Moves to ease public's burden, woo investors

KUALA LUMPUR: The 2012 Budget, to be tabled in Parliament today, will likely contain measures to increase dispo-sable income or take-home pay to help Malaysians keep pace with the rise in living costs, says Bank Islam chief economist.


Azrul Azwar Ahmad Tajudin said other strategies should revolve around commitment to a balanced budget in the medium to long term, initiatives to lighten the burden of rising living costs and a conducive environment for private sector (foreign and domestic) businesses to operate.

He also expects it to feature some pump-priming measures with huge multiplier effects to help soften the blow from a pullback in global demand.

Despite limited fiscal cushions, the 2012 Budget is widely expected to be an "election" or even a "break-the-bank" budget in the run-up to the 13th General Election with many "populist" goodies.

Although Malaysia does not suffer from the fiscal malaise as bad as in the Western world, with a budget deficit-to-GDP ratio of 5.6 per cent and public debt-to-GDP ratio of 53.1 per cent in 2010, the scope for a highly expansionary budget is rather constrained, he said.

Azrul added that the government is expected to reduce operating expenditure (opex), which made up almost 55 per cent of the total in 2010.

The opex consists of emolument (30.8 per cent), pensions and gratuities (7.6 per cent) and supplies and services (15.7 per cent).

Meanwhile, Bank of America Merrill Lynch said the 2012 Budget needs to boost investor confidence and sustain growth in the face of a difficult global economic environment.

"The Economic Transformation Programme will have to be seen as being right on track, and not backtracking," its economist Dr Chua Hak Bin said.

Prime Minister Datuk Seri Najib Razak will have to deliver a budget that will win back voter support and help ease the rising cost of living, and delivering these objectives will be a tall order, he added.

"The government will likely introduce pro-investment measures to support growth, given global recession risks, and measures to ease the people's burden."

He also expects corporate tax and individual income tax rates to remain at 25 and 26 per cent respectively.

"Such income tax cuts will likely occur only when the government is prepared to implement the Goods and Services Tax and this will likely occur only after the elections, possibly in 2013 or 2014."

A hike in the real property gains tax from the current 5 per cent to 30 per cent is likely, The government may however extend the current 10 per cent withholding tax for real estate investment trusts for a few more years.

Chua also said that initiatives to address the cost of living could include cash vouchers or transfers for lower-income families, additional half-month bonuses for civil servants and a minimum-wage policy from 2012.

He also expects the government to hike excise duties on tobacco and alcohol, although gaming duties are likely to remain unchanged to support tourism growth in facing greater regional competition.