Highlight RHB Research: Budget 2016 to be 7.2% more

by **Cals** Sun 18 Oct 2015, 17:08

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[size=28]RHB Research: Budget 2016 to be 7.2% more

By Meena Lakshana / theedgemarkets.com | October 16, 2015 : 7:55 PM MYT

KUALA LUMPUR (Oct 16): The government is expected to table a higher budget this year, underpinned by larger allocation for development expenditure to support the 11 Malaysia Plan (11MP) and smaller allocation for operating expenditure to contain public spending, a report said today.

In a note today, RHB Research ([You must be registered and logged in to see this image.] Valuation: 1.65, Fundamental: 1.40) said it estimates the government to allocate RM52 billion in gross development expenditure for 2016, a 7.2% increase from RM48.5 billion in 2015, which is likely to benefit the construction industry in view of slated infrastructure projects.

“The increase in gross development expenditure will likely benefit the construction industry in general and cushion the impact from the GST implementation and slower capital expenditure by businesses under a low oil price and weak ringgit environment,” the note read.

RHB Research said among the infrastructure projects planned or are being implemented include the Kuala Lumpur-Singapore high speed rail project (RM34.8 billion), Klang Valley Mass Rapid Transit and Light Rail Transit 3 (LRT3) projects (RM36 billion and RM9 billion respectively), 197km of rail tracks from Gemas to Johor Baru, four new highways in Sarawak, Sabah, Johor, Kelantan and Perak, and the planned introduction of thousands of kilometres of new roads in rural areas.

The research firm estimates operating expenditure will be cut by 0.4% to RM211.9 billion, as the government steps up efforts to contain its ballooning public expenditure.

“The spending cut will allow the operating expenditure to ease to 94.2% of its total revenue in 2016, from 95.4% in 2015 and 99.5% in 2014,” the note read.

The government is also likely to introduce more measures to cushion the impact of the Goods and Services Tax (GST) on households in the form of cash payout, bonus payments for civil servants and individual tax relief, with Bantuan Rakyat 1Malaysia (BR1M) handouts to increase by RM100.

Allocation for the cash assistance programme through BR1M, will likely be increased to about RM5.6 billion in 2016, as compared to the allocation of RM4.9 billion for 2015, the note read.

Medium-income group earners can expect the government to provide higher personal tax relief for individuals, spouse and children relief, and a continuation of financial assistance in the form of book vouchers for students, instead of personal income tax cuts.

“Reflecting the increase in BR1M cash payouts, the subsidy bill is expected to be increased slightly by RM0.4 billion to RM27.2 billion in 2016, following an estimated drop of 32.5% or RM12.9 billion to RM26.8 billion in 2015, from RM39.7 billion in 2014.

“This would lift total subsidies’ share of total revenue slightly higher to 12.1% in 2016, from 12% of total revenue in 2015, but lower than 18% in 2014 and a high of 22% of total revenue in 2008,” it added.

However, RHB Research further subsidy rationalisation can be expected as the government continues with its fiscal consolidation to revive and strengthen investors’ confidence of the country in managing its public finances and the economy, although it will be implemented gradually and at a measured pace.

The government is also likely to expedite the construction of affordable housing under the 1Malaysia People Housing Programme (PR1MA), while requirements for affordable housing may be loosened, such as increasing the household income ceiling and reducing the minimum holding period, from 10 years to five years.

The firm also said the Budget 2016 is expected to reveal the government’s GST revenue target, which it estimates to be higher than the RM23.2 billion estimated for this year, and anticipated to be in tandem with the RM31.4 billion per annum estimated under the 11MP.

The research firm said the higher contribution from GST will cushion the expected lower revenue from Petroliam Nasional Bhd (Petronas), from the committed RM26 billion in 2015.

“Oil price assumption for 2016 is also expected to remain low at around US$50 per barrel, as compared to US$55 per barrel for 2015, which would likely lead to lower-than-average petroleum taxes that will not likely be far from this year’s figures,” it added.

The research firm also expects corporate and personal income tax collections to continue positive growth in 2016, aided by more transparent tax reporting under the GST system, more stringent tax audits, as well as investigation to ensure greater compliance and reduce tax evasion.

Corporate income tax is expected to increase by 8.2% to RM75.2 billion in 2016, from an estimated RM69.5 billion in 2015, on the back of improvements in tax reporting and compliance.

“For 2016, individual tax collection is expected to grow by 6% to RM26.4 billion,” the note read, adding that individual income tax collection is expected to be sustained at RM24.9 billion in 2015, from RM24.4 billion in 2014.

“Overall, we believe the Federal Government’s revenue will still likely post a modest increase of 0.8% to RM224.7 billion in 2016, from RM222.9 billion in 2015.”

Due to the constraints surrounding the fiscal budget, RHB Research expects the government to rely further on investments and new projects by government-linked companies (GLCs) such as Employees Provident Fund (EPF),Khazanah Nasional Bhd, Permodalan Nasional Bhd (PNB), Lembaga Tabung Haji (LTH), Kumpulan Wang Persaraan (KWAP), that will likely be financed off-budget to spearhead spending and pump-priming the economy, the note read.

This will be in addition to the September announcement of a RM20 billion injection by Khazanah, PNB and KWAP, intoValueCap Sdn Bhd — a government-linked vehicle to buy undervalued stocks listed on Bursa Malaysia beginning November 2015.

However, RHB Research said although these measures may not be sufficient to address the loss of investor confidence that is weighing down on the currency and equity market, it is a step in the right direction, as it could generate a multiplier effect to boost the domestic economy.
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