programme (PR1MA) chief financial officer Hasleen Isnin

Budget 2016 seemed focused towards increasing disposable income of the M40 group through increased tax relief on various items. This will hopefully help them towards owning their own property. In terms of PR1MA’s target of building 175,000 houses with an allocation of RM1.6 billion, I think we will continue our work based on the allocation given.

Abdul Rahman Dahlan, Minister of Urban Wellbeing, Housing and Local Government and Kota Belud member of Parliament

I’m very happy with the 34% increase in allocation for housing towards my ministry. For houses under my ministry, the government is allocating RM863 million. That shows how committed the government is on its pledge to promote affordable housing for the people. I’m also happy that the prime minister is setting aside RM200 million for the First House Deposit Financing Scheme to help first-time house buyers to pay the deposit.

There were a lot of goodies for Sabah as well which I am very happy about. We now know there will be RM12.8 billion for the first phase of the Sabah part of the Pan-Borneo Highway from Sindumin to Tamparuli. There is also RM1 billion for the Bus Rapid Transit (BRT) in Kota Kinabalu which is extremely important for us to have, looking at the congestion in Kota Kinabalu at the moment.

WeiWen Ng, Economist at ANZ Singapore

“Broadly speaking, the budget is actually broadly in line  with our expectation for fiscal deficit of around 3.1%. This suggest that Malaysia has decided to bite the fiscal bullet  and take further positive action toward fiscal consolidation. It  is a development that credit agencies would actually welcome.

“They are actually seeing a narrow current account surplus … If they see current account surplus is actually being halved  next year, the important thing to note is that this would actually be the smallest current account surplus in history, since Malaysia started running current account surplus in 1998.

“The bulk of narrowing in current account surplus this year and next year will effectively be from the lower oil and gas prices, Malaysia’s largest export.”

Jeff Ng, Economist at Standard Chartered Bank in Singapore

“The budget roughly is in line with our expectations. The  government started the process of fiscal consolidation in 2010,  and we had expected it to continue in 2016. We were expecting  the fiscal deficit to narrow 3% of GDP from 3.2% in 2015. Oil revenue will likely be affected by the sharp drop in prices, but better-than expected GST collection may mitigate  this.”